Doctor talking to patient

Several prescription drug pricing experts say that secret deals often prompt drug benefit companies to cover brand-name prescriptions when equally effective generic, or even over-the- counter medications, are also readily available. 

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. Employer unions 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 $3 billion in overcharges by Express Scripts and filed suit Monday, March 21 2016 against the PBM for damages.

In their deals with drugmakers, PBMs agree to favor the higher cost drugs on the PBMs’ formularies and agree that they won’t place quantity limits — or prior authorization rules — 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. Representative Doug Collins, RGa., reintroduced legislation [February 2016] that would require more public disclosure in how PBMs determine their reimbursements, especially with government drug benefit programs including Medicare Part D.

Mark Merritt, CEO of the PBMs’ trade group, said more regulation wasn’t the answer. In March 2016, 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 the insurance companies 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 insurance companies 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 and do not drill down into the complicated details of their formularies. Hayes says she has realized that a group of union funds had agreed to require a step therapy program requiring patients to take pricey brand-name drugs before generics to get guaranteed rebates.

PBMs pass along some of the rebates to their employer unions, but Hayes says they seldom make brand-name drugs cheaper than generics for employer unions, based on contracts she has audited.

Unless a PBM proves that the use of a brand-name drug is bringing the cost down to lower than the generic through rebates passed along to the employer unions, Hayes says she tells companies “you can assume it’s not.”

When PBMs 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. Published by researchers online in the Journal of the National Cancer Institute [March 2016], 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 “protonpump 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 higher 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 unions and insurance companies 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 beneficiaries…,” she said.

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 nonprescription 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, Maryland, gastroenterologist, says it “doesn’t matter to me” which version of the medications patients 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 unions and insurance companies on how to cut waste. Pharmacists should suggest patients stop using the prescription versions.