Some of America’s biggest companies are middlemen who profit from the system’s wastefulness….
ARTICLE REFERRED BY DAN MEYLAN
The New Behemoths of Health Care Bureaucracy
Some of America’s biggest companies are middlemen who profit from the system’s wastefulness.
By ED BURMILA
December 10, 2019
What are the 10 biggest companies in the United States? Put that question to a group of younger people, and they’re likely to rattle off tech giants such as Google, Amazon, and Facebook. Older people might mistakenly believe that manufacturing still leads the pack with postwar Goliaths such as Ford or General Electric. Oil companies (ExxonMobil, BP) and megabanks (Citi, Wells Fargo) seem obvious contenders.
Yet regardless of who’s doing the guessing, I suspect it would take a very long time before anyone mentioned UnitedHealth, McKesson, and AmerisourceBergen. Who, beyond each firm’s array of boardrooms and back offices, has even heard of them? Nevertheless, they are ranked as 6, 7, and 10, respectively, on this year’s Fortune 500 ranking of the biggest companies by total revenues. If you add CVS-Caremark (#8), four of the 10 largest actors in the economy are distinctly low-profile middlemen in the rapacious and wholly inadequate profit-driven system of health care in the U.S., which constitutes an astounding 18 percent of our gross domestic product.
It doesn’t take much digging to figure out where all that money is going. The top 25 entries in the Fortune list also include Walgreens and Cardinal Health. Mail-order pharmacy service Express Scripts also cracked the top 25 in 2018 but was purchased by Cigna and disappeared in this year’s rankings. That puts effectively seven of the top 25 companies in the nation’s economy in the health care industry—with the vast majority of their revenue derived from administrative activities rather than productive ones, such as manufacturing pharmaceuticals, supplying insurance, or directly providing service to patients. They represent a fast-burgeoning rentier segment of our health care bureaucracy that operates behind the scenes to increase profits, reduce company costs, and generally ensure the toxic combination of expensive and poor service that American health care consumers experience.
UnitedHealth is the only insurer among these companies, and it’s presently under investigation in several states for its refusal to pay out on substance abuse and mental health claims. Walgreens and CVS are widely recognized dispensers of retail pharmaceuticals. But then there’s … well, what exactly does AmerisourceBergen do? That company is among the leading firms now raking in enormous profits by processing paperwork and moving prescription drugs between manufacturers and user-end pharmacies. Most Americans have never even heard of these corporations and have no idea that they are bigger than such familiar Wall Street names as JP Morgan Chase, General Electric, and Verizon. They like that anonymity.
AmerisourceBergen bills itself as a “healthcare solutions company.” McKesson is more honest, using the telling terms “wholesale” and “pharmaceutical distribution” in its boilerplate prospectus materials. Express Scripts and Caremark (now part of CVS) are “prescription benefit management” specialists—that is, they have burrowed into a layer of bureaucracy and profit-skimming that unfolds between the moment your doctor hands you a prescription and the point when your pharmacist dispenses it. Cardinal Health is a wholesaler, a distributor of pharmaceuticals and medical products—although, unlike most of these middleman operations, it does manufacture some medical devices in-house.
Nobody should be shocked to learn that the health care industry is enormously profitable and generates mountains of paperwork for middlemen to process. Americans know that intuitively from experience. The amazing thing is the sheer size of the middleman industry and the commanding position these firms now hold in our economy. UnitedHealth is just a hair smaller than Amazon; McKesson is bigger than Wells Fargo and Boeing combined. And these companies enjoy all the outsize political clout that goes with their status as big business—one among scores of reasons that meaningful health care reform gets virtually no traction in Washington.
If you already knew about the rise of the middlemen, you’re either in health care (12 percent of all American jobs are in the industry, after all) or a very astute reader of Fortune. The consolidation of this rentier sector has escaped broader public notice because it’s such a recent phenomenon, occurring mostly over the past decade, with little fanfare—just the way the middlemen like it. As recently as 2000, no health care, insurance, or pharmaceutical industry companies were in Fortune’s Top 25. That year, the largest health care company was Cigna, at #34. In 1990, only drugmaker Bristol-Meyers-Squibb sneaked into the top 50—at #50. Walgreens, CVS, and these other companies existed, of course. They just weren’t nearly the profit-generating machines they are today.
A last-ditch argument against any Medicare for All or single-payer approach to health care reform is often, “But what about all the jobs that will be lost in the health care industry?” It’s true that the industry, broadly defined, employs huge numbers of Americans and continues to grow. And some of this growth is in providers of services (especially low-paid home health care and nursing-home jobs). But the explosion of expensive layers of cost-plus bureaucracy is the real driving force here. Medical billing and the processing of endless insurance and pharmacy paperwork account for a significant share of the health care industry workforce, and the overall value added by it is zero. It exists only to perpetuate itself as a handsome source of revenue for middlemen, in much the same way that defense contractors fatten up on federal contracts to move things from one place to another for the Pentagon.
In part, the sheer size of these companies is attributable to mergers, yet that is a facile explanation for how they got so big so fast. The pharmaceutical industry underwent waves of mergers in the late 1990s and early 2000s, but even the largest pharma companies are significantly smaller than McKesson, for example, which merely distributes pharma products. The presence of UnitedHealth, AmerisourceBergen, and more at the top of the financial food chain reflects the out-of-control profiteering and growth of all-but-anonymous providers of “solutions” or “services” in the health care sector that also work to grievously distort the politics of health care.
Before we can reform the American health care system in any serious way, it will be necessary to understand the mundane, even boring, ways in which corporate America has learned how to exploit it. Yes, insurance companies and drug manufacturers are profit-driven and part of the problem. While no one was paying attention, though, a new group of giants emerged merely to profit handsomely as middlemen, increasing costs and complexity while adding little or no actual value. If their presence in the provision of health care is necessary at all, it’s only because they have used their size and clout to engineer that outcome. They’ve positioned themselves to rake off a healthy portion of the trillions of dollars flowing through the system in such a way that few of us have really noticed them doing it.
