Here’s a quick pop quiz: How many pharmaceutical companies are in the 2018 Fortune 50? Five? 10? The answer is one (J&J, #37) and that’s in large part due to its consumer (i.e. non-prescription drug) business. Now, here’s the fun part. How many health insurers are in the Top 50? Three: #5 United Health; #29 Anthem; and #49 Aetna. How many PBMs? Two: #7 CVS Health and #25 Express Scripts. And how many drug distributors? Three: #6 McKesson; #12 AmerisourceBergen; and #14 Cardinal Health. Three out of the top 10 and eight of the top 50 most successful businesses in the world based on total revenue are health insurers, PBMs, or drug distributors.
It’s clear there is a lot of money being made from the drug supply chain that does not go to drug manufacturers. That’s a significant point that is being missed entirely in the drug pricing debate. A 2017 Berkeley Research Group study showed that drug manufacturers only receive 39% of initial gross drug expenditures. This means that the other parts of the drug supply chain – insurers, PBMs, distributors, and others – are taking significantly more than half of drug expenditure revenues.
This data is especially impactful as the debate over the value PBMs offer the healthcare system ramps up. Stakeholders across the healthcare spectrum are starting to question whether the existing drug supply model makes sense and if it actually is saving consumers money. There is currently a federal proposal to eliminate rebates in Medicare and Medicaid and multiple states are considering whether to eliminate PBM spread pricing practices that are costing Medicaid programs tens to hundreds of millions of dollars a year in wasteful spending.
As these policy debates, and the larger drug pricing debate, play out, it’s important to remember who is actually making money from the sale of drugs. Especially as these industries continue to consolidate with CVS buying Aetna, Cigna merging with Express Scripts, and United Health buying Optum.