Confronting middlemen: A tough call in India and America

By Neera Kuckreja Sohoni

As chronic consumers of pharmaceutical and agricultural products, we take for granted that these vital products will be available to us and affordable. But most of us do not worry our gentle heads with how the products reach us and how justly they are priced. This is where the M people come in. They are the Middlemen who call the shots and dictate pricing of products. In recent weeks, as the farmers’ protest in India has exploded with Prime Minister Narendra Modi the hated target of farmers’ ire, it is interesting to note some similarity with the steady opposition to Trump’s efforts to rein in drug pricing by weakening the role of middlemen.

Known as pharmacy benefits managers (PBMs), as Isabella Corbo noted (Vice News, September 1, 2018), “they sit at the center of the pharmaceutical industry, playing a role in almost every transaction as pills travel to your pocket.” Between them, just three PBMs – Express Scripts, CVS Caremark, and OptumRX, influence more than 80 percent of employer-sponsored prescription drug coverage. Acting as intermediaries between insurers, drug companies, pharmacies, and the user, PBMs, as Corbo points out, process insurance claims, determine which drugs will be covered and by how much, and set the prices that pharmacies and customers pay.

Not federally regulated, they are relatively free to pursue their practices. While they claim their negotiation skills enable competitive drug pricing, they are hardly altruistic. Their profit making is not hidden and in fact has elicited criticism from a range of stakeholders including pharmacists, consumer protection groups, and the Department of Health and Human Services who are united in suspecting that PBM’s practices contribute to soaring costs of prescription drugs. Critics say PBMs keep a lot of the price savings for themselves, rather than passing them on to consumers. In their defense, PBMs argue that it is largely due to their intervention that overall drug spending has remained somewhat steady, even with rising sticker prices.

President Trump has tried to take them head on. In 2018 (Scientific American, May 11, 2018), he announced that he had instructed Secretary Azar to begin moving forward on reforms that will bring down soaring drug prices. “We will have tougher negotiation, more competition, and much lower prices at the pharmacy counter. And it will start to take effect very soon.” That claim caused critics to suggest that while Trump denounced Middlemen, he largely spared Pharma in his speech on drug pricing. In particular, it was felt the Trump proposal would not allow Medicare to negotiate prices or expand medication imports. Two years later (July 24, 2020), Trump finally announced four executive orders to lower drug prices of which, the Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen seemed the most momentous. The express purpose of the order is to take back the rebates which PBM’s syphon off for themselves, and allow the rebates to directly benefit patients through lower drug pricing,

Together, the executive orders met with expected skepticism – with health policy experts claiming that the orders would offer patients only minimal relief and could take months to implement. With Biden set to shortly take over the reins of government, implementation of those orders becomes a nonstarter. Even so, the immediate and loudest protest came from the key pharma representative body – the Pharmaceutical Research and Manufacturers of America. “The administration’s proposal today is a reckless distraction that impedes our ability to respond to the current pandemic — and those we could face in the future,” PhRMA CEO Steve Ubl said in a written statement. It suggests that Trump’s actions were on the right track!

Across the oceans and continents, something similar is happening in the Modi administration’s effort to eliminate the middlemen, albeit in agriculture. One could suspect the two leaders of these two massive democracies have more in common than their widely acclaimed bhaichara (brotherhood).

An estimated one half of India’s population is employed in agriculture – a sector which has suffered from chronic constraints. Among others, fragmented landholdings, insufficient irrigation and crop rotation capability, lack of storage and transportation infrastructure, combined with low productivity and small farmer indebtedness and exploitation have been the main hurdles in India’s agrarian and its peasants’ advancement. The vested interests in agriculture are enormous and influential, and have resisted any attempt at changing the status quo.

Following the thrust for making India a modern and open economy, Modi’s government has recently taken on the challenge of reforming India’s agrarian economy by enabling market forces to play a greater role. The reform’s aim is to attract investment and technology, enhance productivity, and help improve farm incomes. Freeing farmers from the control of middle men (MM) is the key inspiration underlying the proposed reforms. As in pharma, in agriculture too, MM who effectively run wholesale markets for agricultural produce and make huge commissions are sure to be most adversely affected when they will likely forego their commissions under the reform regime. The state governments – especially in the heavily agriculture income reliant Northern states which stand to lose crucial tax revenue – are the other group strongly opposed to the reform effort.

The reform initiative consists of three agricultural bills, which were passed by the Indian Parliament on 27 September 2020 and came into effect after receiving the approval of the Indian President. Known as the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act, the statutes collectively seek to provide farmers with multiple marketing channels along with a legal framework to enter pre-arranged contracts with buyers and dispute mechanisms.

As the farmers’ protest in India has exploded with PM Modi the target of farmers’ ire, it is interesting to note some similarity with the steady opposition to President Trump’s efforts to rein in drug pricing by weakening the role of middlemen.

It is easy to see why the statutory trio has received a mixed response and clearly ruffled several feathers. Even as Modi (20 September 2020) referred to the bills as a watershed moment in the history of Indian agriculture that will empower crores of farmers, and his government claimed these bills will make it effortless for farmers to sell their produce directly to big buyers, opposition has come from the Mandi System’s operators and its conglomerate of middlemen, with the full backing of ‘impacted’ state governments. Political parties opposed to Modi and eager to bring down his government are doing their bit to frustrate the attempted reform from being implemented. Fanning the traditional suspicion in India of corporatization of agriculture, the opponents have encouraged farmers to unite against the reform effort.  Unsurprisingly, farmers and other opposing forces have called the bills corporate-friendly and anti-farmer, alleging that the Acts will hurt the farmers’ earnings. The negative effect on middlemen, loss of states’ revenue, and weakened bargaining power of the farmers are some of the injurious outcomes predicted, which have been used to drum up opposition to the statutes. Opponents specifically have asked for insertion of minimum support prices (MSPs) in the amended statutes, a demand that has already been rejected by Modi.

If Modi and Trump have one trait in common, it is that they are not shy to take on issues considered hot potatoes by previous (or prospective) administrations. While Trump’s unconceded defeat effectively ends his joust against Middlemen, Modi even though still in power is likely to eventually back down in the face of crippling agitations that will further stress this already distressed sector vital to India’s economy and the nourishment of its people.

Ms Sohoni is a freelance writer and published author.



Images courtesy of (Photos courtesy The Hindu, and PBS) and Picasa

Share this post