PBMs keep moving to adjust to evolving healthcare market

CVS and Express Scripts open more of the curtain around rebates; formulary exclusions grow


It’s been a rocky couple years for the pharmacy benefit management (PBM) business, but the market leaders—Express Scripts and CVS—appear to be making a number of moves to evolve their businesses.

A traditional element in recent years has been formulary exclusion lists—branded drugs (usually) that are excluded from coverage under health plans that choose to use this cost-cutting mechanism. On Aug. 7, Express Scrips announced changes to its list, adding 48 new exclusions (drugs shuffle onto or off the list from year to year). Most surprising: the addition of therapies for rare diseases, including hemophilia and multiple sclerosis.

“Orphan drug manufacturers used to assume that their commercialization was ‘safe’ because their drug was for a rare disease; that’s no longer true,” notes Jeremy Shafer, SVP at Precision for Value. It is perhaps a natural evolution of the orphan drug market, since more and more manufacturers enter with competing products—but it’s also Express Scripts keeping a hammer over the heads of pharma marketers. “Despite promises to limit price increases, drugmakers are trying to game the market by delaying generic competition, blocking access to safe and effective biosimilars, and coyly deferring—not cancelling—list-price increases,” it stated. The full “National Preferred Formulary,” as it is called, will be issued in September.

CVS Health is in the news with a white paper announcing that it is employing the comparative effectiveness methodology of the Institute for Clinical and Economic Review (ICER) to allow “clients to exclude any drug launched at a price of greater than $100,000 per QALY from their plan.” Quality Adjusted Life Year is a technique for putting a value on improved or extended life of patients; how this has been measured by ICER and others has been a subject of controversy, in health policy arenas, for years. “In Europe, most medications are priced initially to produce effectiveness rated at $50,000 per QALY,” says CVS’ white paper. “The US does not have any such programs. Launch prices continue to go up, into the hundreds of thousands of dollars each year, pushing costs per QALY into the $300,000-$500,000 range—costs the US health care system simply cannot absorb.”

How CVS will administer this policy is not entirely clear; apparently, the company will simply inform plan members that their plan does not include coverage of such drugs. (If so, isn’t this something that a plan can do any time for any drug?)

Rebate transparency
Adam Fein, president of Pembroke Consulting and blogger at DrugChannels.net, posted an item reviewing major PBMs’ public statements on how they are handling rebates from manufacturers; the upshot is that it is plans themselves (insurers and employee health plans) that are retaining most of the rebates, and not the PBMs.
There has been a running argument for a couple years now that PBMs are primarily middlemen in the supply chain between pharma manufacturers and patients, negotiating costs for drug coverage with insurers on the one side, and prices for drugs on the other, but otherwise not engaged, and making a pretty penny while doing so. As drug pricing has risen, so has the volume of rebating to PBMs, with manufacturers positioning their drugs as much on the size of the rebate to the PBM, as on the cost to the payer. (To be fair, this view overlooks value of the mail-order pharmacy and patient support services that most PBMs provide.)
According to quarterly statements and the CVS white paper mentioned above, Express Scripts “passes 95% of all pharmaceutical purchase discounts, price reductions and rebates back to their core PBM commercial and health plan clients and their customers,” retaining some $400 million (Express Scripts 2017 revenue: $100 billion). CVS says that it passes through 98% of rebates, retaining $300 million.
One’s first thought is that this setup is a partial justification for Cigna’s planned acquisition of Express Scripts—streamlining the flow of those rebates from the PBM part to the insurer part. A second thought is all this is occurring while patients’ copays or coinsurance (especially for high-price drugs) is based on the drug’s list price and not on the rebated price—something that state and federal lawmakers are angling to address with legislation. Meanwhile, the pharma industry continues to juggle its price increases with its growing rebates, a leaky balloon that it keeps pumping air into on one end while watching it leak out at the other.