HJAR Nov/Dec 2024

HEALTHCARE JOURNAL OF ARKANSAS I  NOV / DEC 2024 15 not discussed previously: pharmacy benefits managers or PBMs. PBMs generate hundreds of billions of dollars in annual revenue from five income streams that include rebate sharing, pharmacy spread, PBM-owned pharmacies, administrative fees, and direct and indirect remuneration fees. Commercial health insur- ers pay PBMs to manage drug costs by buy- ing them at “discounted” prices in the form of rebates from drug manufacturers. PBMs retain a portion of the rebate but also share a por- tion of these rebates with the insurer, some- times for preferred placement on a health plan’s drug formulary. Health plans are billed for amounts higher than they reimburse phar- macies in a form of up charging that creates a “pharmacy spread.” PBMs also own retail and mail order pharmacies where they make money when patients are forced to use mail order and purchase exclusively from these PBM-owned pharmacies. With these strategies being reminiscent of private equity behavior in Ballou’s book, administrative fees are also charged by PBMs for electronic processing of each claim ranging anywhere from $1.25 to $3.50 per script plus a transaction fee of $0.10 to $0.50 per claim. The more drugs that get prescribed, the more money they make. You can see how the estimated $48 billion market for treatment of MASH could create financial disincentives to explore long-term investments in how to treat obesity and its consequence of MASH differently. Drug com- panies and PBMs clearly would want these drugs to come to market as a treatment op- tion for MASH and would spend exorbitantly on advertising to try and convince the public that they are the answer to preventing those people afflicted with MASH from progress- ing to liver failure. Commercial health plans would be able to extract significant rebates from the PBMs to position them favorably on their formulary. And as much as I would like to think differently, the health plans really do not have much incentive to constrain the growth of healthcare costs. Prior to passage of the Af- fordable Care Act, also known as Obamacare, commercial payers had no “cap” on the mar- gin they could generate, meaning that of the 100% of dollars they collected in premiums to pay for healthcare expenditures, the incentive was to pay for as small a percentage as pos- sible of total premium collected, which payers would call their medical “loss” ratio (MLR) or medical expense ratio (MER). Therefore, if they were to only pay out 65% of the premium col- lected in a given year, then their profit margin for that year was 35%. Abuses could occur, such as denials for care as a method to im- prove their MLR, and, along with the practice of medical underwriting to exclude preexisting disease from coverage, led to the sometimes- deserved reputation of denying payment for medically necessary care. The Affordable Care Act sought to correct these abuses and abol- ished the practice of medical underwriting to exclude preexisting conditions, something that the insurance industry only agreed to if a health insurance mandate went into effect. The Af- fordable Care Act also required large insurers to pay out 85% of all premium dollars collected on medical expenditures, thereby effectively capping total profit margin at 15%. Unfortu- nately for those of us who pay the health in- surance premiums, 15% of an ever-increasing annual premium is more money for the health plan, thereby constraining incentives to imple- ment long-term initiatives that improve health and reduce total cost of care. There are just too many opportunities to capture revenue — like pharmacy rebates and other schemes — if one is only looking through a short-term lens focused on financial value extraction rather than long-term investments in health creation. The Long-Term Lens Instead, let’s look through a long-term lens for a moment and see how the future could play out differently. While pharmacologic tar- get discovery based on understanding the pre- cise mechanisms of MASH may be hampered, the reality is that MASLD and MASH are largely consequences of the obesity epidemic. If we develop novel ways of combatting this epi- demic, then we as a society and those individu- als who might develop MASH would largely be spared of both the health and financial consequences of this disease. My surgical col- leagues would wholeheartedly agree with this assertion citing that it is why we should more widely embrace bariatric surgery as the ulti- mate solution. And while they would be correct that the measured results of bariatric surgery do improve numerous cardiovascular and met- abolic parameters, including those related to MASH, over the short term, I would assert that there are other potential long-term solutions that may ultimately prove more cost effective. While admittedly anecdotal, let me explain my bias against bariatric surgery. Currently, I have a patient who underwent bariatric sur- gery over a decade ago. She successfully lost a tremendous amount of weight with resultant cardiovascular and metabolic improvements. Unfortunately for her, as the capacity of her stomach expanded in the years that followed, she resorted back to her previous maladaptive eating patterns and gained all of her weight “Current projections are that MASHwill become the leading cause of liver failure and the need for liver transplantation over the next decade or so, overtaking both alcohol-induced cirrhosis and hepatitis C. And unfortunately, unlike hepatitis C, THERE IS NO CURE.”