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A bottle of thirty pills of a common cholesterol medication will sell for as little as $15, or $0.50 per pill, as it leaves the pharmaceutical company that manufactures it. But, as Joshua Bellamy knows, the way things work in many employer-sponsored health plans, by the time that bottle travels through the supply chain to the patient, the retail price can be as much as $250.
Is that highway robbery? Technically speaking, no. Does this happen only rarely? Actually, it’s quite common. And according to Bellamy, these higher drug prices are very often borne by large companies and their employees, where one might expect that economies of scale could dictate otherwise.
Bellamy is the founder and CEO of HealthStrategy LLC, a business services firm that challenges, successfully, the status quo in the pharmaceutical supply chain. HealthStrategy’s clients are large entities, companies with lots of employees with huge healthcare costs in employee drug benefits plans, and plenty of incentive to search for better ways to handle this expense. HealthStrategy enables those corporations to save money for not only their shareholders but also employee-patients.
To understand how the firm accomplishes this, it helps to understand Bellamy. To put it simply, the guy is curious. Indefatigably so. He comes from a childhood with strong incentive to find a different way to earn a living than his forebears. With little to lose, he has never allowed himself to get too comfortable—even when he did find decent compensation on his ascendant journey through various parts of the pharmaceutical supply chain.
“I initially saw being a pharmacist as a stable source of income,” he says. Bellamy grew up in a coal mining town, where half the working people living there lost their jobs when the mines closed, including his own father. To him, one place in town where the job and revenue stream looked secure was the local druggist. So off to college he went, earning a pharmaceutical sciences degree that could just about guarantee him employment.
And the job offers came. At first, he was in a hospital and enjoyed going on rounds with physicians. “It felt natural to be part of the team,” Joshua Bellamy says. “I had good relationships with the doctors, and developed a good understanding of pharmacotherapy, how to treat the illness.” But around this same time, he developed a fascination with radioactive material in medicine—so much so he considered getting a PhD in it.
Simultaneously, a friend and colleague talked him into doing clinical work in a nursing home company for a year. The role included doing outcomes research, which led to work at the University of Illinois College of Medicine, which then caught the attention of health economics researchers at Pfizer, the pharmaceutical giant. Working in big pharma, he began to study the links between drug manufacturers and the decision makers among healthcare providers.
“I realized the connectivity with doctors and pharmaceutical representatives had some missing parts,” he says. “Very often, the reps had a low understanding of the consequences of the drugs.” He knew enough then, because he is curious enough to ask questions, to advise the suits at Pfizer on why certain medications were not selling.
Joshua Bellamy stayed at Pfizer for a few years, studying the industry with a critical eye, and then quit. Why? “I saw the supply chain was wildly inefficient.”
As he details it, that supply chain starts with the manufacturer, which sells to a wholesaler, who sells to pharmacies, who sell to benefit managers, and who then sell to plan sponsors; these often are large insurance companies or, in the case of self-insured employers, the employers and their employee-patients. In other words, lots of middlemen.
Cutting out some of the waste in that stream was the goal—and Bellamy had the confidence to start big. His first client was Caterpillar, the Fortune 500 construction equipment manufacturer. With 180,000 employees in 2006, the self-insured company spent $200 million per year on pharmaceuticals. They were interested in what Bellamy said could be wrested from the cost structure, but also concerned how it might adversely affect employee health.
So, they looked at the most widely prescribed drugs (e.g., statins), identified lower-cost medication ($4 per prescription versus $600 in some cases), removed the patient copay to encourage use, and then tracked adherence and outcomes. Patients liked it, the company saved a bundle, and there were no adverse health effects.
With that experience, HealthStrategy took off, becoming a consultant to dozens of large employers, hospital systems, and Walmart Pharmacy. Today, Joshua Bellamy’s firm consults with companies that, added up, spend $80 billion per year in drug costs.
So why doesn’t every company do this? “Other firms might understand the supply chain, but they often don’t have the data and analysis to negotiate,” he says. His job history embeds an intrinsic sense of where to find the waste.
HealthStrategy employs close to fifty people in their Chicago and Peoria, Illinois, offices and could charge more—a lot more—for their services, keeping some of the savings for themselves. But they don’t. “Because doing that would make me a hypocrite,” Joshua Bellamy says. “It would negate the sixteen years of what we’ve accomplished. I want to do the right thing.”