For years, Plavix and Lipitor, two of the most lucrative prescription medications in the history of the American drug market, have constituted quite a one-two punch. Now, as Plavix loses its patent protection and Lipitor faces competition from multi-source generics, it’s an important time for consumers and benefits managers to understand how the transition from brand to generic will affect drug prices going forward.
As Pharmacists United for Truth and Transparency explained on AARP’s Inside E Street, Pfizer previously offered massive rebates to pharmacy benefits managers (PBMs), the third party administrators of prescription drug programs, to give preferential formulary treatment to brand name Lipitor. In doing so, Pfizer and a number of PBMs kept brand name Lipitor profitable and expenses higher than needed for many employers and consumers.
PBMs readily accept manufacturer rebates since their opaque contracts with employers often allow the PBM to keep a majority of the rebates as profit while passing only a small portion onto the employer. PBMs are notorious for crafting contracts that grant themselves maximum financial flexibility and make employers vulnerable to overpaying for prescription drugs.
One contract between a pharmacy benefit manager and an employer states that the PBM has the right “to make an equitable adjustment to the rates, guarantees, administrative fees and/or Rebates” when “Rebate revenue is materially decreased because Brand Drugs move off-patent to generic status.” Any benefit manager who signs such a contract is essentially giving their PBM the green light to retain high drug prices for drugs that have transitioned from brand to generic.
Now, Lipitor and Plavix, which have helped provide massive profits for drug manufacturers and PBMs, face increased competition from cheaper generic drugs. Benefits managers who expect to see significant reductions in their PMPM (per member per month) claims should take a careful look at drug costs now that Lipitor, Plavix and other profitable drugs lose patent exclusivity. It stands to reason that as consumers take less expensive drugs, employer costs would also plummet. But the powerful and profitable PBM industry won’t allow employers to reduce costs without a fight. If employers aren’t careful, PBMs will overcharge employers for generics – keeping drug costs rising when they should be going the other direction.