Major companies partner to control drug costs

“Black Swan Effect”

Three very large companies, Berkshire Hathaway, Amazon and JPMorgan Chase bank, have agreed to jointly address the costs of prescription drugs for their combined 1.1 million employees, reported Ben Popken and Lucy Bayly on NBC News. The partners will create a new company to provide drugs “…at a reasonable cost.” An event of this size could have an impact on all of medical economics.

Kate McCarthy, a senior analyst with Forrester, said, “Amazon is well poised to enter, and disrupt, the health care industry as we know it. They have the scale and digital and customer experience capacity to bring efficiencies and improvements to the industry that are long overdue.”

Jason Gomberg, a pharma consulting actuary with Milliman, agreed. As he said, “The development is even more promising than the news that Amazon was getting into the prescription business, and the stock market seems to agree.”

The three companies’ employees would be the first population served by the new provider, but the next step would be to offer it to the general public. It could create a “black swan effect” throughout the health care industry.

Mega-investor Warren Buffett, head of Berkshire Hathaway, said, “the ballooning costs of health care act as a hungry tapeworm on the American economy. We share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

His partner in the venture, Jamie Dimon, chairman of JPMorgan Chase, added, “Our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”

Dramatic increases in the cost of many drugs, and the resulting heavy criticism, have caused drug makers to point to the complex relationship among producers, insurers, pharmacy benefit managers (PBMs), middlemen and wholesale and retail vendors, all of whom have an impact on the consumer’s final price.

As insurers have lessened and tightened coverage to control costs, patients have been faced with the responsibility to meet an often enormous “list price.” Last year Mylan, which produces the injectable EpiPen used in allergic emergencies, suddenly raised its modest price to $600, producing an outcry. Mylan, in turn, blamed PBMs for most of the increase.

PBMs stand between manufacturers and insurers, acting to determine prices and often litigating with insurers. Cast as the villain in price increases by both manufacturers and consumer activists, the PBMs have become defensive. Mark Merritt, president of the PBM trade group PCMA, commented on the three companies’ plan: “If they have great ideas, we’d be glad to hear them. If they’re good ideas, we’re happy to take them and run with them. These are three great companies with three smart CEOs, but I kind of take this in some way as if health care experts say they’re going to fix the banking industry. I think health care solutions are better solved on the back end rather than talking about what people’s aspirations are.”