The Destructive Influence Of Pharmacy Benefit Managers By Dan Savickas - July 10, 2024
The basic laws of economics would suggest any overpriced product or service cannot sustain in the free market if there exists sufficient reasonably priced competition. Unfortunately, that is not how the American health care system currently operates. Due to the outsized influence of pharmacy benefit managers (PBMs), the prescription drugs that save both money and lives are not the same ones that get into the hands of patients. A new study focusing on the drug Humira displays this sad reality.
The analysis, provided by IQVIA (a corporation specializing in biopharmaceutical research and development) generated the stunning findings. The study showed that PBMs safeguarded $2 billion worth of profits by suppressing patient access to lower-cost alternatives to Humira, an immunosuppressive drug used to treat arthritis, Crohn’s disease, and other autoimmune conditions. PBMs’ actions in the case of Humira cost employers and health plans an estimated $6 billion in excess costs. Patients directly paid an extra $800 million in co-pays.
The current system incentivizes PBMs to show preferential treatment to more expensive prescription drugs. In fact, PBMs have a number of avenues to artificially drive up costs. The first way is through rebates. PBMs can negotiate discounts off the list price of a particular drug in the form of a rebate paid to them from the pharmaceutical company. However, PBMs are not required to disclose how much revenue they get in the form of rebates, nor are they required to pass any of those savings on to employers or patients. Thus, they will typically favor drugs with higher list prices, as their makers can afford to provide a larger rebate.
Another way is through what’s known as “spread pricing.” This is where PBMs have contracts based on the largely fictional “average wholesale price” (AWP) of a drug. The AWP is much like a list price on a car. It’s not really what’s paid in the end and those who do are generally regarded as fools. The national average drug acquisition cost (NADAC) is a more accurate figure, but because PBM contracts are based around the hyper-inflated AWP, PBMs and pharmacies can pocket the difference between the negotiated rate and NADAC, leaving employers and patients to pay the excess.
Roughly a year ago, many lower cost biosimilars entered the market to compete with Humira. Biosimilars are drugs deemed highly similar to those already approved by the Food and Drug Administration (FDA). Once a brand-name drug’s patent has expired, biosimilar and generic alternatives can come to market, typically driving prices down. For the average drug formulation, 11 months after biosimilars gain market access, they account for about 22% of the market share. However, 11 months after Humira’s biosimilar competitors came to market, they only accounted for 1% of prescriptions.
This slow uptake is especially disappointing, given that these biosimilars – on average – offer an 80% reduction in costs compared to Humira itself. The choice would seem clear in any market. However, there are reports AbbVie, Humira’s manufacturer, threatened rebates on its other products if health plans started recommending lower cost alternatives. Further, PBMs convinced AbbVie to boost its rebates for Humira to as much as 60% of the drug’s list price. This increasingly creates incentives for PBMs and plans to give preference to Humira, despite the exceedingly high costs for patients – and for plans themselves.
In July 2023, Yusmiry (a Humira biosimilar) launched with a list price of $995 for a two-syringe carton. Conversely, a similar package of Humira would cost $6,600. The IQVIA study showed if plans moved toward biosimilars, health plan costs on just this formulation would drop from the status quo of $10.6 billion per year to $4.5 billion. Further, the cumulative co-pay costs for patients would drop from $1.1 billion to only about $300 million.
Such a move would not be without precedent. Countries such as the United Kingdom, Denmark, and Poland have migrated roughly 90% of their patients to Humira biosimilars since they were allowed to come to market back in 2018. In the U.S., Kaiser Permanente – a health care provider covering 12 million Americans across eight states – made a similar transition this year and experienced $300 million in savings. Kaiser Permanente is able to do so, as it operates its own PBM – separate from the “big three” of CVS Caremark, OptumRx, and Express Scripts – and has aligned incentives.
In just one year, with one drug, PBMs have cost American health plans and patients more than $6 billion by suppressing lower cost alternatives. With Americans feeling the crushing weight of inflation, policymakers ought to be doing what they can to provide relief. PBMs, and the distortionary effect they have on the American health care market, have been allowed to fly under the radar for too long. The consequences are too real for too many families to continue to do nothing.
The two correspondents are reporting on the practices of pharmacy benefit managers and drug pricing for aseries of articles.
July 9, 2024
The Federal Trade Commission on Tuesday sharply criticizedpharmacy benefit managers, saying in a scathing71-page reportthat “these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies.”
The regulator’s study signals a significant ramping up of its scrutiny of benefit managers under the agency’s chair, Lina Khan. It represents a remarkable turnabout for an agency that has long taken a hands-off approach to policing these companies.
The F.T.C. has so far stopped short of bringing a lawsuit or other enforcement action against a benefit manager. But the industry fears that the report could lead to a formal investigation into its practices or to a lawsuit accusing benefit managers of anticompetitive conduct. The agency’s findings could also fuel legislative efforts in Congress and in the states to impose limits on the industry.
The three largest benefit managers — CVS Health’s Caremark, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx — collectively process roughly80 percentof prescriptions in the United States. Hired by employers and government health insurance programs like Medicare, benefit managers are responsible for negotiating prices with drug makers, paying pharmacies and helping decide which drugs are available and at what cost to patients.
Benefit managers are supposed to save everyone money. But in recent years, the industry has grown more consolidated and has taken more control over how patients get their medicines, in a shift that critics say contributes to driving up drug costs.
In a statement on Tuesday, Ms. Khan said the agency’s inquiry had shown “how dominant pharmacy benefit managers can hike the cost of drugs — including overcharging patients for cancer drugs.” She went on to say that the agency found evidence of “how P.B.M.s can squeeze independent pharmacies that many Americans — especially those in rural communities — depend on for essential care.”
The industry strongly disputed the F.T.C.’s findings. “These biased conclusions will do nothing to address the rising prices of prescription medications driven by the pharmaceutical industry,” said Justine Sessions, a spokeswoman for Express Scripts.
The benefit managers defended their business practices, saying they save money for employers, governments and patients. They say that their scale gives them crucial leverage to take on thepharmaceutical companies. And they say they are being frugal with their clients’ money when reimbursing outside pharmacies at low rates for buying and dispensing medications.
An investigation by The New York Times published last month found that the benefit managers often act in their own interests, at the expense of patients, employers and taxpayers.
The F.T.C.’s report cited The Times’s findings, detailing an array of ways that benefit managers appeared to be inflating the cost of prescription drugs. The agency’s study characterized the benefit managers in blistering language, saying they “wield enormous power and influence” and that their practices “can have dire consequences for Americans.”
For example, the report pointed to an important line of business — the companies’ affiliated pharmacies, including warehouse-based operations that send prescriptions through the mail to patients. The agency examined two generic cancer drugs and found that benefit managers often paid their own pharmacies much more than it would cost to buy those drugs from a wholesaler. The practice translated into nearly $1.6 billion in revenue over less than three years for the biggest three conglomerates, according to the report.
The agency also zeroed in on the benefit managers’ role in deals intended to block competition in favor of a single product. These are arrangements in which a drug maker pays a large discount, handled by the benefit manager and passed back to the employer, in exchange for restrictions that push the drug company’s product to patients, while discouraging similar and potentially cheaper products. The report suggested that this practice may be illegal because it thwarts competition.
The commission voted 4-1 to issue Tuesday’s report. The two Republican commissionersissued statementsexpressing concern with elements of the report, saying it relied too much on weak evidence.
David Whitrap, a CVS Caremark spokesman, said that policies that would limit the P.B.M.s’ ability to negotiate “would instead reward the pharmaceutical industry, leaving American businesses and patients at the mercy of the prices drugmakers set.”
The F.T.C. has historically given these intermediaries the benefit of the doubt, because it viewed their mission of lowering drug prices as good for consumers. The agency waved through a series of mergers, sayingin 2012that there was robust competition.
The benefit managers have “done a very skillful job in avoiding regulation,” said David Balto, an antitrust lawyer in Washington who worked at the commission during the Clinton administration and is a sharp critic of the benefit managers.
Over the past decade, the top three benefit managers steadily gained more market share. By the end of 2018, each had become part of the same company as a giant insurer. Critics said that corporate structure created an uneven playing field that squeezed out smaller competitors. The Trump and Biden administrations each became more skeptical about whether patients were benefiting.
Under the leadership of Ms. Khan, who became chair in 2021, the F.T.C. made clear that it was looking closely at benefit managers and other big corporations.
With a more expansive view of anticompetitive harm than her predecessors, Ms. Khan has been aggressive in taking on big business across industries including tech, supermarkets and pharma. Her efforts to block corporate mergers have generated mixed results and criticism that she is overstepping her authority.
In a statement on Tuesday with her two fellow Democratic commissioners, Ms. Khan said the agency’s report reflected an outpouring of concern from patients and pharmacists about the benefit managers. “Given the stakes, there is enormous urgency in understanding P.B.M.s’ practices,” they wrote.