Good Financial News For Pharma Middlemen Spells Disaster for Patients

Most have heard the sick joke that starts, “I have good news and bad news. Which do you want first?” Following is very good financial news in healthcare that is terrible news for patients. 

Optum PBM (pharmacy benefits management) is one of the three PBM companies that control 79 percent of pharmaceutical distribution in the U.S. Optum recently reported a 25 percent increase in its revenue growth. Consider the effect of this improved profit margin on patient care, which is the reason for any healthcare system to exist. 

The answer lies in dollar flow, or as Cuba Gooding Jr. exclaims in the movie Jerry Maguire, “show me the money!” PBMs are middle men, third parties who contract with health plans to choose the drugs in hospital and outpatient pharmacies. They claim to achieve lower prices for the health plans and thus save them money. Drug manufacturers provide large rebates to PBMs as incentives to buy their particular medications. 

Put simply, PBMs make their profits by limiting patients’ access to the cheapest drugs. PBMs save money for third party payors, i.e., health plans or insurers, not patients. Worse, PBMs practice medicine without a license. By suppling limited lists of authorized drugs, PBMs restrict what drugs doctors can prescribe for their patients. If a physician believes a drug not on the PBM “menu” is best for a specific patient, the health plan won’t pay for that prescription. Given the exorbitant prices of modern drugs, most patients cannot pay out of pocket, and thus PBMs deny patients the best drugs for them.

When Optum posts record profits, health plans, not patients, benefit financially. Patients do get drugs, just not the ones their doctors would choose for them. 

Hims & Hers Health is a stock touted for 235 percent growth in stock price over the past year. The company has an 80 percent profit margin. Average profit margin for providers of health care services is 2.14 percent. This contrast bears emphasis. Those who provide direct value to consumers – providers of medical services – work for two percent profit while those who never touch a patient make forty times as much. 

Another positive financial news headline read, “Pfizer and Stryker [stocks] Have Strong Growth Prospects.” When publicly traded companies, whether insurers, PBMs, or pharmaceutical manufacturers, report good earnings, their stock prices rise. The market price of any stock is driven by investors’ projections of future earnings, generally based on trend of present earnings. 

A 2020 study compared changes in healthcare stock prices to measures of access to medical care. The ten-year period of 2007-2017 was chosen as it spans a time before the Affordable Care Act was passed in 2010 to three years after the ACA was implemented (2014).  Changes in stock prices and care availability should in part be attributable to the ACA.

Over the ten-year study period, the S&P 50 increased 82 percent, while stock prices of the seven largest health insurers rose between 157 percent and 635 percent. During the same time period, access to care declined dramatically.

Maximum wait times to see a primary care physician rose from 99.6 days to 175.7 days. In 2007, 74 percent of U.S. family physicians accepted new Medicaid patients into their practices. Ten years later, that percentage decreased to 55 percent

While it is true that association does not equal causation, the decline in access to care coincident with the rise in stock valuation is both noteworthy and statistically robust, with p < 0.0001 (Pearson’s chi square test). Health insurance sellers increase their profits by (a) reducing or denying payments to care providers, and/or (b) delaying these payments, so the retained earnings can be invested. This “three D” strategy – decrease, defer, or deny – generates profits and drives stock prices upward while closing the door to the doctor’s office. 

The likely reason for this seesaw effect (reported here in American Thinker)– as profits go up, access goes down – is disruption of market forces. The patient or consumer of health care goods and services is disconnected from the seller of same by a third-party decision maker, government or insurer. Because of this disconnection, consumers have no incentive to economize and sellers do not compete for consumer spending. After all, consumers don’t spend their own health care dollars – third parties do.

Growth in earnings, profit margins, and stock prices redound to third parties and are of no benefit to patients. When intermediaries such as insurers and PBMs post large gains, patients suffer by further reductions in access to care. 

Beware of strong financial gains in healthcare. Good financial news in healthcare (the system) is bad for health care (the service) and thus for patients.   

The end result is what Americans are now experiencing, what Britons have suffered for decades: death by queue. People die waiting in line for technically possible care that is not provided in time to save them. That is what third party profits and elevated stock prices have bought.  


Deane Waldman, M.D., MBA is Professor Emeritus of Pediatrics, Pathology, and Decision Science; former Director of the Center for Healthcare Policy at Texas Public Policy Foundation; and author of the multi-award-winning book Curing the Cancer in U.S. HealthcareStatesCare and Market-Based Medicine

Image: Home health care by Nick Youngson CC BY-SA 3.0 Pix4free

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