Meet the Connectors

Middlemen, our economy’s most shadowy characters, sit in between buyers and sellers and get rich in the process. It can even be a matter of life or death.

The American Prospect

Reporter: Whitney Curry Wimbish

Cole William Schmidtknecht was about to turn 23 last year, when he went to Walgreens on a cold January day in Appleton, Wisconsin, to pick up some medicine. He expected his Advair Diskus inhaler to cost what it always had under his prescription drug plan, between $35 and $66.86. But when he got to the counter that day, the pharmacist told him insurance no longer covered it and that there was no alternative, though the lawsuit his parents brought showed a generic version should have been covered. His options were to pay $539.19, a 700 percent increase, or leave. So he left.

For the next 120 hours, Cole suffered slow, constant torture. He repeatedly struggled to draw breath. He tried to use an outdated “rescue” inhaler. It didn’t work. He texted his dad Bil, a fellow asthmatic, saying he couldn’t breathe. He began to asphyxiate. By the time his roommate drove him to the emergency room, Cole was “unconscious, pulseless, and appeared blue.” Medical staff gave him two rounds of adrenaline and performed two rounds of CPR, a four-minute race against time to wake him up. They lost.

Cole remained unconscious, his throat so constricted that workers strained to intubate him, his brain starved of oxygen. For six days, he lingered on a ventilator in the intensive care unit “until doctors finally informed his parents … that he was beyond help.” Cole was pronounced dead 11 days after his trip to Walgreens. The immediate cause of death: asthma.

“Cole was forced to choose between his medication and his rent. He chose to pay his rent,” Rep. Jake Auchincloss (D-MA) told Congress almost a year later.

But who forced him? Who decided his inhaler was no longer covered? Not UnitedHealthcare, his $448 billion insurance company, nor the drug company. Cole’s grieving parents pieced it together: The decider was Optum Rx, a UnitedHealthcare subsidiary.

Optum is less well known than UnitedHealth but enormously powerful; it’s one of just three pharmacy benefit managers (PBMs) that control almost 80 percent of about 6.6 billion prescriptions nationwide. It manages drug transactions for insurance plans, negotiating prices with drug manufacturers and reimbursing pharmacists. And it controls the formulary, the list of drugs that get covered. When Optum drops a drug for whatever reason, people like Cole Schmidtknecht suffer.

PBMs are a particularly rapacious type of middleman, just one of many responsible for turbocharging America’s affordability crisis. As the Federal Trade Commission (FTC) put it last year: PBMs “profit at the expense of patients and independent pharmacists” by hiking up drug prices and imposing “unfair, arbitrary, and harmful” contracts on independent pharmacies.

When we think about our family budgets, we don’t factor in the intermediaries who take a profit by sitting in between the things we need and want and the companies that produce them. Middlemen can enable critically important transactions to proceed across time zones and geographical borders. But in the process, said Columbia Law School professor Kathryn Judge, middlemen “acquire a whole host of advantages that they very often systematically exploit to their own advantage and to the disadvantages of the parties they’re trying to connect.” They are the spine running down the entire global economy.

If you want to understand why things have gotten so expensive, you need to understand middlemen, and why they may have too much power... Continue Reading