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Nate Kaufman
This is Nate Kaufman with the Healthcare Bridge, welcoming the founder of The Common Bridge, Rich Helppie, to talk a little bit about drugs and drug costs. I'm talking about pharmacy here, Rich, just to be specific.
Richard Helppie
I needed that clarification. I appreciate it. [Laughter.]
Nate Kaufman
Any thoughts that you have initially?
Richard Helppie
Yeah, our readers, listeners and viewers on The Common Bridge, and, of course, the Healthcare Bridge, a very popular publication now under the banner of The Common Bridge. I should mention Nate, your program's off to a phenomenal start. And I had no doubt; there's nobody more knowledgable about healthcare that I know of than you, and I know hundreds of people in healthcare. People don't understand why the cost of drugs in the United States are so expensive. The Biden administration, for the Inflation Reduction Act, they did try to cap some of the expenses in Medicare at $2,000 a person. They tried to put price controls on certain drugs. They probably got sued. Our taxpayers got sued, you and I, by the people that make the drug saying it's unconstitutional for them to be denied the ability to price gouge, which is the essence of their lawsuits. But this recent week, President Trump sent a letter to 17 of the big pharma companies and said we're going to use every tool in our arsenal to give those that get Medicaid, and presumably Medicare, most favored nation pricing. I don't know if you've looked into this at all, but what's your take on this?
Nate Kaufman
The United States of America is the largest health insurance company in the world, and the only one with its own navy, by the way. And even though it is the largest health insurance company in the world, it can't buy drugs in bulk, which is just baffling. We are one of the few countries where it's basically individual negotiations. It makes absolutely no sense. What the drug companies all say, the pharmaceutical manufacturers all say, is we need it to fund research. Well, have you watched the news programs at all? Every other commercial is about some drug for something. And, I mean, these aren't common illnesses, these are like weird eye things that are going on. The point is, it's not just to fund research, it's to sell their products and to really invest in advertising. As a result, who's paying for that? The consumers, and it makes no sense.
Richard Helppie
I've seen some of those ads, and one of them, there was a guy walking on the beach, digging clams, and another one was pulling up crab traps and they looked really happy. Then in the evening, they were drinking wine and dancing with their wives and eating that shellfish. And I'm like, I want that disease because I want to do that with my wife. I want to go eat good food and dance and look real happy like that. But they never got around to telling me what disease I needed for that; although the jingle about diabetes is particularly in poor taste. But look Nate, there are people that will say that our tax dollars go to research facilities, including universities and it's used for drug development. The drugs do cure diseases, and then when they come to market, there's no payback to the United States taxpayer. Indeed, the United States taxpayer has to pay again, premium amounts, in order to buy the drugs that someone in Europe or Canada or elsewhere is getting for a quarter of the price. It seems like we know who the chump at the table is here, right?
Nate Kaufman
Yeah, in fact, I was at a barbecue many years ago with somebody from a pharmaceutical company that created the drug for hepatitis C, and the drug was costing $20,000 or something like that per administration. I asked him, Well, how'd you come up with that dollar amount? And he said, Well, that's probably what it would cost if you had to go in the hospital and get it cured. It wasn't based on what their cost of production was or anything like that. It's just based on how much money they can get away with. Then on top of that, if you look at drug distribution in our country, you've got the manufacturers who sell to wholesalers, who negotiate with PBMs - Pharmacy Benefit Managers. What we have are all of these silos that are in the drug distribution channel. There's a saying, and the saying is, if you optimize the parts, you sub-optimize the whole; the drug companies want to make as much money as possible, the wholesalers want to make as much money as possible, the PBMs definitely want to make as much money as possible. 80% of all drugs distributed in our country go through three pharmacy benefit managers, all owned by insurance companies. So the issue becomes, we've sub-optimized the delivery of prescription drugs to people like you and me, and we have no ability to change it.
Richard Helppie
I remember back in the George W. Bush administration, they were looking at ways to try to do direct negotiation, and the headwind that they ran into was where do we negotiate? Is it at the manufacturer, the wholesaler, the retailer, at the point of sale? They couldn't figure out where to go, and this is when they spawned the Medicare Part D, which, frankly, I like, because Part D is a fair fight. It pits the for-profit insurers against pharma, and so if the pharma company can't get the medication to a price point that the insurer will pay, it doesn't go on the formulary. I think one of the risks... if we go to having, say, CMS do the negotiation and they can't get to the price point, then that pharma company goes and lobbies the senator, and now we've got an inflated drug price in the formulary. That is the risk of this going one hundred percent into a government run negotiation.
Nate Kaufman
Let me give you the other side. I have a relative who hates me bringing up the story; it's about irritable bowels, and he had to take this medication every day. He was on Aetna and the co-pay per month was $5 for 30 days of the medication. Then his insurance company changed from Aetna to Elevance, also known as Anthem, and that $5 co-pay increased to $330 for the exact same drug. That was the PBM trying to influence the profits, or generate profits, through what's called spread pricing of generic drugs. This person was pretty smart, knew healthcare, he was an insider. So what he did is he called Mark Cuban's place down in Dallas and said, if I send you a script, what will it cost? And Mark Cuban's placed it 20 bucks a month. And so that's where this person, who lives in the Northeast, is getting his pharmaceuticals, because it doesn't make any sense at all how they're priced or what the co-pays are. It is just based on maximizing shareholder value.
Richard Helppie
I can tell you from personal experience that we found a Canadian pharmacy and started buying things that were needed regularly for various family members because it was easier and the doctors were only too happy to write the prescription for us to get these things for the family members from Canada. It was cheaper just to buy the entire drug from them, versus paying the co-pays and such. Now the interesting thing, although these drugs were manufactured in another country - in one case, India - and then shipped into the United States, some of them would go through the insurance system. Others shipped to Canada, they said, Well, if you re-import those drugs, they're going to be dangerous. I'm like, the same drug from the same factory in the same country, yet it's going to be dangerous because it costs less money. It makes no sense. One of the things in President Trump's approach to pharma is his most favored nation. One of the examples they used was a medication available in Europe for $40, that same medication in the United States, $290. What the President is saying is, look, charge everybody $145 and - maybe similar to NATO payments and such - Europe pays more, United States pays less. Pharmaceutical company makes the same money, because it all balances out. Is that even implementable?
Nate Kaufman
Well, again, we don't have the ability - from at least Medicare and Medicaid which are the largest insurers - to negotiate those kinds of rates as a single entity, so it is pretty difficult unless the law is changed in our favor, which I hope someday it will. But the differential in prices makes absolutely no sense.
Richard Helppie
They've talked about direct to patient pricing. That's another thing the President has floated; that you go buy directly from the manufacturer, and that there's a posted price. I mean, that seems attractive, but I'm just wondering, again, how easy would that be if the dispensary is also the manufacturer?
Nate Kaufman
I think there is a distribution system that is required to get the drug from the manufacturer to the patient, and the issue is there are just too many people taking pieces out before the drug gets to the patient. I think that the idea of eliminating middle people who add no value - primarily the pharmacy benefit managers - would be a great idea and would significantly reduce the cost of drugs. It's not that the PBMs don't provide a service. It's that they're for-profit entities who have a fiduciary responsibility to their shareholders, which creates a conflict of interest with respect to what's best for the patient.
Richard Helppie
Indeed, and they've gone around what the actual pricing is with rebates that escape the scrutiny of the calculations about what the fair price is. Look, I don't know that we can solve this, although I think the best answer we've got right now is Medicare Part D. It steals some ideas from the Australian system for their national healthcare, which is when you're eligible - whether you need to make claims or not - you can get into the system. It's not very expensive. It's the 80/20 rule: 80% of the people use 20% of the cost, 20% of the people create 80% of the cost. What we need is those 80% that use 20% to be paying in and that way there'll be enough money in the system. Under the Part D plan, if you wait because you don't take any prescription drugs and now you're prescribed some, there's a big catch-up penalty, very similar to what Australia did. That program is still running. 95% subscriber satisfaction, it's still running 40% below the projected costs. And again, I think it's a fair fight, because Big Pharma has got to negotiate with big insurance. If it was up to me, everybody in the country would be eligible for Part D.
Nate Kaufman
Think about this. We have this giant insurance company at the federal level, it consumes 26% of our federal budget. At the state level, it consumes over 30% of the state budget. Every four years we change the CEO of these insurance companies and every two years, in some cases like with the House, we change board members. How can you have a consistent healthcare policy and deliver the optimal delivery system, if you will, when you have this turnover at the executive level so frequently?
Richard Helppie
Well, look, you open up a great aspect to this Nate, because, of that CEO and of those board members, there's like two that understand healthcare and the mess that we're in, which is why we get crazy legislation going through. That is why, when any politician dares to touch that rail about healthcare, the rest of them grab talking points, as they've done recently; we're going to throw crippled children off of their care, and 11 million people are going to die - which was complete nonsense. But political world is not designed today to deal with the issues that are affecting Americans, and this is the most critical. But I think with you and I can do a little bit of work toward educating folks, maybe they'll talk to people and eventually the political class will hear about it. I don't know, but I'm always an optimist.
Nate Kaufman
Well, here's the situation, if you're not in the healthcare system, if you're not talking to doctors and talking to healthcare administrators and watching how care is delivered, you don't understand the nuances. When you don't understand the nuances and you create policy, there will be unintended consequences, and the unintended consequences of our systems are high costs, but even worse, access. Try to find a rheumatologist when you're diagnosed with arthritis; good luck. It's critical that you find an insider who can help you navigate through this crazy healthcare system. And I know I can speak for you, that you and I are more than happy to share our knowledge with respect to the nuances of the healthcare system with anyone, especially some politicians, who are heading down the wrong direction. This is Nate Kaufman with the Healthcare Bridge, saying, if you get sick, make sure you talk to an insider. Your life might depend on it.
