Burgers, Board Games, Broken Health Systems: The Break Up Big Medicine Act

In California, when you’re looking for a burger that sits at the intersection of cheap and high-quality, you go to In-N-Out. The company is one of many that uses vertical integration, meaning that they own the farms that produce the meat, the processing facilities where it’s sent, the trucks that carry it to their locations, and every store that sells their quality-controlled burger. 

This saves the company money, time, and allows them a greater degree of control over the final product. The three largest pharmacy benefit managers (PBMs) in the United States do just that, but with your meds, rather than your meals. 

With a system like this, you can imagine that owning every step in the healthcare supply chain — from insurance companies to clinics to pharmacists and physicians — might allow for a greater degree of quality assurance, allowing the company to put out a superior product (or clinical outcome) while also ensuring that costs are kept lower along each step of the system. 

Except, that’s exactly the opposite of what happens. 

Those three PBMs, notably including United Health, manage 80% of prescription drug claims. They also own healthcare services that provide insurance coverage and the physicians/practices that provide care. Here’s where the system starts to break down. 

Hospitals, clinics, physicians all set prices based on a number of variables: overhead, insurance, variable rates, patient volume all play a part in developing the price for care. Insurance companies decide whether or not to pay them. 

If the PBMs who own the insurance companies decide that they will only cover clinical care provided by one of their subsidiaries, you’ve suddenly got yourself a dilemma: align with the company that provides insurance to your patients, or eat the cost and try to pick up other patients. 

Therein lies the problem.

As a consequence of this binary, there’s less decision-making power in the hands of the clinician, patient, and more in the hands of those who own the supply chain. If there is sufficient competition in an area, and everyone is on an equal playing field, then this is actually a good thing. It incentivizes players to lower prices, improve services. If you don’t, you’ll lose your patients to your competition. But, if there are only two or three big players, the system becomes less fair. 

If you’ve ever played monopoly, you know how frustrating the game can become when your choices become exceedingly limited. You may have to give up more property than you want just to stay afloat, and the game of chance starts to feel rigged.

With fewer independent players along the healthcare supply chain, we lose the competition that has the potential to improve systems. Concentrated healthcare markets have consistently been associated with significant increases in prices, as well as all the cards when it comes to price-negotiating power. In regions with higher-priced, but unconcentrated hospitals, mortality is lower in emergent care situations. 

In similar areas with lower competition, similar prices are observed without the benefit to mortality. So, not only do we lose the incentive to provide lower prices, we also lose the benefits to care. After all, if there’s no competitor, what reason do you have to improve? 

While some vertically integrated healthcare systems such as Kaiser Permanente have seen continued success with consumer satisfaction, oftentimes access to their services, and thus, their outcomes, presents a confounding variable. Some Medi-Cal recipients in qualifying counties can participate, given that they were (a) a Kaiser member in the last twelve months, or (b) are an immediate family member of a current member. Otherwise, you might be out of luck. 

An unlikely partnership between Senators Elizabeth Warren (D-MA) and Josh Hawley (R-MI) aims to curb these effects with the recent introduction of the Break Up Big Medicine Act, arguing that “rampant consolidation in the healthcare industry drives up prices, squashes competition, and hurts working people.” The bill was introduced on February 10th, and remains in committee.