Another puzzle in healthcare pricing

Even with just a few encounters with medical providers, we quickly learn that pricing for health care services is different than it is for other industries. How many other industries struggle to tell you ballpark pricing until after the service is performed? Health care consumers can also get lost in a sea of technical terms like deductibles, co-insurance, in-network, and formulary. An article published on Harvard Business Review's website explain yet another way in which healthcare pricing can be bizarre.

The article starts off by explaining that there is actually little pressure on pharmaceutical companies to reduce pricing -- after all, who would want to deny patients potentially life-saving medication? No surprise there. What is surprising is when organizations (known as pharmacy benefit managers, or PBMs for short) that are specifically paid to help their clients save money actually end up better compensated when they don't. The authors explain that this quirk can happen as a result of PBMs getting to keep a percentage of savings that they negotiate above a certain fixed amount. While that scheme may have worked when drugs cost less than $500, the economics become vastly different when the prices are substantially higher (an increasing trend in the last several years). The article raises questions of when and how large employers will react to the new reality of higher prescription costs. Until then, this conflict of interest is just another example of how pricing in health care can be so difficult to understand.