What does it take for the New York Times to come to the defense of the pharmaceutical industry, which it regularly attacks as a manifestation of all the greedy excesses of capitalism?
Apparently, the answer is nothing more than a half-baked argument that the high prescription drug prices it has fulminated against for decades are somehow the fault of someone other than the pharmaceutical industry.
Last week the Times launched a salvo at the Pharmacy benefit manager industry with a 5,000 word report--the first of what promises to be a turgid slog--accusing the Pharmacy Benefit Manager Industry of a litany of sins. Ultimately, the piece stands out more as a ritualistic attack on markets writ large and middlemen in particular than a valid critique of the industry.
Pharmacy benefit managers help health insurers, unions, large employers, and various government entities manage their drug formularies, and one of those tasks entails negotiating with the pharmaceutical industry to reduce the cost of pricey prescription drugs that are under patents.
They are able to procure these discounts because they accumulate a modicum of market power by representing numerous health providers, which allows them to counter the monopolistic power government patents provide drug companies. They also have expertise in drug negotiations that most companies lack.
While the Biden Administration clearly believes the market power provided by these patents constitutes a real problem--the 2022 Inflation Reduction Act allows the federal government to directly negotiate drug prices with the manufacturers of ten high-priced drugs--having the market negotiate lower prices rather than Department of Health and Human Services is inexplicably problematic to it.
The issue, the Times opines (and this ostensible news piece is replete with opinions and editorializing) is that PBMs make a profit by capturing a portion of these savings. In short, the paper ascribes PBMs as being parasitic middlemen that “extract from the system without creating any corresponding value for the system,” as one interviewee spewed.
The evils of middlemen is a theme the paper returns to in numerous contexts; the Times frequently extolls the sins of Amazon, Realtors, Apple’s app store, credit card companies, and others who dare to facilitate transactions between willing buyers and sellers. The paper’s Dealbook column recently asked a Justice Department Official about how fast food companies are abusing market power this way.
The distrust of middlemen is not new, of course: Their perceived evils were a prime complaint of Vladimir Lenin’s pre-revolutionary writings. But the Times is quick to point out it does not condemn all entities that make money in the market for prescription drugs: For instance, the piece defends the independent pharmacists, a subsector of the market that has all but declared war on PBMs. While they too are middlemen, apparently the enemy of the Times’ enemy is its friend here.
But the main complaint of independent pharmacists--which this article glosses over--is that pharmacy benefit managers push their clients to embrace the direct delivery of prescription drugs, which cuts out independent pharmacists. While the Times labels this as an example of corrosive vertical integration, research has shown that drug adherence greatly improves--particularly among elderly and rural patients--when drugs are delivered to one’s home. The value added from this greatly outweighs the ostensible benefits from elderly and rural patients driving to pick up their drugs and receiving advice from their local hometown pharmacist.
Limiting the direct delivery of drugs to help independent pharmacists would sacrifice patient health in order to prop up an outmoded business model.
The notion that "Wall Street pressures” are resulting in suboptimal outcomes is an example of the Times reporters pushing F9 on their keyboards to reiterate a central theme of the Grey Lady that the paper makes whenever it can, regardless of context--namely, that capitalism is a failed system that exploits the poor. The paper notes the “glass-paneled office building” in bustling Dublin that hosts the headquarters of Optumrx, a major PBM, while using its Ireland domicile to inveigh against our international tax system in an article that has absolutely nothing to do with tax policy. It finds noted experts who offer up sage observations as “highway robbery”, “we were getting ripped off” and “they are the arsonist and firefighter of high drug prices.”
PBMs are a counterweight to government-granted monopolies and are the only entities that have any leverage to help healthcare providers obtain cutting-edge drugs in an affordable manner. If the Times does not like them having market power and its fantasy of having the government set the prices for all drugs (and everything else, of course) is not yet reality, how would it reduce the drug prices set by pharmaceutical companies? Would it simply rely on their goodwill towards man?
Finally, the paper’s concomitant complaint that employers have outsourced the responsibility of handling workers' drugs and do not fully understand how the system works is precisely why they outsource it: The prescription drug market is incredibly complicated and most businesses would rather focus on their core competencies. Why should they spend resources learning how the prescription drug market works when there are many (not just two, as the paper intimates) PBMs that specialize in this, and have the market power to obtain lower costs for these drugs? Should they learn about how physical therapy works and employ the physical therapists their workers use as well? Should restaurants understand the intricacies of their bread providers or bake it themselves? Have they ever heard of Ronald Coase?
The Times has a fundamental mistrust of markets, which means it mistrusts PBMs because they disrupt its notional model of a pharmaceutical company selling directly to the employer/state/healthcare provider. But a more complicated market doesn't mean a less efficient market. Middlemen should not be presumed guilty, but a newspaper that once extolled the virtues of Stalin’s economic reforms can have trouble accepting this simple reality.
