Cul­prit be­hind drug price hikes

Los Angeles Times - - BUSINESS - MICHAEL HILTZIK

Di­a­betes doc­tor Irl B. Hirsch has watched with dis­may as more of his Seat­tle-area pa­tients take life-threat­en­ing steps to deal with the soar­ing price of in­sulin.

Some need two vials a week of the cru­cial medicine, at $300 per vial. Many pay full price be­cause they’re unin­sured or en­rolled in health plans with high de­ductibles. So they’re cut­ting back. “It’s be­com­ing very, very com­mon to see pa­tients in­ten­tion­ally with­hold­ing their in­sulin,” says Hirsch, an en­docri­nol­o­gist and pro­fes­sor of medicine at the Univer­sity of Wash­ing­ton.

He also knows where a good share of the blame lies: on phar­macy ben­e­fit man­age­ment firms. “They’re mid­dle­men we thought orig­i­nally would make the dis­tri­bu­tion of med­i­ca­tions eas­ier, and more ef­fi­cient, and even cheaper.” he says. “But now they want a cut of the money, and over the decades, they’ve wanted more.”

Com­plaints about PBMs driv­ing up drug prices have be­come in­creas­ingly com­mon. A law­suit filed May 23 in Los Angeles fed­eral court, for ex­am­ple, al­leges that Irvine-based PBM Op­tumRx and drug com­pany Novo Nordisk joined in an “il­le­gal pric­ing scheme” in which the drug­maker in­flated the price of Vic­toza, a di­a­betes drug, to pay for “il­le­gal kick­backs” to Op­tumRx. From 2009 through 2016, the law­suit as­serts, the av­er­age whole­sale price per pack­age of Vic­toza rose from less than $450 to $897.16 for roughly a one-month sup­ply. The law­suit seeks class cer­ti­fi­ca­tion to cover Vic­toza users who paid for the drug at least par­tially out-of-pocket.

Novo Nordisk said through a spokesman, “We’re aware of the com­plaint and dis­agree with the al­le­ga­tions.” Op­tumRx called the al­le­ga­tions “with­out merit.” Both com­pa­nies said they would de­fend them­selves “vig­or­ously.”

The three PBMs that dom­i­nate the field col­lect more than $200 bil­lion a year to man­age pre­scrip­tion ser­vices for in­sur­ance car­ri­ers cov­er­ing 180 mil­lion Amer­i­cans and govern­ment pro­grams serv­ing about 110 mil­lion more. The com­pa­nies are pub­licly traded Ex­press Scripts; Op­tumRx, a sub­sidiary of the in­surer Unit­edHealth Group; and CVS Care­mark, a sub­sidiary of the CVS drug­store chain.

The ex­pan­sions of the PBMs’ role and in­come il­lus­trate the op­por­tu­ni­ties for prof­i­teer­ing in Amer­ica’s frag­mented health­care sys­tem. PBMs orig­i­nated as in­ter­me­di­aries to help health plans process claims, steer doc­tors and hos­pi­tals to the cheap­est drug al­ter­na­tives, and al­low in­sur­ers to com­bine their cus­tomer bases for greater lever­age in ne­go­ti­a­tions with drug man­u­fac­tur­ers.

But over time they be­came just another spe­cial in­ter­est. In the 1990s, some of the big­gest PBMs were ac­quired by drug com­pa­nies, cre­at­ing con­flicts of

in­ter­est that led to fed­eral or­ders for di­vest­ment. The next phase was a wave of merg­ers and ac­qui­si­tions within the field, fol­lowed by ac­qui­si­tions by in­sur­ers and phar­macy com­pa­nies — CVS ac­quired Care­mark, then the big­gest PBM, in 2007 and Unit­edHealth merged Cata­ma­ranRx, then the fourth-largest PBM, into Op­tumRx in 2015.

The po­si­tion of the three ma­jor PBMs at the cen­ter of the drug dis­tri­bu­tion sys­tem ap­pears to be unas­sail­able for now. Last year CalPERS, Cal­i­for­nia’s pub­lic em­ployee ben­e­fits sys­tem, awarded Op­tumRx a five-year, $4.9-bil­lion con­tract to man­age pre­scrip­tions for nearly 500,000 mem­bers and their fam­i­lies en­rolled in non-HMO health plans. The only other fi­nal­ists in the bid­ding were CVS Care­mark and Ex­press Scripts.

Ex­press Scripts re­ported profit of $3.4 bil­lion last year, up 34% from 2015, on $100.2 bil­lion in rev­enue, down slightly from $101.8 bil­lion in rev­enue the year be­fore. Op­tumRx re­ported op­er­at­ing profit of $2.7 bil­lion last year, up from $1.7 bil­lion the year be­fore. CVS doesn’t break out its PBM fi­nan­cials.

To­day the firms ex­tract bil­lions of dol­lars in price con­ces­sions from drug com­pa­nies ea­ger to re­main in their good graces. The drug­mak­ers’ goal is to se­cure spots on the PBMs’ for­mu­la­ries, the ros­ters of ap­proved drugs the PBMs main­tain for their health plan clients.

To do so, the drug­mak­ers of­fer PBMs re­bates for each pre­scrip­tion filled and agree to a dizzy­ing list of other fees. The PBMs say that since most of those re­bates and fees are passed on to health plans and sub­se­quently to pa­tients, they ful­fill their prom­ise to re­duce drug costs all along the line.

But no one can be sure that’s re­ally hap­pen­ing, be­cause the size of the re­bates and the de­gree to which they’re passed along is guarded by the PBMs as trade se­crets. Each PBM con­tract for each health plan, more­over, is con­cealed from other health plans.

“The PBMs are sit­ting at the cen­ter of a big black box,” says Linda Cahn, a drug pric­ing con­sul­tant to health in­sur­ers. “They’re the only ones who have knowl­edge of all the mov­ing pieces.” Among the murky ar­eas are how much in re­bates and other fees the PBMs col­lect from drug com­pa­nies, and what share gets passed on to health plans.

What­ever the passthrough, crit­ics say the re­bate process forces up prices. “It’s not a se­cret any­more that the drug com­pa­nies are just rais­ing prices to pay for the re­bates,” says Derek Loeser, a Seat­tle lawyer who filed the Los Angeles law­suit and oth­ers around the coun­try mak­ing sim­i­lar al­le­ga­tions.

The PBMs dis­pute that. “Re­bates do not raise drug prices; drug com­pa­nies raise drug prices,” says Brian Henry, a spokesman for Ex­press Scripts, re­peat­ing a com­mon in­dus­try mantra. He says “every client con­tract is clear” about how much of the re­bates the PBMs keep for them­selves. “Th­ese clients are so­phis­ti­cated buy­ers of ser­vices,” he says.

Ex­perts say that over­states how much health plans re­ally know about the re­bates. The in­sur­ers gen­er­ally don’t have the right to au­dit PBMs’ re­bate col­lec­tions and dis­tri­bu­tion, says Su­san Hayes, another in­sur­ance in­dus­try con­sul­tant. “The PBMs will say the re­bate con­tracts are be­tween them and the phar­ma­ceu­ti­cal com­pa­nies, and it’s none of our busi­ness,” she says.

PBMs claim to save Amer­i­can con­sumers an av­er­age of $941 per year each by ap­ply­ing “so­phis­ti­cated tools and strate­gies” to se­cure re­bates and dis­counts and en­cour­age the use of generic drugs. That’s ac­cord­ing to the Phar­ma­ceu­ti­cal Care Man­age­ment Assn., their trade group. Drug com­pa­nies, health plans and re­tail phar­ma­cies, how­ever, all blame PBMs for the run-up in drug prices, al­beit some­times to de­flect crit­i­cism about their own role in the sys­tem.

Last Septem­ber, Heather Bresch, the CEO of My­lan, took this ap­proach against at­tacks on her com­pany for the sharp run-up in the price of the EpiPen, a dose of anti-al­lergy medicine used in emer­gen­cies. Of the $608 list price My­lan charged for a two-pack of EpiPens, she told a House com­mit­tee, $334 went to mid­dle­men.

In­dus­try ex­perts say most of that money was pock­eted by PBMs or at least passed through their hands. Bresch as­serted My­lan had lit­tle choice but to jack up the EpiPen list price to ac­com­mo­date the mid­dle­men’s de­mands for re­bates and fees.

PBMs and their clients even have be­gun squab­bling over their shares of a piece that amounts to about $320 bil­lion an­nu­ally, or 10% of the over­all U.S. health­care bill of $3.2 tril­lion a year — the fastest-grow­ing spend­ing cat­e­gory.

In a law­suit filed last year, An­them, the na­tion’s sec­ond-largest health in­surer, charged that Ex­press Scripts ex­tracted “an ob­scene profit wind­fall” of about $3 bil­lion a year by fail­ing to pass on all the sav­ings it squeezed from drug com­pa­nies in An­them’s name.

An­them is thought likely to move to another PBM af­ter the con­tract ex­pires in 2019 or even to bring phar­macy ser­vices in-house. Ex­press Scripts has said in re­sponse that it’s in full com­pli­ance with the con­tract.

Ev­i­dence that PBMs con­sis­tently pro­tect in­sur­ance com­pa­nies and their mem­bers from price in­creases is scanty. A Univer­sity of Chicago study pub­lished this year found that EpiPen pa­tients’ outof-pocket spend­ing, in­clud­ing co­pay­ments and de­ductibles, more than dou­bled to an av­er­age $75.50 from 2007 through 2014, even though the num­ber of pre­scrip­tions filled per pa­tient barely budged. Per-pa­tient spend­ing by in­sur­ers, mean­while, more than quadru­pled to $393. The “main driver” of the in­creased costs to con­sumers, the re­searchers found, was “the ag­gres­sive pric­ing by My­lan.”

There are some signs that the PBMs have be­come so greedy that they’ve opened the door for a new breed of ri­val.

“It’s very fea­si­ble for an en­tity like Ama­zon or Wal­Mart to cre­ate a dif­fer­ent kind of PBM,” says Cahn, “a com­pet­i­tive mar­ket­place that will force man­u­fac­tur­ers to re­duce their prices.”

That may al­ready be hap­pen­ing. Ama­zon is re­port­edly pon­der­ing an en­try into the phar­macy busi­ness. And as in­sulin prices have soared, Wal­Mart be­gan sell­ing va­ri­eties of the medicine — NPH and reg­u­lar in­sulin, which are short- and in­ter­me­di­ate­act­ing — for as lit­tle as $25 a vial.

Those drugs aren’t the right choice for all pa­tients, says Hirsch of the Univer­sity of Wash­ing­ton. But he’s heart­ened by signs that other drug distrib­u­tors are fall­ing into line, in­clud­ing CVS, which is match­ing Wal-Mart’s price. Pa­tients have to be ed­u­cated about the lifestyle changes needed to take those forms of in­sulin and doc­tors how to pre­scribe them, Hirsch says. “But the good of it is that we may get in­sulin for ev­ery­body at a cheaper price.”

Michael Reynolds Euro­pean Pressphoto Agency

DUR­ING CON­GRES­SIONAL tes­ti­mony last Septem­ber, My­lan CEO Heather Bresch tried to dodge blame over price hikes for her com­pany’s EpiPens by point­ing the fin­ger at phar­macy ben­e­fit man­agers.

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