Let’s face it. Pharma gets terrible press. Sure, some of it is deserved. Daraprim’s overnight price hike from $13.50 to $750 gave us a black eye. But we’re also getting hit with a lot of cheap shots, many due to pharmacy benefit managers and the way they deal with rebates.
Take the EpiPen debacle. Last year, Congress and the public were outraged the list price of a two-pack of the injectable device had risen to $600. But as Mylan’s CEO, Heather Bresch, explained, the cost escalation can be traced to PBMs and wholesalers, whose demands for rebates and discounts forced higher prices. Bresch testified more than half of the EpiPen’s $608 list price goes to middlemen. Mylan’s profit is about $50.
Remember that PBMs began by providing a huge service to payers. Organizing the delivery of prescription drugs, which had become far more complex than most providers could manage, was a huge contribution. But in recent years, PBMs have begun to suck revenue from pharma manufacturers without providing much in exchange.
For example, you’d think they’d hate high drug prices. That’s more money their clients have to spend. But PBMs now love high-priced drugs.
Remember the $1,000 pill, Sovaldi? Gilead’s EVP of worldwide commercial operations, Jim Meyers, noted in a 2017 interview that the company could easily have cut the price of Sovaldi treatment by about 40% — from $85,000 to $50,000.
But that was impossible because “every payer would have ripped up our contracts.” A lower list price would decimate their existing rebates.
Here’s another example. A brand name heartburn drug lists for around $700 for a month’s supply. The generic goes for $25.
But some PBMs still push the brand name on their patients. Once again, rebates make it more profitable for the PBM to force insured patients into paying for the more expensive drug. In some cases, patients would pay less without insurance.
How do PBMs get away with this? One word: clout. The three largest PBMs — Express Scripts, OptumRx, and CVS Health — collectively handle about 4 billion prescriptions yearly, nearly three-fourths of the market.
Unfortunately, instead of using their influence to hold down drug prices, they’re often doing the opposite — and casting pharma as the bad guy.
Every time a manufacturer points out the role of rebates in drug prices, PBMs and their lobbyists wail, “Don’t look at us. Manufacturers set prices.” Yes, but if we don’t fall in line with their demands, we can’t get our drugs on their formularies.
Unfortunately, patient care takes a back seat when PBMs and payers play hardball.
Several years ago, a leading asthma medication was threatened by a PBM with formulary exclusion. This meant that any patient prescribed the drug would have to pay the full list price or be switched to a different medication.
While the drugs were therapeutically similar, each had a unique delivery system. Patients switched to a different brand would have been forced to learn a new inhalation technique, which can have a devastating impact on adherence. Eventually, responsibility to patients won out. The manufacturer gave in to the PBM’s demands.
By placing the blame for drug prices on the shoulders of the manufacturers, PBMs are bringing a single-payer system complete with mandated price controls a bit closer to reality.
And then we all lose.
Sander Flaum is a principal at Flaum Navigators.