Healthcare Policy October 9, 2023

Middlemen Win Big From Healthcare Spending

by Barry P Chaiken, MD

For 17% of GDP, we receive shorter lifespans and higher infant mortality. While most ire is directed at hospitals and pharmaceutical companies, middlemen or intermediaries – insurers, pharmacies, drug distributors, and pharmacy benefit managers (PBMs) – sit between patients and their care. The revenue of just the top nine firms accounts for 45% of total healthcare spending. In addition, they make up eight of the top 25 firms listed in the S&P 500 stock index.

The biggest of these oligopolies, UnitedHealth Group, had revenues of $324 bn last year and a $25 bn pre-tax profit, trailing only Walmart, Amazon, Apple, and ExxonMobil. Almost 50% of Americans represent its customer base.

As for more evidence of this concentration of economic power, 80% of all prescriptions flow through just three pharmacy benefit managers. Many healthcare economists attribute the shortage of generic drugs to these firms’ management of the medication supply chain. Since generic drugs offer small margins, these powerful PBMs pressure generic manufacturers to lower costs. This pressure squeezes out manufacturers, reducing supply, and often only leaves a single manufacturer of a critical drug. Having a single manufacturer makes the supply chain susceptible to even the slightest disruption.

Ever pursuing more significant revenue, many of these intermediates have entered care delivery hoping to decrease care costs and, therefore, retain the savings for themselves. While start-up firms have entered the market to compete with these intermediaries for healthcare dollars, their penetration into the market is growing slowly.

Increased competition must happen quickly to reduce the “high rents” these large, oligopolistic companies secure.

Source: Who Profits from Americas Baffling Health Care System, Economist, October 8, 2023

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