Latest Drugwonks' Blog
Per Paul Krugman's op-ed, Just Saying Yes to Drug Companies -- anyone who was paying attention to President Trump's press conference or has read the White House Blueprint should understand that drug pricing is an ecosystem that includes manufacturers and multiple intermediaries. Games are being played and patients are (generally) the losers.
Why not a single word from Dr. Krugman about the very questionable practices of, for example, Prescription Benefit Managers? PBMs receive large rebates (aka, "kick-backs") and, rather than passing along the savings to patients, they pocket hundreds of millions of dollars. President Trump and HHS Secretary Alex Azar made it very clear they will demand that these rebates be used to "lower the price at the pump" -- lower co-pays for patients when they get their drugs at the pharmacy.
When people say, "My drugs are too expensive," what they mean is "My co-pay" or "My deductible" is too expensive. Shame on Dr. Krugman for perpetuating the myth that drug prices are a one-dimensional issue. And shame on him for ignoring the many solid recommendations made by the President and his healthcare team. As the Yiddish proverb goes, "A half truth is a whole lie." It's the ecosystem, stupid.
Why not a single word from Dr. Krugman about the very questionable practices of, for example, Prescription Benefit Managers? PBMs receive large rebates (aka, "kick-backs") and, rather than passing along the savings to patients, they pocket hundreds of millions of dollars. President Trump and HHS Secretary Alex Azar made it very clear they will demand that these rebates be used to "lower the price at the pump" -- lower co-pays for patients when they get their drugs at the pharmacy.
When people say, "My drugs are too expensive," what they mean is "My co-pay" or "My deductible" is too expensive. Shame on Dr. Krugman for perpetuating the myth that drug prices are a one-dimensional issue. And shame on him for ignoring the many solid recommendations made by the President and his healthcare team. As the Yiddish proverb goes, "A half truth is a whole lie." It's the ecosystem, stupid.
Per the President, “There is a tangled web of special interests keeping the price of drugs artificially high.”
The big take-away from the President’s speech today is that “the price of drugs” is an ecosystem problem that requires an ecosystem solution. To us, this is obvious. To the American people, it is not. (There are no “simple” solutions such as “drugs from Canada.”)
* This truth telling isn’t surprising since POTUS is following the lead of three very sharp policy wonks – Secretary Azar, Commissioner Gottlieb, and Administrator Verma. And they’ve been saying this for years. In fact, Alex talked about it during his confirmation hearing. This speech isn’t at all surprising – if you’ve been listening. Azar, Gottlieb and Verma have been repeating this statement for the past few weeks.
* Per PBMs, the president's budget calls for insurers/PBMs who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy.
* “My drugs are too expensive” generally means, “my co-pay/co-insurance is too high.” The President’s plan will lower the “price at the pump.”
* The big policy implication here is that the ACA promised “insurance for all.” But that rhetoric led people to believe this meant their healthcare would be “free.” Not so. And many of these new plans (especially the Silver ones) were designed along the lines of low premium/high co-pay. This is particularly true for the no/low premium plans. This new thinking begins to get at that problem.
* The next policy conversation will be “Do lower co-pays mean higher premiums?” Watch for the payer pundits to ask this question.
* One man’s rebate is another man’s kickback. Will the federal exemption for rebates be revoked? Big battle here that PBMs cannot afford to lose. Watch how the issue of premium subsidies comes back around.
* The President is voicing free-market solutions. (Azar+Gottlieb+Verma = free market thinking.) See here.
* The large and growing gap between the drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. The proposed HHS rule (for passing along a portion of the rebate) “would improve price transparency which may have a positive effect on market competition and efficiency.”
* Again, per “ecosystem,” do higher list prices equal higher rebates? Well – sometimes. How can this best be addressed? The answer begins with transparency. Transparency can give manufacturers an edge. After all, it’s harder to pocket money (rebates/kickbacks) when it’s sitting on the table where everyone can see it.
* The administration may also considering how it pays for drugs administered in doctor's offices, clinics or hospitals through Medicare's Part B program.
The federal government currently pays providers 6% more than the average price of those medicines. Hence, manufactures have the incentive to raise prices and gives providers the incentive to select more expensive medicines. (This is Seema Verma’s philosophy since her days running the Indiana Health Department.)
* The administration is considering moving certain Part B coverage (perhaps orals vs. injectables) into the Part D program, where insurers can (in theory) negotiate better prices and requiring manufacturers to provide more accurate sales data to make sure they don't exclude discounts.
* States are the laboratory of invention. Reducing drug costs in Medicaid is also under consideration. The president's budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them negotiate bigger discounts directly with manufacturers.
* Exclusionary Contracting. FDA is focusing on reducing prices by increasing competition via generics biosimilars. Gottlieb has teed up tackling the "games" manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market and, particularly for biosimilars, exclusionary contracting.
* The President wants to do away with the “gag rule” that prohibits pharmacists (in some states) from telling their customers there are cheaper (generic) alternatives to what they have been prescribed. To-date, this has been a state issue. It is likely to remain so because of interstate commerce regulations.
* Patents should be used to protect innovation, not to delay generics to market. (aka, “shenanigans.”)
* Secretary Azar said that the FDA was going to write new regs that would require drug companies to list the price of their products in their advertising. Not sure where this is going, but it’s worth watching carefully.
* Per other nations’ bullying our drug manufacturers into unrealistically low prices/allowing other countries to freeload off of American innovation,” it’s a fair point that’s going to be difficult to address. But the fact that the President is teeing it up is a big step in the right direction. For more on this point, see this article from the Wall Street Journal.
* What will we read in the New York Times tomorrow? I predict the mainstream media chattering classes will say this is a “victory for Big Pharma.” They will (begrudgingly) admit that direct federal negotiations are a good idea. (It will not mention that this is contrary to the existing Non-Interference Clause that will require legislation to undo). Media and Democrats in Congress will peg the speech as “caving in to Big Pharma.” If I am wrong I will buy you all lunch.
* Addressing the kickback statute and the Non-Interference Clause will require legislation. Will Dems work with the White House?
* Equally important is to not pay much (if any) attention to whatever hyperbole the President uses. Implementation of the above-discussed initiatives will be done by HHS/FDA/CMS.
In the words of the British pundit Ernest Benn, “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy. “
The good news is that experts are at the wheel.
They’re focusing on free-market solutions.
The ideas require an ecosystem approach.
Nobody said it was going to be easy.
The big take-away from the President’s speech today is that “the price of drugs” is an ecosystem problem that requires an ecosystem solution. To us, this is obvious. To the American people, it is not. (There are no “simple” solutions such as “drugs from Canada.”)
* This truth telling isn’t surprising since POTUS is following the lead of three very sharp policy wonks – Secretary Azar, Commissioner Gottlieb, and Administrator Verma. And they’ve been saying this for years. In fact, Alex talked about it during his confirmation hearing. This speech isn’t at all surprising – if you’ve been listening. Azar, Gottlieb and Verma have been repeating this statement for the past few weeks.
* Per PBMs, the president's budget calls for insurers/PBMs who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy.
* “My drugs are too expensive” generally means, “my co-pay/co-insurance is too high.” The President’s plan will lower the “price at the pump.”
* The big policy implication here is that the ACA promised “insurance for all.” But that rhetoric led people to believe this meant their healthcare would be “free.” Not so. And many of these new plans (especially the Silver ones) were designed along the lines of low premium/high co-pay. This is particularly true for the no/low premium plans. This new thinking begins to get at that problem.
* The next policy conversation will be “Do lower co-pays mean higher premiums?” Watch for the payer pundits to ask this question.
* One man’s rebate is another man’s kickback. Will the federal exemption for rebates be revoked? Big battle here that PBMs cannot afford to lose. Watch how the issue of premium subsidies comes back around.
* The President is voicing free-market solutions. (Azar+Gottlieb+Verma = free market thinking.) See here.
* The large and growing gap between the drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. The proposed HHS rule (for passing along a portion of the rebate) “would improve price transparency which may have a positive effect on market competition and efficiency.”
* Again, per “ecosystem,” do higher list prices equal higher rebates? Well – sometimes. How can this best be addressed? The answer begins with transparency. Transparency can give manufacturers an edge. After all, it’s harder to pocket money (rebates/kickbacks) when it’s sitting on the table where everyone can see it.
* The administration may also considering how it pays for drugs administered in doctor's offices, clinics or hospitals through Medicare's Part B program.
The federal government currently pays providers 6% more than the average price of those medicines. Hence, manufactures have the incentive to raise prices and gives providers the incentive to select more expensive medicines. (This is Seema Verma’s philosophy since her days running the Indiana Health Department.)
* The administration is considering moving certain Part B coverage (perhaps orals vs. injectables) into the Part D program, where insurers can (in theory) negotiate better prices and requiring manufacturers to provide more accurate sales data to make sure they don't exclude discounts.
* States are the laboratory of invention. Reducing drug costs in Medicaid is also under consideration. The president's budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them negotiate bigger discounts directly with manufacturers.
* Exclusionary Contracting. FDA is focusing on reducing prices by increasing competition via generics biosimilars. Gottlieb has teed up tackling the "games" manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market and, particularly for biosimilars, exclusionary contracting.
* The President wants to do away with the “gag rule” that prohibits pharmacists (in some states) from telling their customers there are cheaper (generic) alternatives to what they have been prescribed. To-date, this has been a state issue. It is likely to remain so because of interstate commerce regulations.
* Patents should be used to protect innovation, not to delay generics to market. (aka, “shenanigans.”)
* Secretary Azar said that the FDA was going to write new regs that would require drug companies to list the price of their products in their advertising. Not sure where this is going, but it’s worth watching carefully.
* Per other nations’ bullying our drug manufacturers into unrealistically low prices/allowing other countries to freeload off of American innovation,” it’s a fair point that’s going to be difficult to address. But the fact that the President is teeing it up is a big step in the right direction. For more on this point, see this article from the Wall Street Journal.
* What will we read in the New York Times tomorrow? I predict the mainstream media chattering classes will say this is a “victory for Big Pharma.” They will (begrudgingly) admit that direct federal negotiations are a good idea. (It will not mention that this is contrary to the existing Non-Interference Clause that will require legislation to undo). Media and Democrats in Congress will peg the speech as “caving in to Big Pharma.” If I am wrong I will buy you all lunch.
* Addressing the kickback statute and the Non-Interference Clause will require legislation. Will Dems work with the White House?
* Equally important is to not pay much (if any) attention to whatever hyperbole the President uses. Implementation of the above-discussed initiatives will be done by HHS/FDA/CMS.
In the words of the British pundit Ernest Benn, “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy. “
The good news is that experts are at the wheel.
They’re focusing on free-market solutions.
The ideas require an ecosystem approach.
Nobody said it was going to be easy.
Previews of President Trump’s speech on drug pricing made it quite clear that he wants to eliminate the bribes and barriers that are pushing drug prices higher and make access to the medicines that work best for each individual affordable. At the heart of this effort is to change or eliminate the role PBMs play in perpetuating such scams. If there was a slogan that captured the tenor of Trump’s address it is: Replace PBMs with affordable access to important medicines.
Currently, about 30-40 percent of the price of a drug goes to PBMs, insurance companies, state Medicaid programs and Medicare in the form of rebates, not lower prices. Drug companies have an incentive to launch or raise prices as high as possible, so they can give PBMs the biggest rebates possible. PBMs and insurers then steer you to medicines that can make them the most money. Often people seeking a drug that is more effective must fail to get better or wind up getting sicker using the rebate rich drugs instead of the medicine that works best. Moreover, while PBMs and insurers pocket the rebates, the sickest patients who need the newest medicines are paying a part or all of, the retail price of a drug.
Indeed, the gaming of the system is cruel and discriminatory.
In fact, individuals with Medicare and employer-sponsored plans with people with cancer, HIV, hepatitis C, autoimmune conditions, multiple sclerosis and rare diseases are also much more likely to have to pay up to 40 percent of the retail price of a medicine. They comprise about 2 percent all insured consumers – 4.4 million people -- and less than 3 percent of all prescriptions.
Though specialty drugs are only 1.9% of all prescriptions dispensed each, they and the patients that depend on them generate nearly 30 percent of all rebates.
PBMs and health plans could use rebates to reduce cost sharing. Instead, they systematically maximize their use for the sickest patients. They do it because they can and because by doing it, they rake in tens of billions of dollars in a predictable manner.
In addition, the 2 percent paid PBMs and insurers approximately $12 billion in cost sharing based on a percentage of the full price of the medicine, not the rebated price.
Put another way, each of the 4.4 million patients in the 2 percent provides PBMs and health plans close to $11000 in rebate and coinsurance revenue. Discrimination makes net price profitable under these circumstances.
The combination of withholding rebates and retail priced based cost sharing – in addition to other ways PBMs (on behalf of insurers) use to reduce access –discourages a large percent of people from simply not picking up prescriptions or refilling them. And when they don’t pick up or refill their prescriptions, people get sicker. Or they die.
Incredibly, there are groups that want to go after the list price of drugs and not address the assault on human health that fills the pockets of the PBMs. The fact is, cutting the launch price of expensive drugs for small populations (price controls in effect) will have no effect on PBM discrimination.
Indeed, those groups and politicians who want to chop launch prices want to give PBMs more control over access such drugs to achieve that goal. They want PBMs to force patients to get sicker on cheaper drugs. They want them to continue to exclude such drugs when they can. Which means they are willing to let them pocket rebates and force patients to pay a share of the retail price that is unaffordable.
PBMs are systematically exploiting the vulnerability of the sickest 2 percent of Americans to maximize profit. They can profit from the suffering because they can design prescription drug benefits to impose a special burden on people with pre-existing conditions. Giving PBMs more power to cut launch prices and keep the spread between list and net prices would only deepen the discrimination the President has pledged to eliminate.
My fellow Americans, medical innovation is the beating heart of health care. Absent new drugs and vaccines for a wide range of illnesses, including HIV, heart disease, cancer and hepatitis C, we would spend more on health care and insurance premiums and get less for it. Our lives would be shorter and less productive.
For most Americans, access to new medicines is not a problem. Generic versions of off-patent medicines comprise 90 percent of all prescriptions written. Over the past few years, the average out of pocket costs for drugs has declined. So too have the net price of medicines. In fact, while there more new medicines for unmet needs than ever, prescription drugs as a percentage of health care spending has remained stable at 10 percent.
At the same time millions of Americans, those with the rarest conditions and fewest options have had to pay more, much more for their medicines than they can or should. That’s because pharmacy benefit management companies — the middlemen that handle drug coverage for almost every American control what medicines you can get and how much you have to pay.
Instead of maximizing health, prescription drug benefits are designed to maximize revenue. Indeed, these Americans are caught up in an extortion scheme in which drug companies, pharmacy benefit managers, insurance companies and even the government participate.
And the goal of this extortion is to extract as much cash from drug companies in the form of rebates paid in exchange for a pharmacy benefit manager and health plan covering a medicine. Rebates and discounts pocketed by PBMs, health plans and hospitals are 40 percent of the retail price of drugs. In fact, rebates that are generated when you fill a prescription total $130 billion a year. Nearly a third of that money from less than the 3 percent of Americans with cancer, HIV, autoimmune disorders and rare diseases. Yet, these are the same people who pay a share of the retail price of a drug, something that can cost thousands of dollars a year.
That’s what happened to Kristin Agar, who was diagnosed with Lupus but can’t afford the drug that could keep her health. Insurance pays 80 percent of the retail price of $2500 a dose and she has to pay 20 percent of that, about $1000 a month, on top of insurance premiums and other medical expenditures. As she told the Washington Post, although she works hard and makes decent money, “I make too much money to qualify for assistance, but I don’t make enough to pay the bills,”
That money goes to PBMs, insurance companies, state Medicaid programs and Medicare, not to you to lower prices. Drug companies have an incentive to launch or raise prices as high as possible, so they can give PBMs the biggest rebates possible. PBMs and insurers then steer you to medicines that can make them the most money. Often people seeking a drug that is more effective must fail to get better or wind up getting sicker using the rebate rich drugs instead of the medicine that works best. Moreover, while PBMs and insurers pocket the rebates, you are paying a part or all of, the retail price of a drug.
Too often PBM profits come at the expense of not only of someone’s well-being but their lives. Cancer doctor and CEO of New York Cancer Specialists, Jeff Vacirca tells of a young husband with advanced melanoma and tumors attached to his brain being treated in his practice who had a potentially life-prolonging drug waiting for him at the pharmacy. But, as he wrote, “his Pharmacy Benefit Manager pumped the brakes, instead requiring that he and his wife order the medication from the mail-order pharmacy owned by that PBM — and submit a $1,000 co-pay.
By the time his wife was able to procure co-pay assistance, the young man could no longer swallow pills and passed away in the ICU. Medication that was critical to treating his cancer remained just on the other side of the clinic’s pharmacy counter, with access denied by the couple’s PBM."
As FDA Commissioner Scott Gottlieb said recently, “Patients shouldn’t face exorbitant out-of-pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries. Sick people aren’t supposed to be subsidizing the healthy.” Nor are they supposed to subsidize those hospitals, insurance companies and PBMs that make money under. Obamacare, Medicaid or Medicare.
My administration has already taken steps to make more medicines more affordable. The FDA has cleared the backlog of generic drug applications and is working hard to bring more affordable versions of biotech drugs – called biosimilars – to the market.
Unfortunately, our success in breaking lower priced medicines to market has not always led to lower out of pocket costs for consumers. FDA approved two cheaper versions of a brand biologic drug for arthritis last year. Rather than letting products compete on price, PBMs used the competition to extract even bigger rebates from the brand drug in exchange for excluding the less expensive versions from coverage. The brand drug’s list price and sales actually increased with nearly 90 percent of the price hike going into the pockets of the PBMs.
Starting today, my administration will eliminate the bribes and barriers that are pushing drug prices higher and make access to the medicines that work best for each individual affordable.
First, we are going to let people know when they are being taken advantage of. Starting next month, Medicare and Medicaid will require the disclosure of the actual net price of every drug they pay as well as the retail price for every medicine.
Second, we are going to pay for the net price of drugs, nothing more. To that end, we have stopped letting hospitals that serve the poor to get discounts on drugs and then sell them to you at the retail price.
We will expand this policy to every drug benefit program the government pays for.
Third, I have instructed Secretary of Health and Human Services, Alex Azar, to use the buying power of the federal government to get a better deal for consumers. We will, starting next year, require pharmaceutical companies, health plans and insurance companies participating in a federally subsidized health plan to reduce out of pocket drug costs of those who pay most for new medicines. We will also encourage the development and use of outcomes-based health coverage where companies provide money back guarantees to the government and consumers if their products don’t work.
HHS has already established such agreements for the use of gene therapy for cancer. But we can do more. And as part of that effort, we will allow drug companies to directly reduce net prices of medicines and out of pocket costs of Medicare and Medicaid patients. That means using charities to pay part of a higher retail drug price will be phased out in a way that does not disrupt patient access.
Fourth, we will begin to actively investigate and prosecute health plans, PBMs and drug companies that steer patients to certain medicines that generate higher rebates or impose barriers to access that are designed to achieve the same goal. Our administration is already going after a group of generic drug companies for conspiring to increase prices by over 1000 percent. Free markets benefit the consumer and spur innovation. Cartel like behavior in the pharmaceutical supply chain will be targeted and eliminated. You can count on it
Fifth, we will regard drug benefit designs that have a pattern of forcing the sickest to pay the most or to require people in need of medicines take other drugs just because they are cheaper to the plan as both discriminatory and in potential violation of anti-kickback and racketeering laws.
Finally, will eliminate the use of gimmicks and legal maneuvers to limit generic drug approvals. The FDA will waive requirements that generic and brand companies have to agree on steps to handle the distribution and testing of new medicines in favor of a more streamlined policy that will protect the public health while freeing innovators to partner with generic manufacturers in ways that benefit both.
We have seen how medical innovation has reduced the burden of major diseases in our lifetime. It is now time to ensure that those innovations today and, in the future, do not impose yet another burden by virtue of their cost.
In the United States, the manufacturers of branded medications (on-patent, innovative drugs) represent 39% of gross net drug expenditures while the morass of non-manufacturer middleman -- Prescription Benefit Managers (PBMs), brokers, agents and assorted wholesalers and intermediaries -- are responsible for 42% of gross expenditures. What’s going on?
Perhaps a better question is what’s not going on. Topping that list is a lack of transparency in the cost supply chain, leading to cloudy conflicts of interest. If sunshine is the best disinfectant, perhaps enlightened self-interest is the best medicine.
Consider Caterpillar. Like many large corporations they were suffering under the burden of runaway healthcare expenses –especially for prescription medicines. Between 1996 and 2004, this iconic American company saw its drug spend rise by an average of 14% annually.
And then something happened. The company realized that the mechanisms it had put in place to manage cost (the traditional PBM model) wasn’t getting the job done and that a major part of the problem was systemic conflict of interest
According to Todd Bisping, Caterpillar’s Global Benefits Manager, “Our initial analysis estimated that there was 10% to 25% waste in the system, some of which we believed was driven by conflicts of interest in the system. For example, some of the same consulting firms that plan sponsors pay to help them choose their pharmacy benefit manager (PBM) often receive “broker fees” from the selected PBM. As we evaluated the supply chain, we knew eliminating conflicts of interest would be an area of focus.”
Deciding to reassert control of their own destiny, Caterpillar decided to forge a new path. After thoroughly investigating their relationship with their PBM, Restat (now a part of the UnitedHealth Group), the company decided, per Bisping, to “disintermediate the PBM from certain functions” that generated profits for them – but not for Caterpillar or its employees.
“One thing is certain, says Bisping, “the current market dynamic is creating a bloated supply chain and, ultimately, exposing plan sponsors to additional costs.”
Caterpillar’s first steps was to identify the complex ecosystem of the prescription drug supply chain, applying the same principles to their pharmaceutical costs as they do to other expenditures at Caterpillar. The result? According to Bisping? “We eliminated waste in the prescription drug supply chain. That, in turn, promoted the sustainability of our healthcare benefits.”
Caterpillar developed a unique and potent pathway to success.
First, they identifed at least one major pharmacy that would be willing to partner in a direct contracting relationship (bypassing the normal PBM pricing process) via non-exclusive relationships.
In the current system, pharmacies do not have an effective way to increase their market share outside of building additional stores. By negotiating directly with pharmacies, Caterpillar enabled them to find another way to increase their market share -- by exchanging volume for margin. A win–win for both companies. Per Bisping, “Although this model also would work in an exclusive arrangement, we believe in healthy competition. So a key deliverable was to ensure that neither party would be locked into an exclusive arrangement. It also allows for continued competition as this methodology takes hold in the industry.”
Next, Caterpillar developed a new pricing methodology to eliminate the use of average wholesale price (AWP) methodology. Bisping believes (as do many health policy experts) that the AWP methodology is flawed and only produces more waste. Caterpillar worked with its pharmacy partners to develop a “cost-plus” methodology. The Caterpillar plan includes a “real” invoice price, which represents the actual net cost to purchase the drug by the pharmacy -- not a transfer price. It also includes all net items/revenue streams that are generated now or in the future by the purchase of such drugs.
For Caterpillar’s model to be sustainable, pharmacies need to realize a profit. Therefore, the final cost is real invoice price + overhead + margin for each drug. It allows pharmacies to optimize/compete on three fronts in addition to customer service—buying, efficiency, and margin—to make them a more attractive partner to payers and win more of their business.
Perhaps most revolutionary is Caterpillar’s recognition that the fatal flaw of the established PBM is a lack of fiduciary responsibility to its clients. Therefore, their new strategy establishes audit rights.
Obviously, the net price any company pays its supplier often is a confidential matter. However, to ensure that this new methodology doesn’t design in the historic opportunity for corruption, validation is necessary. Caterpillar’s arrangement gives them the right to engage a third-party auditor to ensure that their pricing methodology is properly applied. The audit keeps critical pharmacy information confidential while allowing the company to validate that they are paying the price agreed to in the contract. In other words, trust – but verify.
Rather than relying on their PBM for a one-size fits all provider network, Caterpillar developed their own. In locations where participants didn’t have reasonable access, Caterpillar added local, independent pharmacies to the preferred network. According to Bisping, “With a preferred network in place, we chose to incentivize our plan participants to purchase their prescriptions at a preferred network pharmacy by maintaining current prescription copayments at those pharmacies. Plan participants continue to have the option of using a pharmacy in our broader PBM network; however, they now will have higher copayments (or coinsurance) at those pharmacies.”
Smart choice pays dividends. Says Bisping, “Our model is based on a simple premise: find a way to manage pharmaceutical costs so we continue to provide a sustainable, valuable prescription benefit to our healthcare participants.”
The Caterpillar model increases their ROI by decreasing COI (conflicts of interest). The company’s benefits design allows pharmacies to take control by setting their own prices and exchanging better pricing for volume, thereby eliminating the squeeze from PBMs who are forcing prescription volume to mail order (largely owned by PBMs) to lower their costs.
A key problem to address is an institutional one: too much benefit outsouring by too many companies (both large and small) – with too little strategic thinking. Perhaps this is a timely opportunity for a new wave of benefits consultants who, as their primary objective, is to help companies reduce costs and enhance patient outcomes – rather than the profits of PBMs.
It’s not an easy process. According to Bisping, “It’s been difficult to initiate and implement this process. Developing the solution has required a significant investment of time from Team Caterpillar and our consultants and vendors, but we think this model is an improvement over the way most payers purchase prescription drugs today, and other payers could easily adopt it.”
But, as Admiral Rickover so famously reminds us, “The devil is in the details – but so is salvation.”
Perhaps a better question is what’s not going on. Topping that list is a lack of transparency in the cost supply chain, leading to cloudy conflicts of interest. If sunshine is the best disinfectant, perhaps enlightened self-interest is the best medicine.
Consider Caterpillar. Like many large corporations they were suffering under the burden of runaway healthcare expenses –especially for prescription medicines. Between 1996 and 2004, this iconic American company saw its drug spend rise by an average of 14% annually.
And then something happened. The company realized that the mechanisms it had put in place to manage cost (the traditional PBM model) wasn’t getting the job done and that a major part of the problem was systemic conflict of interest
According to Todd Bisping, Caterpillar’s Global Benefits Manager, “Our initial analysis estimated that there was 10% to 25% waste in the system, some of which we believed was driven by conflicts of interest in the system. For example, some of the same consulting firms that plan sponsors pay to help them choose their pharmacy benefit manager (PBM) often receive “broker fees” from the selected PBM. As we evaluated the supply chain, we knew eliminating conflicts of interest would be an area of focus.”
Deciding to reassert control of their own destiny, Caterpillar decided to forge a new path. After thoroughly investigating their relationship with their PBM, Restat (now a part of the UnitedHealth Group), the company decided, per Bisping, to “disintermediate the PBM from certain functions” that generated profits for them – but not for Caterpillar or its employees.
“One thing is certain, says Bisping, “the current market dynamic is creating a bloated supply chain and, ultimately, exposing plan sponsors to additional costs.”
Caterpillar’s first steps was to identify the complex ecosystem of the prescription drug supply chain, applying the same principles to their pharmaceutical costs as they do to other expenditures at Caterpillar. The result? According to Bisping? “We eliminated waste in the prescription drug supply chain. That, in turn, promoted the sustainability of our healthcare benefits.”
Caterpillar developed a unique and potent pathway to success.
First, they identifed at least one major pharmacy that would be willing to partner in a direct contracting relationship (bypassing the normal PBM pricing process) via non-exclusive relationships.
In the current system, pharmacies do not have an effective way to increase their market share outside of building additional stores. By negotiating directly with pharmacies, Caterpillar enabled them to find another way to increase their market share -- by exchanging volume for margin. A win–win for both companies. Per Bisping, “Although this model also would work in an exclusive arrangement, we believe in healthy competition. So a key deliverable was to ensure that neither party would be locked into an exclusive arrangement. It also allows for continued competition as this methodology takes hold in the industry.”
Next, Caterpillar developed a new pricing methodology to eliminate the use of average wholesale price (AWP) methodology. Bisping believes (as do many health policy experts) that the AWP methodology is flawed and only produces more waste. Caterpillar worked with its pharmacy partners to develop a “cost-plus” methodology. The Caterpillar plan includes a “real” invoice price, which represents the actual net cost to purchase the drug by the pharmacy -- not a transfer price. It also includes all net items/revenue streams that are generated now or in the future by the purchase of such drugs.
For Caterpillar’s model to be sustainable, pharmacies need to realize a profit. Therefore, the final cost is real invoice price + overhead + margin for each drug. It allows pharmacies to optimize/compete on three fronts in addition to customer service—buying, efficiency, and margin—to make them a more attractive partner to payers and win more of their business.
Perhaps most revolutionary is Caterpillar’s recognition that the fatal flaw of the established PBM is a lack of fiduciary responsibility to its clients. Therefore, their new strategy establishes audit rights.
Obviously, the net price any company pays its supplier often is a confidential matter. However, to ensure that this new methodology doesn’t design in the historic opportunity for corruption, validation is necessary. Caterpillar’s arrangement gives them the right to engage a third-party auditor to ensure that their pricing methodology is properly applied. The audit keeps critical pharmacy information confidential while allowing the company to validate that they are paying the price agreed to in the contract. In other words, trust – but verify.
Rather than relying on their PBM for a one-size fits all provider network, Caterpillar developed their own. In locations where participants didn’t have reasonable access, Caterpillar added local, independent pharmacies to the preferred network. According to Bisping, “With a preferred network in place, we chose to incentivize our plan participants to purchase their prescriptions at a preferred network pharmacy by maintaining current prescription copayments at those pharmacies. Plan participants continue to have the option of using a pharmacy in our broader PBM network; however, they now will have higher copayments (or coinsurance) at those pharmacies.”
Smart choice pays dividends. Says Bisping, “Our model is based on a simple premise: find a way to manage pharmaceutical costs so we continue to provide a sustainable, valuable prescription benefit to our healthcare participants.”
The Caterpillar model increases their ROI by decreasing COI (conflicts of interest). The company’s benefits design allows pharmacies to take control by setting their own prices and exchanging better pricing for volume, thereby eliminating the squeeze from PBMs who are forcing prescription volume to mail order (largely owned by PBMs) to lower their costs.
A key problem to address is an institutional one: too much benefit outsouring by too many companies (both large and small) – with too little strategic thinking. Perhaps this is a timely opportunity for a new wave of benefits consultants who, as their primary objective, is to help companies reduce costs and enhance patient outcomes – rather than the profits of PBMs.
It’s not an easy process. According to Bisping, “It’s been difficult to initiate and implement this process. Developing the solution has required a significant investment of time from Team Caterpillar and our consultants and vendors, but we think this model is an improvement over the way most payers purchase prescription drugs today, and other payers could easily adopt it.”
But, as Admiral Rickover so famously reminds us, “The devil is in the details – but so is salvation.”
Health and Human Services Secretary Alex Azar will give the keynote at the World Health Care Congress this morning. In remarks prepared for delivery, Azar focuses on how HHS is “working to transform our healthcare system into one that pays for value. A value-driven healthcare system will look dramatically different from what we have today: Such a system will pay for health and outcomes rather than sickness and procedures. It will deliver better, cheaper healthcare for the people we serve, and it will support the next generation of cures to diseases once considered terminal.”
All of which will be ignored by the critics of the pharmaceutical industry, most of whom are now paid for by the Laura and John Arnold Foundation. Rather, they will use Azar’s speech as a pretext to flood Twitter with statements about the skyrocketing rate of price increases, how drug companies are making medicines unaffordable and how marginally effective there high priced products really are.
Critics only want to talk about value in terms of how they would set prices and limit access of new medicines based on their measure of how much a life is worth. Using ICER guidelines, the experts defend hepatitis C drug limits that have cut cure rates from 99 percent to 80 percent or assessments of drugs for cystic fibrosis and treatment resistant high cholesterol that would cut prices by 80 percent but still require patients to pay thousands out of pocket. As a study I am wrapping up will show: If they had their way, none of the new medicines introduced since 2000 would be considered valuable at their initial prices.
To be sure, newer drugs are a growing part (46 percent) of total drug spending. But the critics ignore the reason such novel therapies are a bigger part of treatment for more diseases: they are not just worth it; they are indispensable in making staying healthy more affordable and easier:
Prescription drug spending has reduced the cost of treating disease. Every dollar spent on new medicines reduces expenditures on costlier and less effective care by $6.
The more we spend on prescription drugs as a percent of health expenditures to treat or the less we spend on that condition overall. Nearly 100 percent of health expenditures on polio, measles, pneumonia tuberculosis, HIV, etc., is spent on prescription drugs. In their absence, the cost of treating each patient with those diseases would be much more if we were spending less on medicines. Recent studies have found that in the absence of new medicines, health insurance premiums would be on average 15-20 percent higher each year than they are now.
The newer medicines the healthier we become, the more productive we are and the less expensive health care becomes. Critics claim that new medicines, especially for cancer, cost more and more yet they do not add much to people living longer and healthier lives. This ignores the cumulative effect of medicines. The first and second generation of HIV medicines, measured in isolation, did not seem to increase well-being or life expectancy. The same goes for new drugs for a wide variety of tumors and rare diseases. So how do people with HIV live a healthy life with the same life expectancy as someone without the disease? How has the average life expectancy of someone with cystic fibrosis increased from 20-60 in two decades? And how has the number of cancer survivors increased from 9.8 million in 2001 to over 16 million in 2017?
It is true that the sticker price of new drugs has increased, so has the price of lots of things, including other medical procedures and services that prescription drugs have eliminated. The cost of being hospitalized with breast cancer has increased 200 percent since 2004. The cost of an allogeneic bone marrow transplant has increased from $750K to $900K between 2008 and 2016.
At the same time, the out of pocket cost for most medicines has remained the same or declined because 90 percent of our drugs are generic.
A small percentage of Americans who use new medicines pay more out of pocket each year. But that is largely because health plans and PBMs are collecting rebates while charging the sickest patients a bigger and bigger share of higher retail prices. The net price of newer medicines has increased less than 2 percent a year since 2013, yet the average out of pocket patient cost has jumped 53 percent due to higher list prices and higher cost sharing.
Last year I published a study showing that 2 percent of all patients, using 2 percent of prescriptions, paid nearly 25 percent of all out of pocket costs and generated 30 percent -- $39 billion of the nearly $130 billion in rebates. Critics like to claim that eliminating the out of pocket cost of the newer drugs will do nothing to reign in drug prices. But they ignore that out of pocket spending has increased by over 50 percent even as the rate of increase in net spending for the most expensive medicines (meaning net of rebates) declined.
It begs the question of why cost sharing for drugs goes up even as it stays the same for other procedures and services that cost more over time.
And most important, it boggles the mind and the conscience, that they only care about controlling drug prices rather than ensuring access to new medicines, the proven source of value in health care, is made affordable.
Count how many times the critics mention these facts. It will take a minute at most. By comparison, counting the number of tweets that ignore the value of medical innovation and distort the data, ignore the context or outright lie to do so, could take months.
All of which will be ignored by the critics of the pharmaceutical industry, most of whom are now paid for by the Laura and John Arnold Foundation. Rather, they will use Azar’s speech as a pretext to flood Twitter with statements about the skyrocketing rate of price increases, how drug companies are making medicines unaffordable and how marginally effective there high priced products really are.
Critics only want to talk about value in terms of how they would set prices and limit access of new medicines based on their measure of how much a life is worth. Using ICER guidelines, the experts defend hepatitis C drug limits that have cut cure rates from 99 percent to 80 percent or assessments of drugs for cystic fibrosis and treatment resistant high cholesterol that would cut prices by 80 percent but still require patients to pay thousands out of pocket. As a study I am wrapping up will show: If they had their way, none of the new medicines introduced since 2000 would be considered valuable at their initial prices.
To be sure, newer drugs are a growing part (46 percent) of total drug spending. But the critics ignore the reason such novel therapies are a bigger part of treatment for more diseases: they are not just worth it; they are indispensable in making staying healthy more affordable and easier:
Prescription drug spending has reduced the cost of treating disease. Every dollar spent on new medicines reduces expenditures on costlier and less effective care by $6.
The more we spend on prescription drugs as a percent of health expenditures to treat or the less we spend on that condition overall. Nearly 100 percent of health expenditures on polio, measles, pneumonia tuberculosis, HIV, etc., is spent on prescription drugs. In their absence, the cost of treating each patient with those diseases would be much more if we were spending less on medicines. Recent studies have found that in the absence of new medicines, health insurance premiums would be on average 15-20 percent higher each year than they are now.
The newer medicines the healthier we become, the more productive we are and the less expensive health care becomes. Critics claim that new medicines, especially for cancer, cost more and more yet they do not add much to people living longer and healthier lives. This ignores the cumulative effect of medicines. The first and second generation of HIV medicines, measured in isolation, did not seem to increase well-being or life expectancy. The same goes for new drugs for a wide variety of tumors and rare diseases. So how do people with HIV live a healthy life with the same life expectancy as someone without the disease? How has the average life expectancy of someone with cystic fibrosis increased from 20-60 in two decades? And how has the number of cancer survivors increased from 9.8 million in 2001 to over 16 million in 2017?
It is true that the sticker price of new drugs has increased, so has the price of lots of things, including other medical procedures and services that prescription drugs have eliminated. The cost of being hospitalized with breast cancer has increased 200 percent since 2004. The cost of an allogeneic bone marrow transplant has increased from $750K to $900K between 2008 and 2016.
At the same time, the out of pocket cost for most medicines has remained the same or declined because 90 percent of our drugs are generic.
A small percentage of Americans who use new medicines pay more out of pocket each year. But that is largely because health plans and PBMs are collecting rebates while charging the sickest patients a bigger and bigger share of higher retail prices. The net price of newer medicines has increased less than 2 percent a year since 2013, yet the average out of pocket patient cost has jumped 53 percent due to higher list prices and higher cost sharing.
Last year I published a study showing that 2 percent of all patients, using 2 percent of prescriptions, paid nearly 25 percent of all out of pocket costs and generated 30 percent -- $39 billion of the nearly $130 billion in rebates. Critics like to claim that eliminating the out of pocket cost of the newer drugs will do nothing to reign in drug prices. But they ignore that out of pocket spending has increased by over 50 percent even as the rate of increase in net spending for the most expensive medicines (meaning net of rebates) declined.
It begs the question of why cost sharing for drugs goes up even as it stays the same for other procedures and services that cost more over time.
And most important, it boggles the mind and the conscience, that they only care about controlling drug prices rather than ensuring access to new medicines, the proven source of value in health care, is made affordable.
Count how many times the critics mention these facts. It will take a minute at most. By comparison, counting the number of tweets that ignore the value of medical innovation and distort the data, ignore the context or outright lie to do so, could take months.
Surprised?
It may not suit the cognitive mapping of some pols and pundits (or people at ICER), but, in 2017, the net price increase for branded products was lower than the Consumer Price Index. And, according to IQVIA, the overall US drug spend (including generics) increased just 0.6%.
Consider the facts:
* Prescription medicine spending increased 1.3% between 2015 and 2016
* Overall National Health Expenditure (NHE) increased 4.3% during the same period
* Total NHE spend grew to $3.3 trillion in 2016. Approximately 10% of total, $329 billion, was spending on prescription drugs
Here’s the headline you won’t see in the New York Times or the Washington Post,
“Prescription Medicine Spending Growth in the U.S. is Less Than the Rate of Inflation.”
Let’s have inclusive and honest debate. As the Japanese say, “Don’t fix the blame. Fix the problem.”
It may not suit the cognitive mapping of some pols and pundits (or people at ICER), but, in 2017, the net price increase for branded products was lower than the Consumer Price Index. And, according to IQVIA, the overall US drug spend (including generics) increased just 0.6%.
Consider the facts:
* Prescription medicine spending increased 1.3% between 2015 and 2016
* Overall National Health Expenditure (NHE) increased 4.3% during the same period
* Total NHE spend grew to $3.3 trillion in 2016. Approximately 10% of total, $329 billion, was spending on prescription drugs
Here’s the headline you won’t see in the New York Times or the Washington Post,
“Prescription Medicine Spending Growth in the U.S. is Less Than the Rate of Inflation.”
Let’s have inclusive and honest debate. As the Japanese say, “Don’t fix the blame. Fix the problem.”
I’ve just returned from Beirut, where I had the privilege of attending the Future Health conference. My panel was titled, “Value Innovation for the Patient, the Healthcare Ecosystem, and the Economy. I was doubly honored that one of my co-panelists was Mr. Ghassan Hasbani, Lebanon’s Deputy Prime Minister and Minister of Health.
Minister Hasbani is revamping the medicines tendering program for Lebanon and one of the key tenets being weighed in the new national decision-making process is value. As His Excellency said from the podium, “It’s not only a cost, it’s an investment.”
Bravo.
And, as with any investment, it’s impossible to understand the cost without proper consideration of the return.
Minister Hasbani is revamping the medicines tendering program for Lebanon and one of the key tenets being weighed in the new national decision-making process is value. As His Excellency said from the podium, “It’s not only a cost, it’s an investment.”
Bravo.
And, as with any investment, it’s impossible to understand the cost without proper consideration of the return.
From the Cutting Off Nose to Spite Face Department …
Industry fears disruption as EU excludes UK from drug approvals
LONDON (Reuters) - A European decision to exclude Britain from the EU’s drug approval system from March 30 2019 - the day after Brexit - has raised alarm among drugmakers, who fear the abrupt change could disrupt medicine supplies to patients.
The move confounds hopes for continued joint cooperation via the European Medicines Agency (EMA), at least during a transition or implementation period until the end of 2020 when the UK will remain closely tied to the European Union.
Prime Minister Theresa May said in a speech on March 2 that London wanted to explore ways to keep Britain a part of EU agencies, such as the EMA.
The highly regulated drugs industry is particularly susceptible to Brexit, given the EU’s centralized system for approving and monitoring medicines. Brexit is already forcing the EMA to relocate from London to Amsterdam.
Now the EMA has appointed experts from other European countries to take over work currently undertaken by Britain’s Medicines and Healthcare products Regulatory Authority (MHRA) from next March.
Since the MHRA assesses around a fifth of EU medicines, drug industry leaders fear this sudden handover will cause disruption.
“Removing key expertise and reallocating work to other agencies who are not yet able to take on the work, and expecting them to increase their capability overnight is an increasingly reckless course of action proposed by the (European) Commission,” said BioIndustry Association CEO Steve Bates.
“In the interests of patients on both sides of the Channel, it is important that the EU retains access to UK expertise in a post Brexit medicines regulatory framework and that regulatory alignment is maintained to ensure continuity of medicines supply.”
Maintaining timely approvals for new drugs is crucial for pharmaceutical and biotechnology companies, which have dozens of experimental medicines due to be assessed by the EU regulator in the next couple of years.
Global drug companies, including UK-based GlaxoSmithKline and AstraZeneca have been vocal in calling for continued close EU-UK ties after Brexit. The issue is also important to many Japanese drugmakers that have made Britain their European base.
The MHRA confirmed it would no longer act as a so-called “rapporteur” for EU drug licensing or safety monitoring, although there has been no decision on long-term relations.
“It is important to note this only applies to the implementation period and there is no decision yet on the future relationship,” a spokesperson said. “The UK’s position on medicines regulation remains clear. We want to retain a close working partnership with the EU.”
The Association of the British Pharmaceutical Industry said it was clearly in the EMA’s interest to continue to draw on the expertise of the MHRA and it urged London and Brussels to come to an early agreement “in the interest of patients and public health”.
Industry fears disruption as EU excludes UK from drug approvals
LONDON (Reuters) - A European decision to exclude Britain from the EU’s drug approval system from March 30 2019 - the day after Brexit - has raised alarm among drugmakers, who fear the abrupt change could disrupt medicine supplies to patients.
The move confounds hopes for continued joint cooperation via the European Medicines Agency (EMA), at least during a transition or implementation period until the end of 2020 when the UK will remain closely tied to the European Union.
Prime Minister Theresa May said in a speech on March 2 that London wanted to explore ways to keep Britain a part of EU agencies, such as the EMA.
The highly regulated drugs industry is particularly susceptible to Brexit, given the EU’s centralized system for approving and monitoring medicines. Brexit is already forcing the EMA to relocate from London to Amsterdam.
Now the EMA has appointed experts from other European countries to take over work currently undertaken by Britain’s Medicines and Healthcare products Regulatory Authority (MHRA) from next March.
Since the MHRA assesses around a fifth of EU medicines, drug industry leaders fear this sudden handover will cause disruption.
“Removing key expertise and reallocating work to other agencies who are not yet able to take on the work, and expecting them to increase their capability overnight is an increasingly reckless course of action proposed by the (European) Commission,” said BioIndustry Association CEO Steve Bates.
“In the interests of patients on both sides of the Channel, it is important that the EU retains access to UK expertise in a post Brexit medicines regulatory framework and that regulatory alignment is maintained to ensure continuity of medicines supply.”
Maintaining timely approvals for new drugs is crucial for pharmaceutical and biotechnology companies, which have dozens of experimental medicines due to be assessed by the EU regulator in the next couple of years.
Global drug companies, including UK-based GlaxoSmithKline and AstraZeneca have been vocal in calling for continued close EU-UK ties after Brexit. The issue is also important to many Japanese drugmakers that have made Britain their European base.
The MHRA confirmed it would no longer act as a so-called “rapporteur” for EU drug licensing or safety monitoring, although there has been no decision on long-term relations.
“It is important to note this only applies to the implementation period and there is no decision yet on the future relationship,” a spokesperson said. “The UK’s position on medicines regulation remains clear. We want to retain a close working partnership with the EU.”
The Association of the British Pharmaceutical Industry said it was clearly in the EMA’s interest to continue to draw on the expertise of the MHRA and it urged London and Brussels to come to an early agreement “in the interest of patients and public health”.
Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.
