Follow the money, part 2

Discounts and exclusive contracts raise costs and lower access.

Issue: February 25, 2018

ByDarrell E. White, MD

Last month I outlined the basic supply chain that once determined how much money your patient spent to acquire medication. A pharmaceutical company produced a drug and sold it to a wholesaler, which then sold it to a retailer, such as a pharmacy or hospital. Another hand slipped into the process in the guise of an insurance company that had contracted to pay some or all of the patient’s cost. Your patient paid a negotiated amount at the point of sale. If the medicine was a generic, the cost to the patient was typically lower.

Kind of sounds like a fairy tale now.

On a daily basis, I now create all manner of subterfuge in order to prevent my patients from discovering the list price of their medicines. Just knowing how much a medicine “costs” makes many patients reluctant to consider treatment, regardless of the eventual true expense they may incur. Mind you, I am an ophthalmologist; I am not prescribing life-saving treatments for hepatitis C at $80,000 a pop. Still, when a patient hears that her treatment for chronic dry eye disease (DED) “costs” $450 a month, our conversation veers wildly off track.

Pharmacy benefit managers

This dramatic increase in the cost of medications can be explained in large part by the appearance of another third party in the pipeline, the pharmacy benefit manager (PBM). Over the last 10 years, PBMs have become the most important player in the rise in costs for your patients, with a parallel increase in difficulties your patients encounter accessing medication they need. PBMs have become wildly profitable, a fact that has spurred some of the largest mergers (CVS and Caremark) and most contentious lawsuits (Anthem and Express Scripts) in the U.S.

In the simplest sense, the concept behind a PBM actually makes a bit of sense. These intermediaries carve out the entire prescription process from the rest of “health insurance.” A PBM is then responsible for acquiring and distributing medicine to the population covered by a particular insurance plan. Some insurance companies keep this in-house. PBMs were originally popular with very large companies that self-insured their employees (ie, paid medical claims from company funds). For a fee, the PBM took on everything involved when it came to medications.

As PBMs became larger, they gained considerable leverage when it came to negotiating pricing. On first blush it seems like this would lower drug costs, right? Actually, the exact opposite occurred. The biggest PBMs dangled the prospect of exclusivity, or at least the greatest level of accessibility, in return for the biggest discounts on pricing. Pharmaceutical companies took the bait, and a veritable arms race was launched. Companies battled to offer the gaudiest discount in return for most-favored nation status on the PBM formulary.

PAGE BREAK

You are reading this in February, the darkest, coldest, most unforgiving time of the year in retail. Every single store you can think of is offering you 40%, 50% to 60%, 70% and 80% off on the same items that you put under the tree in December. How can they do that? It is pretty simple, actually: They start with a suggested retail price that is outlandish with the intent to discount it from the very beginning. There is no difference between your standard-issue branded DED drug and that fancy Polo button-down; prices are jacked up so that buyers can be influenced by discounts.

Before I go any further with this, let us agree on one very important point: Buying medicine is fundamentally different from buying a shirt. That label-free shirt you can buy at Target for 10% of what you would pay for a discounted horsey-label shirt will still get you into a “no shoes, no shirt, no service” diner, but you may very well not get the same type of equal effect from a generic drug. By the same token, the need for a medicine is fundamentally different from the need for a new shirt.

What we have seen at the retail level is a dramatic increase in price for many of our branded medications. This allows a pharmaceutical company to offer a discount in return for access to a larger number of units sold in a treatment space. With the launch of a new prescription treatment in 2015, the DED space provides a very useful example to show you why your patient faces increased costs and more difficulty accessing even long-term successful treatment. Names will be withheld in order to protect the innocent (me).

Real-world example

Drug A has had a long, highly profitable run as the best available treatment for DED. Revenue growth has come from a combination of slowly increased prescriptions written and steady semiannual price increases. Drug B enters the market with a flood of free product and proves that it works. It is priced within pennies of drug A. Remember, the whole idea is to price high and sell low. Drug company B chooses a couple of high-power PBMs and makes a massive push there, while drug company A does everything it can to keep drug B buried on the lowest, most expensive coverage tier. If your patient happens to be covered by the “wrong” insurance, he can see his part of the cost go up two or three or five or 10 times.

PAGE BREAK

Once a PBM has anointed a drug, it is now highly incentivized to push all patients there, thus increasing its profit. This creates all kinds of deeply cynical behavior. At the negotiation level, there are allegations of questionable discussions of “bundling” the pricing of multiple medications. The year 2017 saw an explosion of preauthorization requests with an escalation in the steps that must be taken to qualify a prescription. This particular burden falls upon you and your staff; the work you do is uncompensated. Delayed prescription fulfillment equals more profit.

In the DED world, we learned a new term: step therapy. Your patient had to “fail” on the PBM-preferred drug before your prescription could be covered, even for refills. Change prescription to preferred drug equals more profit. Prepare for a new definition of compliance in 2018. Our patients have been taught to extend their DED prescription whenever it is safe to do so. We have been inundated with copies of letters telling our patients that they have failed to use their DED medications properly and therefore their insurance will no longer pay for them. Apparently on-label use of the preferred drug equals more profit.

I do not begrudge the pharmaceutical companies their profit; they make real products that fight disease. As for the rest, the game is on, my friends. Like it or not, you are a player. This goes for all doctors prescribing highly effective but expensive drugs. Hopefully my little primer will help you understand the game board well enough to protect your patients.

Perhaps this will also get you thinking about how we can change this.

For more information:
Darrell E. White, MD, can be reached at SkyVision Centers, 2237 Crocker Road, Suite 100, Westlake, OH 44145; email: dwhite@healio.com.

Disclosure: White reports he is a consultant to Allergan, Shire, Sun, Kala, Ocular Science, Rendia, TearLab, Eyevance and Omeros; is a speaker for Shire, Allergan, Omeros and Sun; and has an ownership interest in Ocular Science and Eyevance.