The Pattern: Financial Fog
Start with a story you’ve likely lived: a pre‑approved MRI that arrives as a five‑figure bill, an oncology infusion priced like a luxury yacht, a pharmacy receipt that changes between windows. You call for clarity. You get explanations—but no explanation.
No lab should swing from $30 to $450 because a code crossed an invisible network line. No infusion should balloon from a $200,000 wholesale cost to a $1,000,000 hospital claim because layers of finance take their turn. That isn’t medicine; it’s architecture.
Our system rewards opacity. Complex rules create rent opportunities. Each “optimization” layer—formularies, tiers, accumulators, copay programs, carve‑outs—patches the last layer, until complexity itself becomes the profit center.
The PBM Tollbooth
Pharmacy Benefit Managers (PBMs) were meant to coordinate savings at scale. In practice, the business model drifted toward toll collection:
- Control without context: central control of formularies and routing, but little visibility into true acquisition costs or net prices.
- Rebate dependency: revenue tied to list‑price rebates encourages higher list prices and steers volume to drugs that “pay” more, not those that cost less.
- Spread and fees: room to capture margin between what plans pay and what pharmacies receive, plus per‑script “admin” or “data” fees that grow with volume.
PBMs aren’t uniquely villainous; they’re logical actors inside a distorted market. But if the market’s rules pay for fog, fog is what we will get.
Three Engines of Failure
1) Opaque Prices by Design
List price is a sticker on a window no one pays. Net price is buried under rebates, concessions, and contract terms only two parties see. Patients are often charged off the sticker while plans settle at the net.
When list and net detach, trust detaches with them. Confusion becomes a revenue stream.
2) Administrative Bloat as Business Model
When revenue scales with complexity—more prior auth rules, more step edits, more “specialty” routing—friction is monetized. The care pathway becomes a gauntlet, not a guide.
3) Arbitrage at Every Hop
From wholesaler to PBM to plan to provider to patient, each hop is a chance to capture spread. None of these actors are purely extractive; all have legitimate costs. But without a shared ledger of what things actually cost, the spread grows unchecked.
The Human Cost
Financial fog corrodes agency. Members delay care to avoid unknown bills. Clinicians spend hours “coding for coverage” instead of practicing medicine. Employers pay for complexity they don’t control—and then pay consultants to explain it back to them.
The predictable result: overpayment, under‑utilization, and exhaustion. We mistake friction for fiscal prudence. It’s not. It’s a tax on attention and trust.
Bridge to a Better Architecture
There’s a way out that doesn’t require burning the house down: treat benefit finance like financial markets treat settlement. In Spoke 3 we’ll walk through a Universal Clearing Layer and a Shared‑Risk Vault. In Spoke 2 we’ll define the principle that makes it humane: Collective Solvency.
The premise is simple: clear every transaction on a shared ledger, cap margins by class of service, publish the corridor, and rebate excess savings back to the people who fund care. Transparency by default, arbitration in the open, gratitude built into the UX.
Practitioner Appendix: Technical Chops
A) What is “Spread Pricing” (PBM)
Definition: the PBM charges the plan one price for a drug and pays the dispensing pharmacy a lower price, keeping the difference (the “spread”).
Why it persists: contracts often allow MAC (maximum allowable cost) schedules and per‑script fees that are opaque to plan sponsors. With thousands of NDCs and dynamic supply costs, the spread is hard to audit in real time.
Effect: plans overpay on high‑volume generics; independents see margins compressed; member cost‑sharing can be tied to inflated “plan paid” amounts.
B) “Rebate Obfuscation” & the List–Net Disconnect
Definition: manufacturers pay post‑transaction rebates to PBMs/plans to secure placement. The rebate is usually a percentage of the list price, creating lift incentives on the sticker while net prices move differently.
Patient harm: deductibles and coinsurance are often calculated off list price, so members pay more up front while the plan recovers rebates later.
Downstream distortion: formularies prefer “rebate‑rich” brands over low‑list alternatives or biosimilars, even when the net is similar.
C) One Comparable Statistic on Administrative Waste
Multiple U.S. and international comparisons estimate that administrative costs consume a markedly higher share of U.S. health spending than in most OECD systems. Even conservative estimates put total admin overhead in the mid‑teens as a percent of spend, versus low single digits in many peers. The exact number varies by methodology; the directional gap does not.
D) Why a Clearing Layer Fixes These Failure Modes
- Ledger truth: acquisition price, dispense fee, plan payment, and member cost are recorded as separate fields on a universal ledger. Spread cannot hide.
- Corridor pricing: each drug/procedure node has a reference cost; allowed prices float within a public corridor (e.g., ±15%) to reward efficiency but prevent predation.
- Member fairness: cost‑sharing is tied to net cost at the time of sale; if rebates arrive later, members automatically receive adjustments or credits.
- Open arbitration: disputes resolve in the open with precedents published—ending “pay and chase.”
Up next — Spoke 2: Beyond Insurance — Collective Solvency
Or read the full blueprint at the Healthcare Clearing Commission hub. If you want to help model the formularycommons prototype, join the Founding Circle.