Can He Solve America's Drug Price Problem?

The intractability of the crisis makes the Bezos-Buffett-Dimon alliance alluring

With the U.S. health-care system appearing incapable of taming runaway price inflation, Jeff Bezos, Warren Buffett, and Jamie Dimon think they can do better. Perhaps only titans with the resources of Amazon.com, Berkshire Hathaway, and JPMorgan Chase can contemplate such a thing. But changing the convoluted practices that determine drug costs will require them to take on powerful players who are already fighting among themselves.

Pharmaceutical companies have come under fire for the ever-rising five- and six-figure prices they charge for life- sustaining drugs. They say those numbers don’t tell the whole story, because middlemen—the pharmacy benefit managers (PBMs) and the insurance companies they work for—collect discounts that aren’t always passed on to patients. The industry is so emphatic about this argument that its lobbying group started a consumer website in January effectively waging war against the PBMs. Big Pharma’s battle cry represents a previously unthinkable rift between two big forces in health care that for years quietly settled their differences away from public view.

At stake is how the spoils of pricey drugs are divvied up in complex and shrouded negotiations among drugmakers, PBMs, insurers, wholesalers, and giant retail pharmacy chains. Consider Humalog, an Eli Lilly & Co. insulin drug, which in recent years has more than tripled in price, to $275 per vial, drawing their of lawmakers, patients, and consumer activists. But the company doesn’t keep even 20 percent of that list price. Most of it flows to middlemen in rebates and other discounts, according to SSR Health LLC, an investment research firm. Rebate deals are being set up for other expensive drugs, such as Humira, AbbVie Inc.’s rheumatoid arthritis blockbuster, which costs more than $4,800 a month, and Harvoni, Gilead Sciences Inc.’s hepatitis C cure, which lists at $94,500 for a 12-week treatment.