Secret deals often prompt drug benefit companies to cover brand-name prescriptions when equally effective generic or even over-the-counter medications are available, several drug pricing experts say.
These companies, known as pharmacy benefit managers (PBMs), negotiate deals with drug makers that include rebates and other compensation to encourage certain drugs and come up with lists of drugs that their insurance plans will cover. Employers and insurance companies then determine which drugs to encourage on these formularies.
The process is so convoluted that even the United States' largest insurer, Anthem, discovered what it said were $3 billion in overcharges by Express Scripts and filed suit Monday against the PBM for damages.
"That the largest insurer has to file suit against the largest PBM is a testament to the complexity that exists in the market," says Michael Rea, founder and CEO of Rx Savings Solutions, which represents health insurance plans.
In a statement, Express Scripts spokesman Brian Henry said the suit is "without merit."
"Express Scripts values its relationship with Anthem and will continue to honor its commitments under the contract, as we would do with any client," said the statement. "Express Scripts has consistently acted in good faith and in accordance with the terms of its agreement with Anthem."
In their deals with drugmakers, PBMs agree to favor the high-cost drugs on the PBMs’ formularies and agree that they won't place quantity limits — or prior authorization programs — on the drugs, even though doing so would help health plans save money and make medical sense, says Linda Cahn, founder and president of Pharmacy Benefit Consultants, which audits PBM contracts.
Generic drugs get lower rebates or none at all, while the brand-name drugs can command rebates of as much as 40%, says Mel Brodsky, president of Keystone, a Philadelphia-area buying group for small pharmacies that is suing the pharmacy benefit manager Catamaran for "unfair business practices" and to require more transparency.
As drug prices fall under greater scrutiny following the disclosure of the massive price increases by drugmakers including Turing Pharmaceuticals and Valeant, the role of PBMs is also being more closely examined. The Centers for Medicare and Medicaid Services is considering whether to require more transparency in the Medicare Part D prescription drug program. Rep. Doug Collins, R-Ga., reintroduced legislation last month that would require more public disclosure in how PBMs determine their reimbursements, especially with government drug benefit programs including Medicare Part D.
At a House hearing on drug prices last month, Rep. Buddy Carter, a pharmacist who is also a Georgia Republican, said the solution is to "have transparency in the PBM world."
Mark Merritt, CEO of the PBMs' trade group, said more regulation wasn't the answer. Last week, PCMA launched a national campaign to emphasize that PBMs are part of the solution to high drug prices and not part of the problem. The group says its members cut drug prices by 30%.
But those who audit PBM contracts for a living disagree.
"What really gets me started is when PBMs sell their clients on programs that increase costs by encouraging brands so that the PBM can collect rebates," says Susan Hayes, a principal in Pharmacy Outcomes Specialists, which represents plan sponsors and audits their PBM contracts. "And many clients do not know the cost implications when they sign off on these programs."
Few companies or other plan sponsors, such as unions, contract with auditors like Hayes so don't drill down into the complicated details of their formularies. Hayes says she realized last week that a group of union funds had agreed to require a step therapy program that required patients to take pricey brand name drugs before generics to get guaranteed rebates.
PBMs pass along some of all of the rebates to their employer clients, but Hayes says they seldom make brand name drugs cheaper than generics for employers and unions, based on contracts she has audited.
Unless a PBM proves the use of a brand-name drug is bringing the cost down to lower than the generic through rebates passed along to the employer, Hayes says she tells clients "you can assume it’s not."
When they are pushed to be more transparent about their deals, PBMs and the drug companies "start arguing that they can’t give as good of deals" if they have to start disclosing the details, says Stephen Schondelmeyer, a pharmaceutical economics professor at the University of Minnesota. That argument, he says, "ignores the basic premise of economics," namely that consumers need to know all the alternatives and the pricing, he says.
When generic versions of drugs are introduced, it can lower the price of a drug by up to 85%, according to the Food and Drug Administration. Researchers, publishing online this month in the Journal of the National Cancer Institute, say that if all patients with a chronic form of leukemia started on the generic form of the drug Gleevec when they were diagnosed, the cost of treatment per patient over five years would be nearly $100,000 less than it is now. Most of these patients need lifelong, daily medication.
Another egregious example of the problem, according to Cahn, is the class of ulcer drugs known as "proton-pump inhibitors" or PPIs. The best known of these drugs is Nexium, which costs several times the price of generics, which often cost far more than many over the counter options.
Most drug benefit plans, including Medicare and Medicaid, are "spending an absurd amount of money" on prescription PPIs, says Cahn.
Cahn says all of the players are contributing to the problem. Drugmakers do a disservice when they get FDA approval for high-cost "copycat PPIs” that add no additional value. Doctors should stop writing PPI prescriptions and tell their patients to use over the counter versions. And PBMs should remove brand PPIs from their standard formularies and educate their employer-clients to stop coverage for brand PPIs.
Cahn adds that pharmacists could also suggest to consumers that they stop using prescription versions and use over the counter PPIs instead.
CVS Caremark, the drugstore chain's PBM, doesn't exclude brand name ulcer drug Nexium from its 2016 formulary, but spokeswoman Christine Cramer says "in some cases, although less expensive over-the-counter versions of drugs may be available, some patients will still require access to a prescription drug to treat their condition."
"We offer a variety of formulary options that help deliver lower costs for clients...," she said in an emailed statement.
Sanjay Sandhir, a Dayton, Ohio, gastroenterologist, says he has a patient who was spending $140 a month for her share of the cost of Nexium, which was on her insurance plan's drug formulary, so he told her to just buy one of the non-prescription over the counter versions, which saved her $100 a month.
"The prices are too high for patients and there's a lack of transparency," says Sandhir.
And there's no discernible difference between the over-the-counter drugs and pricey brand name ones. Douglas Dykman, an Annapolis, Md., gastroenterologist, says it "doesn't matter to me" which version of the medications clients with ulcers use as they all work the same. He seldom knows what out of pocket costs patients are facing — only whether a drug is or isn't on their formulary.
Cahn says drugmakers should stop selling "copycat PPIs," doctors should stop writing prescriptions for PPIs and PBMs should educate their employer-clients on how to cut waste. Pharmacists should suggest patients stop using the prescription versions.
The cholesterol-lowering drug Lipitor, for example, is on many formularies even though the generic can save patients hundreds of dollars a month. CVS Caremark excludes Lipitor for coverage, but Express Scripts does not, a review of the formularies shows, Cahn says.
"Express Scripts nudges patients to the most clinically appropriate and most affordable medication," says spokesman David Whitrap. "And in almost all cases when a generic is available, the generic is the most cost-effective option."
Hayes says that's not correct and cited generic diabetes drugs Tanzeum and Victoza, which are cheaper based on their average wholesale price than Bydureon, Byetta, Trulicity, that Express Scripts prefers among the generic diabetes drugs.