Two Papers for the Price of One

I was meeting with a very famous economist last week, lamenting the deterioration in coverage of business news by the Wall Street Journal. My guest said, yes, one of his friends laughs about getting two papers for the price of one with the WSJ: the traditionally conservative opinions on the editorial page, and now increasingly, a liberal slant towards the news in the rest of the paper.

This blog of mine started with my observations of poor reporting in the WSJ's front page story on the British Petroleum "corner" of the US propane market. I will now add another observation to the database, this time from the October 6 edition, an article on the front page entitled,"How Quiet Moves by a Publisher Sway Billions in Drug Spending." Ominously, this is noted as the fourth in a series titled "Health Care Goldmines. Middlemen Strike it Rich." Not off to a very good start with those leading words, are we now?

Since the WSJ online is a subscription service, and I don't have an account, I don't know of any way to link to the article. I apologize for that, but using the title and the author and date you could easily find it.

My apologies to the writer, Barbara Martinez, if I appear a little harsh here.

But this article is one of the more breathless juvenile attempts at creating (not exposing) a business scandal that I have ever seen. I really expect more from what was once the world's leading economics and business newspaper.

The thrust of the story and situation, as best I can fathom, is as follows: One company, First DataBank, has historically collected data on average wholesale prices for pharmaceuticals. These data were used in setting a benchmark that determined what retail pharmacies would be paid by insurers when the pharmacies dispensed drugs to individuals. From the sounds of it, the average wholesale price (AWP) would be used as a base, from which an insurer would tack on a margin to compensate the pharmacy. The higher the AWP, the higher the compensation for the pharmacy,

That is all well and good. The main claim, from a court case in Boston, is that First DataBank was collecting shoddy data -- that in the past several years, only one firm was being surveyed, the drug wholesaler McKesson. A second claim seems to be that First DataBank raised its reported average wholesale price around 2002 -- and since there was not really a valid survey being conducted at the time, any such raise of the reported AWP would be unjustified. The article, by innuendo, attempts to rope McKesson into this business. McKesson would not appear to benefit directly from any increase in the AWP. Its customers, the pharmacies, conceivably could benefit from an increase in AWP that was not actually caused by a real increase in wholesale prices, for the pharmacies would get more compensation but would not be paying more at the wholesale level. I suppose you could say that McKesson would benefit indirectly, if its customers were to benefit. There are no claims anywhere in the article that First DataBank and McKesson were colluding actively to raise AWP. There are some emails reported in the article, including one from some unnamed McKesson manager, saying "that is awesome" about how pharmacies would get higher compensation.

So there are several things that really bug me about this story. The naivete is striking. Here is one example: "Between the manufacturer and the end user stand a variety of middlemen who take their cuts." Standing alone, that may not be too bad. In the context of the article, it shows a view of middlemen as parasites that should be driven out of any college freshman's mind by their introductory economics course. Another example of naivete is a paragraph that attempts to show how pharmacies have been profiting in the last few years. The paragraph mixes stock returns with Walgreen's doubling of net income and ends with "Share prices of the three major PBMs (pharmacy benefit managers) are also sharply up over the past few years." I love to get reports written by students like that; they are so much fun to tear apart. "Sharply up?" Is that some scientific term, "sharply up?" Are they up relative to a relevant index? Up relative to zero?

Another major point of mine is that I think the reporter simply has the whole story wrong. I find it very difficult to believe that contracts of any significance were as reliant on the AWP as the article asserts. It is just very hard to believe that billions of dollars of reimbursement are based on such poor data. The article mentions that AWPs are not taken seriously in the industry, with some referring to AWP as "ain't what's paid." So the data are a joke, but billions of dollars ride on it. If this is true, then THAT is the story! Why would insurers be using such a terrible metric for their reimbursement schemes, a metric that is not only inaccurate but subject to manipulation because only one company is being sampled. Rather than a story on middlemen making profits, we should have a story on stupidity in the insurance and reimbursement industry.

A third point is the needless and slanted language throughout the whole story. I have already pointed out the headline and the title of the series. Here are just a few more juicy quotes:

"For years, a little known unit...played a powerful role...

"The new prices had the effect of fattening the profits...

" Now a tentative legal settlement, reached quietly in a Boston court...

"Even as patients face higher co-payments...many pharmacies and PBMs are prospering...

"Documents ... suggest that McKesson had a key part...

Wow. I am just breathless from the excitement of reading this. A little known unit, playing a powerful role, fattening profits, a quiet settlement, companies prospering while patients pay more, a wholesaler playing a key part...

When is the movie coming out? Will it star Meryl Streep?

Come on, Wall street Journal. I expect bias and slanting on the editorial page, and I love it. But nobody can complain because it is known to be opinion. But to have this kind of reporting on the front page? I expect better.