Journey with us, if you will, back to late 2012. Clinical data for two of Gilead Sciences’ hepatitis-C drugs, Sovaldi and Harvoni, had started to filter in and, well, it was magnificent. Like, cure-level magnificent. Surely every hepatitis-C patient would soon be clamoring to get on a regimen, and surely every payer would go along with the patients’ wishes.
Enter Express Scripts, the nation’s largest PBM and now one of the most outspoken corporate critics of pharma pricing practices. Its private stance regarding the new hep.-C drugs, which quickly evolved into a very public showdown, was that it wasn’t going to pick up the tab for anything approaching the full price of $84,000 for a Sovaldi treatment regimen. Negotiations ensued and accusations flew. Ultimately Express Scripts and Gilead failed to reach an agreement to add Harvoni to its formulary and provide full coverage for Sovaldi.
Nobody could have predicted it then, but the Express Scripts/Gilead back-and-forth ultimately proved a pivotal moment in the relationship between PBMs and drugmakers. Previously, most of the pharma/PBM bidding was done in private quarters, with few disputes registering on the pharma-biz radar much less the mainstream one.
Since then, PBMs have become emboldened. They now pursue drug exclusions and publicly take the manufacturers of those drugs to task. If the manufacturers don’t like it? Well, go ahead and take your case for a $84,000 treatment regimen to a skeptical public. See how well that works out for you.
Still at the center of this evolving dynamic is Express Scripts. The how-much-is-too-much pricing discussion had been under way for years, but the company’s repeated criticism of high drug prices has been a significant reason why drug pricing is now a subject of national discussion. Indeed, it’s even a talking point for presidential candidates of both parties.
Years after the hep.-C spat, Express Scripts isn’t issuing any apologies for its role in stirring the conversation about pricing. “Clearly we have played a big part in generating that,” says Dr. Steve Miller, the company’s chief medical officer. “But we also believe the conversation has taken a shift and we hope we’re part of that.”
Miller’s latest gambit seems one of collaboration more than contretemps—and in some cases, the strategy has worked. Express Scripts is the only PBM so far to put Amgen’s Repatha as well as Sanofi/Regeneron’s Praluent, both newly approved PCSK9 inhibitors, on formulary. (CVS Health included Repatha on its formulary; UnitedHealth Group offers Praluent on formulary.)
“We believe we’ve developed the tools to not only support our plans against those companies that don’t want to deal with us, but also to support those who want to be innovative alongside us,” Miller says.
Rather than publicly criticizing the pharma companies with which it has struggled to establish pricing and formulary terms, Express Scripts now seeks to position itself as a partner in innovation to drugmakers, particularly around the development of new payment models, such as indication-based pricing and outcomes-based contracting. “Anything a pharma company wants to talk about that’s innovative, we want to be their thought partner,” Miller stresses.
Several factors likely contribute to Express Scripts’ new eagerness to collaborate with drugmakers. For one, despite fresh scrutiny from lawmakers and the public over pricing practices, many of the new drugs that have come to market over the last two years are broadly considered to be overpriced. In addition, the formulary exclusions that Express Scripts and other PBMs are increasingly relying on still can only provide a limited influence if physicians continue to prescribe non-formulary drugs. Such was the case with Express Scripts and Gilead’s Harvoni.
The PBM may have excluded Harvoni from its formulary, but it has had to cover the drug in some instances. Similarly, it covers Sovaldi for four types of hep. C even though it never included the product on its national preferred formulary.
The main issue for payers? The market is evolving. There are more drugs receiving FDA approval and they are coming to market with better science; many can dramatically improve the lives and survival rates of patients. This, not surprisingly, means higher prices.
“It’s a constant pressure that has been accelerating,” says Rod Cavin, managing director of Health Strategies Group. “They are becoming much more strident and aggressive to manage the implications of these high-cost drugs.”
Pilots take off
This is why Express Scripts is moving forward with plans early this year for its Oncology Care Value Program, an indication-based pricing pilot. For it, the company selected a handful of companies that market oncology drugs approved that treat more than one type of cancer. Express Scripts plans to pay more for the drugs that perform better when treating certain types of cancer—and, subsequently, less for drugs that do not perform as well. Miller declines to say which drugs and what drugmakers are participating but notes that if the program is successful, the company hopes to extend it beyond oncology.
“There are pharma companies that recognize this is in their best interest,” he says. “They, like us, want to get to a sustainable marketplace. They know if they’re overcharging for drugs that have very little efficacy, that puts them in a competitive disadvantage.”
But not all high-priced drugs have little efficacy, which brings us back to Gilead. Sovaldi, approved in December 2013, has a list price of $84,000. Harvoni, approved 10 months later, costs $94,000. Unlike previous treatments, which had cure rates of 40%, Sovaldi and Harvoni cured roughly 95% of patients in clinical trials.
The two Gilead products have since become exhibits A and B for the pricing war. Data from the Centers for Medicare and Medicaid Services revealed that health spending grew 5.3% in 2014, compared to 2.9% in 2013. Spending on drugs jumped 12.2% in 2014, up from 2.4% in 2013. “A major source of this growth was the introduction of Sovaldi in December 2013, and Harvoni in October 2014,” Charles Roehrig wrote in Health Affairs in December. It was right about this time that Express Scripts emerged as one of the most prominent, and vocal, critics of high drug prices.
That said, it wasn’t until recently that PBMs began to exclude products from their formularies. In the past, drugmakers knew that if a therapy wasn’t included on the preferred list, it would still be covered on the non-preferred formulary, most likely with a higher co-pay. But the use of exclusions is becoming much more common. According to data gathered by Health Strategies Group, Express Scripts excluded 66 brands in 2015, up from 48 in 2014; CVS Health, the second-largest PBM, put 95 drugs on its exclusion list in 2015, up from 72 in 2014. OptumRx, UnitedHealth Group’s PBM, Aetna, Cigna and Prime Therapeutics plan to launch exclusion lists this year, according to Ronny Gal, a Bernstein analyst.
“This is a threat to the drug industry, but we should put its use in context,” Gal wrote in a December research note. “Drug categories with multiple similar products would be pressured while classes with one-two products will be tougher to exclude products from.”
For drugmakers, the anticipated prevalence of formulary exclusions will present new challenges in bringing a drug to market. The likely casualty? Traditional marketing models. Steve Stefano, CEO of Ashfield Market Access, says that pharma companies must insist on engaging with PBMs at senior levels. “This is the biggest impact on P&L that there is,” he notes. “If they’re not doing this, they’re not doing their job.”
Other experts agree that drugmakers must be willing to move forward with risk sharing or other types of new models to ensure access to their drugs. A few companies are already testing out these models. Merck and Cigna partnered in 2009 on a risk-sharing agreement under which Merck gave bigger rebates to the insurer if patients taking diabetes drugs Januvia and Janumet met certain criteria, like improved blood-glucose management. The drugmaker later said that glucose levels in those patients had gone up.
“The solution coming is risk sharing,” says Cavin. “Those will have broader applications than simple exclusions.”
But there is still hesitation about these new models. They are more expensive and difficult to measure, plus they require data collection and the creation of new systems. “There’s agreement that that would be a great direction to move,” notes Melinda Haren, senior director of access strategies at Zitter Health, who nonetheless cautions that “it’s an extremely complicated thing to make happen.”
What will play out now is a new kind of access battle. Risk sharing may be unnecessary for drugs that are first to market, but marketing teams behind other products in the same category may view engagement in risk-sharing models as a solid strategy to ensure access to the drug.
Change, or else
Pharma companies that are hesitant to change the way they engage with PBMs and other payers may be at the most risk. There are several new organizations that are seeking to make indication-based pricing and cost-effectiveness public, including the Institute for Clinical and Economic Review, which received a $5 million grant last year to fund more evaluations of new drugs.
There is also the DrugAbacus, a tool developed by Dr. Peter Bach, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, to determine appropriate prices of cancer drugs.
“We haven’t had a real framework to think about value in terms of pricing,” explains Steven Pearson, ICER’s president and founder. “There’s a real hunger for this.”
In two years ICER plans to release a report for every new drug approved by the FDA. This year it argued that Novartis’s heart-failure drug, Entresto, should be discounted by 9% to “prevent an excessive cost burden” on the health system. A report on Praluent and Repatha, the new PCSK9 inhibitors, concluded that those drugs should cost between $5,404 and $7,735 per year of treatment. Both therapies cost around $14,000 per year.
“The pricing model has been what the market will bear,” Pearson says. “This is going to be really different era.”
Express Scripts is using data from ICER, as well as the DrugAbacus, to inform its indication-based pilot. But what the company is actually seeking is better engagement and dialogue with drugmakers. “With us and Gilead not being on the same page, we’ve made a plea to the pharmaceutical manufacturers: Let’s improve the dialogue between the companies,” Miller says. “Oftentimes our goals are aligned … We’re looking to talk to pharmaceutical companies about all sorts of innovative ways to think about pricing.”
Cancer drugs are being closely watched by payers, as are the PCSK9 inhibitors. If a drug is approved to treat Alzheimer’s disease, whoever brings that therapy to market will have “unlimited pricing power,” Miller says. “We’re in an incredible time with science. The products are more targeted, they’re more effective, they’re better tolerated—and their prices are unbelievable.”
As the science evolves, so must the model. And even though Express Scripts is willing to collaborate with pharma companies, it is just as willing to use aggressive strategies if drugmakers don’t see things their way. “The only reason you put a coupon in the marketplace is if you’re admitting there’s an equally good clinical alternative,” Miller explains. “We use that as a flag on which drugs we can move against. For the companies that believe the old model is going to make them successful in the future, that is really where our opportunities are to help our plans.”
Miller believes that there are drugmakers that are more willing than others to engage with Express Scripts and identify new strategies to bring drugs to market. And, well, there are companies that remain considerably less so.
“We believe we’ll have to continue to be flexible and innovative and come up with solutions,” he says. “We are also now being much more vigilant about identifying these things that we believe [are not driven by] scientific innovation, but financial innovation.”