Why Are Pharmaceutical Prices So High? — Here’s One Explanation — and an Ethics Problem?

In recent weeks, CVS Caremark has been in the news. CVS Caremark is a division of CVS, known as a ‘pharmacy benefit manager.’ Pharmacy benefit managers are the ‘middlemen’ between pharmaceutical manufacturers, health insurance companies and local drug stores. They buy large quantities of prescription drugs from the manufacturers, and then repackage, reprice and distribute the drugs to retail pharmacies (including their own CVS retail chain), other chain pharmacies, independent druggists as well as nursing homes and other care facilities.

In the wake of widespread concern about the rising cost of certain drugs, particularly to the elderly, CVS has been trying to buy up, or force out of business, independent pharmacies by significantly cutting the amount of Medicaid reimbursement being paid to the independent pharmacies. At the same time, they are collecting regular Medicaid reimbursement rates from the state for all distributions. This information was reported in The Columbus Dispatch.

An investigation by the Dispatch revealed that in one month, CVS Caremark billed the state 12 percent more for drugs than what it paid to pharmacies for dispensed medications, resulting in $1.6 million from these transactions alone, while enhancing the amount of reimbursement it was giving to its own retail pharmacy stores. In, Arkansas, a strongly Republican-dominated state which should favor less regulation of business, the legislature has passed a law attempting to curtail this behavior and force CVS Caremark to disclose its repricing practices.

Ohio’s state auditor and attorney general are opening a similar investigation.  In a letter to the editor, one reader of The Columbus Dispatch wrote that his cost of a 30-day supply of medication had been $.54 at his doctor’s local dispensary, but that the cost of the most-recent 90-day refill was $12, or a 750 percent increase in price. The reason given was that the dispensary had been taken over by CVS Caremark. CVS Caremark has sued the Ohio Department of Medicaid ($50,000 in legal costs alone) to block it from releasing a full report detailing how this pharmacy middleman charges taxpayers three to six times for drugs sold through independent pharmacies than its own pharmacy, on the grounds that the report ‘contains confidential information and trade secrets.’

Those who are committed to the principle of free enterprise at any price should be out buying CVS stock. For the rest of us, whether we are elderly who depend on a reliable supply of the drugs at a reasonable price, or taxpayers who are bearing the rising costs of Medicaid and its reimbursements, the allegations are serious, and the refusal of CVS Caremark to comply with disclosure requests should be alarming. While not necessarily illegal, CVS Caremark’s practices border on unethical in its pricing practices and efforts to drive independent pharmacists out of business.

References:

Candisky, C. (2018, July 31). Ohio accuses pharmacy middlemen of ‘driving up costs’. The Columbus Dispatch, Retrieved from http://www.dispatch.com/news/20180731/ohio-accuses-pharmacy-middlemen-of-driving-up-costs

Candisky, C. & Sullivan, L. (2018, June 28). Drug middlemen charging Ohioans triple the going rate – or more. The Columbus Dispatch, Retrieved from http://www.dispatch.com/news/20180627/drug-middlemen-charging-ohioans-triple-going-rate---or-more

Sullivan, L. & Schladen, M. (2018, June 20). Wary Ohio officials want deeper look at how CVS sets drug prices. The Columbus Dispatch, Retrieved from http://www.dispatch.com/news/20180619/wary-ohio-officials-want-deeper-look-at-how-cvs-sets-drug-prices

Candisky, C. & Schladen, M. (2018, March 13). CVS accused of using Medicaid rolls in Ohio to push out competition. The Columbus Dispatch, Retrieved from http://www.dispatch.com/news/20180312/cvs-accused-of-using-medicaid-rolls-in-ohio-to-push-out-competition