UnitedHealth Group headquarters. Photo from the UHG media kit.
A bipartisan bill introduced in the U.S. Senate last week aims to lower health care costs by eliminating incentives for huge conglomerates to raise them. It would do this by prohibiting companies from also being health care providers AND entity that determines how much consumers will ultimately have to pay for them.
Introduced by Sens. Josh Hawly, R-Mo. and Elizabeth Warren, D-Mass., Break the Great Medicine Act would be the largest antitrust measure taken in decades.
America’s per capita health care spending is way up the highest in the world, but gives much worse results. So it’s difficult not to suspect that someone is smuggling huge amounts of money without adding much to it.
Three conglomerates – UnitedHealth Group, CVS Health and Cigna-Express Scripts – are among the 13 largest companies by revenue in the United States.
They are dominant players in many parts of the health sector. They own huge insurers and pharmaceutical brokers, as well as thousands of pharmacies and doctor’s offices.
In a written statement, Warren said such “vertical integration” provided an incentive for companies to raise prices. This may be especially true because whether care is funded by employers, the government, or individuals, the ultimate payer is society.
“There is no question that huge health care companies have created layers of complexity to drive up the prices of everything from prescription drugs to doctor visits,” Warren said. “The only way to make health care more affordable is to break up these health care conglomerates. Our bill would be a monumental step toward ending the stranglehold that corporate giants have on our broken health care system.”
The bill would prohibit companies from owning health care providers, such as doctor’s offices and pharmacies, while also owning insurers and their representatives, such as intermediaries known as pharmacy benefit managers, or PBMs. It would empower the Department of Justice, the Federal Trade Commission, the Department of Health and Human Services, state attorneys general and private parties to sue based on violations.
To illustrate how having so many parties to a medical transaction can drive up prices, consider drug brokers.
Control is exercised by PBMs owned by three huge conglomerates nearly 80% of insured prescription transactions in the United States. They act on behalf of huge insurers. Importantly, each of the huge PBMs is a sister company of one of them eight largest insurers by market share.
PBMs decide which drugs are covered, which gives them a huge advantage in negotiating cloudy rebates from manufacturers who want insured patients to buy their products.
Studies have shown that increasing rebates give drugmakers mighty incentive to raise list prices. Separating discounts and list prices could do this reduce annual drug spending by almost $100 billion– the Schaeffer Center at the University of Southern California reported last summer.
Additionally, all three conglomerates have mail-order pharmacies, and CVS also owns the nation’s largest retail chain. Their PBMs decide how much to reimburse their pharmacies, as well as competitor pharmacies.
Many see this as an inherent conflict. For the past decade, independent and diminutive chain pharmacies have accused huge PBMs of discrimination and driving them out of business en masse.
Last year, these suspicions prompted the Federal Trade Commission to accuse PBMs of edged price increases and discriminatory practices designed to lure customers away from competitors and towards their own pharmacies.
Asked for comment on the Hawley-Warren bill, UnitedHealth Group and Cigna-Express Scripts did not immediately respond. CVS Health addressed CEO Dave Joyner’s statement during Tuesday’s earnings call. The spokesman said the statement was unrelated to the bill.
“Our commitment to rethinking the healthcare experience has never been stronger,” said Joyner, who $18 million in 2024. “We will take the lead in addressing some of the greatest challenges facing the U.S. health care system – its cost, complexity and the fragmentation that currently exists.”
Instead of raising health care costs, Joyner said CVS Health’s size and the many roles it plays allow it to lower them.
“By combining our unique set of capabilities, we can provide consumers with a connected solution that will deliver better experiences and better health outcomes at lower costs,” he said, arguing that this was in fact better to consumers when CVS acts as both buyer and seller on behalf of patients.
“Members of CVS’s health insurer, Aetna, who consistently use CVS Pharmacy are more likely to be compliant with their medications and less likely to use (emergency room) services,” Joyner said.
Hawley, a Republican co-sponsor of the bill that would break up CVS, doesn’t seem to buy that argument.
“Americans are paying more and more for health care while the quality of care is getting worse.” – he said in a written statement. “In their quest to put profits over people, Big Pharma and insurance companies continue to gobble up every independent healthcare provider and pharmacy they can find. Working Americans deserve better. This bipartisan legislation is a huge step toward making health care affordable for every American.”
Antonio Ciaccia is a drug pricing expert based in Columbus who consults with employers and government agencies on ways to reduce costs. He said the Warren-Hawley Act would eliminate the conflict at the heart of most prescription transactions.
“If you hire a PBM to manage pharmacy expenses and network design while they have their own pharmacy that can benefit from the decisions they make, there is an obvious conflict,” he said in a text message. “This legislation seeks to restore PBMs to their originally intended role as a no-holds-barred fighter against high drug prices.”
Another illustration of how a health care conglomerate can control every aspect of a health care transaction is UnitedHealth Group, currently the third largest corporation in the United States.
WITH 42% market sharehas the largest health insurer. A patient insured by UnitedHealth can easily go to a doctor’s office owned by United’s Optum, today the largest employer of doctors.
If an Optum doctor writes a prescription for a patient, UnitedHealth’s OptumRx will handle it because it is a PBM used exclusively by the insurer. The patient could then be forced to bypass the nearby pharmacy and fill the prescription through UnitedHealth mail order pharmacy.
In other words, insurers and PBMs have been saying this for a long time reduce costs using their size to negotiate discounts from suppliers. However, if they own suppliers, parent companies essentially negotiate with themselves.
Was mighty consolidation in the health sector over the past decade and the results have been predictable, he said Emma Freer, senior health policy analyst at the American Economic Liberties Project. Her group started the drum beat over a year ago to “break up big medicine”.
“For decades, policymakers in both parties have encouraged vertical consolidation of health care, which has led to the rise of Big Medicine giants that exploit conflicts of interest to raise costs, lower quality, and drive independent providers out of business,” Freer wrote in an email. “That’s why we launched the Break Up Big Medicine initiative last year and are proud to support the Break Up Big Medicine Act, which will eliminate these conflicts by returning power over our health care system to patients and the providers who care for them.”
Freer added that bipartisan support for the bill is growing.
U.S. Reps. Jake Auchincloss, D-Mass., Diana Harshbarger, R-Tthan., Val Hoyle, D-Ore., Pramila Jayapal, D-Wash., and Pat Ryan, D-Ga., are co-sponsoring similar legislation in the House. Freer said Greg Murphy, R-N.C., and Alexandria Ocasio-Cortez, D-N.Y., supported the concept.
