Distributors Accept Near‑Retail Prices, Driving High Drug Costs
Let me give you an example of where there is no gov intervention, and the impact on brand drug pricing. When a brand manufacturer sells a drug to one of the big 3 drug distributors that control more than 90 pct of their market, those multi hundred billion dollar distributors DONT negotiate the lowest price they can get. They literally pay retail price. Then, in exchange for paying promptly, and providing some data, they get a discount of a whopping 5 pct. For a $600 drug, their net cost is $570 For obvious reasons, that distributor can’t sell to your local pharmacy for less than $570. So when you go to buy that drug, and have no insurance, or a deductible of more than $600, that’s why you pay the full $600. The question is “why would multi hundred billion dollar distributors only negotiate a 5% discount on brand drugs?” I asked this very question to several CEOs of brand drugs companies First you have to know that the pharma companies don’t keep that full $570. Because they pay rebates and fees to the big insurance company PBMs , they end up netting about 50% , or $300 in this example I asked them why they didn’t sell to the big distributors at a little more than their net price, which would allow them to make more money. And it would also allow the distributors to sell to pharmacies at say $350 (so the distributors make more money ), and the pharmacies could sell to the uninsured and those during their deductible phase for $375. Meaning more patients could benefit from their drugs. This doesn’t mean every patient could afford their meds, but it means that more could. Saving $225 is not nothing. The CEOs each told me that they would like to, but can’t. Why? Because the ins company PBMs have told them that if they did this , they would reduce their position on their formularies. Which could cost them billions of dollars across all their drugs. None of this is against the law. It’s become standard industry practice. Until we break up these conglomerates , it will only get worse.
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