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How Tarbell dug through layers of complexity to explain why drug prices are so high Date: 08/09/18

Randy Barrett

By Randy Barrett

Prescription medications are essential to all Americans, but few people understand how they are distributed and priced. That’s not an accident.

The complexity of the drug supply chain in the United States is truly daunting and a significant factor in why many medications have become so expensive. Since our founding in 2017, Tarbell has studied the problem. When we couldn’t find a clear diagram of how the system works, we created an interactive version of our own, with an emphasis on how each player takes a cut in a system that protects and perpetuates high prices. The diagram was one result of our three-month investigation into the high cost of drug prices. My co-author was Marilyn Serafini, with Tarbell founder Wendell Potter serving as editor for our coverage of the issue.

We reported on how pharmacies and hospitals can rig prices to keep them high, how secret deals drive up prescription drug costs, how drug suppliers hide the profits they make and how a secret deal between pharmaceutical companies and the Obama administration still keeps legitimate international pharmacies under a cloud of suspicion.

Simplifying and clarifying something so complex took months. We interviewed dozens of analysts, consultants and other experts in various aspects of the supply chain, including hospitals, pharmacies and pharmacy benefit managers (PBMs). One challenge was that the drug industry trade association, the Pharmaceutical Research and Manufacturers of America (PhRMA), did not respond to requests for comment for any part of the story.

While unfortunate, the lack of a response was not terribly surprising. The drug industry has a great deal to hide when it comes to the supply chain. So do PBMs, which enter into highly secretive rebate and discount contracts with drug manufacturers. These agreements are considered trade secrets and aren’t discoverable even through litigation.

Many health care journalists are familiar with challenge of explaining the pharmaceutical supply chain to their audiences, largely because of a significant lack of public information about wholesale pricing, resembling an almost-inscrutable black box.

While the situation is frustrating, we decided not to focus on dollars but rather on how and where each player makes a profit. On that subject, all of our sources had clear opinions and most of those opinions intersected with each other.

Of particular help were individual PBM consultants, many of whom previously worked for large companies in the pharmaceutical supply chain and now guide self-insured companies and organizations in getting the best deals possible from the middlemen.

Simply put, these are the people who know all about how PBMs work to avoid passing along the full amount of drug rebates to their customers.

Drug manufacturers have been busy pointing fingers at PBMs and blaming them for high prices, but we found that argument highly misleading. The truth is that both PBMs and drug makers benefit from sweetheart deals and these arrangements are a key driver of ever-increasing prescription prices.

Making all of this understandable to a layperson is, of course, a challenge all journalists face. Our chart lays out the players and their roles. We also worked hard to keep the descriptions as clear as possible in the text. We leaned toward the word “middlemen” for PBMs for that reason.

At the top of each story in the package, we sought to be as direct about the relationship between Americans and their medications as possible to keep it close to home.

One key resource we discovered along the way is David Belk, M.D. For the past seven years, Belk has been on an odyssey digging deep into the bedrock behind the cost of medicines and other parts of the U.S. healthcare system. His website is a treasure-trove of information and analysis for journalists and highly regarded by academics as well.

Tarbell’s package on the drug supply chain has been well received by lay readers and experts alike. We hope it contributes to improved understanding of, and solutions to this significant health care problem.

Here are some of the articles that Tarbell has produced on the high cost of prescription drugs:

Randy Barrett (@barretone) is the editor at Tarbell, a nonprofit news site founded by Wendell Potter and based in Philadelphia.