Why Should Pharmacies Disclose Profit?

In a resurgent of an old discussion, there are talks under Medicare of requiring the PBMs to disclose their spread made on pharmacy claims.

Let’s look at this in two different ways:

  1. PBM spread on non-owned pharmacies. PBMs create network contracts for their clients. They contract with pharmacies to dispense drugs at agreed upon rates. In many cases, they make spread (profit) on these transactions. They may charge Medicare $40 for a drug and pay the pharmacy $39 leading to $1 in spread. (The pharmacy is then making profit on the drug based on their payment by the PBM versus their acquisition cost of the drug.) Should the PBM profit be disclosed? IMHO…no. But, I could see disclosing average profit made from the network (which I think is disclosed in the PBM financials if you look at COGS).
  2. PBM spread at owned pharmacies. In the majority of cases, PBMs own mail order and specialty pharmacies that consumers are encouraged to use through plan design or other educational campaigns. They may charge Medicare $40 for the drug and buy the drug for $35 dollars leading to $5 in spread (profit). But, in these cases, the PBM is acting like the pharmacy. Rather than showing the $1 in spread from scenario one above, they are making that plus the difference in acquisition cost. Should the PBM profit relative to acquisition cost be disclosed? IMHO…no way! Is CMS asking every retail pharmacy to share their acquisition costs?

This gets to the heart of the American business model. People should be able to make money (yes…even in healthcare). Should government have the right (or any other buyer) to understand the costs for raw materials? I don’t see the government asking Ford to disclose the costs of each car component when they buy a police car to understand Ford’s profit. I don’t see the government requiring hospitals to disclose physician’s salaries when looking at the costs associated with billing codes.

Looking at averages and understanding the basic market dynamics is fine. But, requiring PBMs or pharmacies or any other entity to provide full transparency around their acquisition costs of raw materials is ridiculous to me.

I guess ultimately the PBMs could create separate “businesses” to have a wall between them and their owned pharmacies so that each business unit made its own profit, but I’m not sure if that would get around this.

2 Responses to “Why Should Pharmacies Disclose Profit?”

  1. George, i agree. it is interesting that the expectation in the healthcare arena is different that in the for profit business world.

    The goal is for profit to lead to innovation and in healthcare–which i think happens in many cases. Purchasers do, I believe, value this

  2. Your business analogy of a PBM and Ford I believe is flawed. I think rather to compare the PBM to your stockbroker would be a better analogy. Your stockbroker is entitled to a fee for his advice and a fee for the business transaction he provides, but do you expect your stockbroker to make buy profit on the stock he purchased for you or should he bill you for the true price of the stock?

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