• by: |
  • 04/11/2007
Let's get real -- a system in which a federal PBM "competes" with private-sector PBMs is unworkable and, over time, would result in a dysfunctional government monopoly.

PBMJ = Prescription Benefit Misjudgment.

At the most obvious level, some of the costs of a federal PBM would, inevitably, be hidden in other budgets -- the Social Security budget, the HHS budget, the catch-all budget for government office space, the pro-rated share of interest on the national debt, ad infinitum -- so that there would be a cost bias in favor of the federal PBM, except to the extent that federal agencies systematically operate less efficiently than private firms.

At a more subtle level, since the federal government has powerful incentives to emphasize budget savings over formulary expansion, the mythic federal PBM would attract relatively healthy seniors and/or those who disproportionately use less-expensive medicines and are willing to accept sharp formulary limits in exchange for lower premiums.

Private sector PBMs, because of a standard econometric adverse selection process would, obviously, attract those seniors who anticipate the need for more expensive medicines and, therefore, desire broader formularies; and an increase in the premiums charged by the private PBMs would exacerbate the problem by further concentrating high-cost seniors in the private PBM market.

This is quite apart from the problems created by a subsidy formula based on "average" premiums. The end result would be a market without the private PBMs, that is, monopolized by the mythic federal PBM.

Net/Net: a back-door route toward a VA-type pricing system.

Thanks to economist extraordinare Ben Zycher for the deep dive on PBM-land.

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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