Renda Bower knows well the cost of drugs to treat rheumatoid arthritis –her husband, son and daughter all have the painful, disablingautoimmune disease. And the family’s finances revolve around payingfor them.

Even with insurance, Bower’s family last year faced $600 a month in copayments for the drug, plusadditional payments on another $16,000 in medical bills racked upin 2016 when a former insurer refused to cover all the doses her9-year-old daughter needed.

Bowers, of Warsaw, Ind., said her family tries to keep up withprices by cutting back on her children’s sports andextracurriculars and skipping family vacations. She also works as apart-time teacher.

But financially, it’s hard. “The cost should not be this high,”she said.

Wholesale prices for Humira and Enbrel, the two most commonlyused treatments for rheumatoid arthritis, known as RA, increasedmore than 70 percent in the past three years.

Since the first RA drug came to market a decade ago, nearly adozen have been added. If basic economics prevailed, RA treatmentsand patients would have benefited from competition. But, because of industryprice-setting practices, legal challenges and marketing tactics,they haven’t. The first RA drug cost $10,000 a year. It now listsfor more than $40,000 — even as alternatives have entered the U.S.market.

“Competition generally doesn’t work to lower prices in brandedspecialty drugs,” said Peter Bach, director of Memorial SloanKettering’s Center for Health Policy and Outcomes.

Humira is the world’s No. 1 prescription drug by revenue. AbbViemanufactures and markets the drug and is on track to reach revenuefrom the product of $17 billion this year.

Other RA treatments are also among the top 10 drugs by revenuesold in the U.S. Enbrel, made by Amgen, ranks as No. 3. Remicade,by Janssen Biotech, is fifth. Some RA medications are approved forother conditions, including psoriatic arthritis, Crohn’s diseaseand psoriasis.

About 1.5 million Americans have rheumatoid arthritis. TheBowers found some relief this year but not because prices dropped.Rather, Renda’s husband left his job at an engineering firm to workas a machinist at a medical device company that has an insuranceplan with lower copayments. Her daughter was accepted into aclinical trial at Cincinnati Children’s Hospital. The trial coversthe drug’s cost but not the associated expense of weekly travel,among other things.

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Kaiser HealthNews (KHN) is a national health policy news service. It isan editorially independent program of the Henry J. Kaiser FamilyFoundation which is not affiliated with KaiserPermanente.

Middlemen benefit as wholesale price rises

The complicated pharmaceutical supply chain in the United States meansmiddlemen — such as pharmacy benefit managers (PBM) and, in somecases, hospitals and doctors’ offices — can gain financially bychoosing more expensive drugs. That’s because PBMs usually get arebate from the drugmakers on top of whatever profit they get fromselling or administering the drug.

Those rebates often are based on a percentage of the list, orwholesale, price. So, the middlemen who get the rebates take inmore money when drugmakers raise those sticker prices.

But who pockets the rebates? PBM firms, which oversee drug benefits for millions ofAmericans, say they share all or part of them with the insurers oremployers who hire them. In some cases, the rebates go directly tospecialty pharmacies, medical clinics or physicians dispensing thetreatments.

The rebates rarely end up directly in patients’ pockets.

Those rebates affect the market in another way: They can make itharder for some companies to offer new treatments or they canthwart less costly rival products.

“We could give [our new drug] away for free and … it would stillbe more economically advantageous” for insurers and PBMs to sendpatients to Humira first, said Andreas Kuznik, a senior director atRegeneron Pharmaceuticals, at a conferenceexamining the cost and value of RA treatments.

Thomas Amoroso, medical director for medical policy at TuftsHealth Plan, said at the same March conference that he has founddrug industry sales representatives to be persistent in trackinghow their drugs are positioned on plan formularies.

If insurers decide to add a new, lower-cost drug as thepreferred alternative, “our Humira rep would be knocking on ourdoor next week and saying, ‘Hey, that rebate we gave you? We’retaking it back,’” Amoroso said.

The roundtable at which they spoke was part of an assessment ofRA drug pricing convened by the Institute for Clinical and EconomicReview, a nonprofit that evaluates the value of medical testsand treatments for insurers and other clients.

PBMs won’t disclose the rebates they provide to clients, butstudies provide a clue. It’s a huge amount of money.

The Berkeley Research Group, a consulting firm that advisesmajor employers, said that rebates and other discounts paid to insurers, PBMsand the U.S. government for brand-name drugs grew from $67 billionin 2013 to $106 billion in 2015.

Most RA drugs are a complex type of medication, calledbiologics, which are made in living organisms. Nearly identicalcopies of biologics are called biosimilars. They hold the promiseof lower prices, just as generic drugs did for less complexmedications.

While several biosimilar RA treatments have won Food and DrugAdministration approval, including replicas of Humira, Enbrel andRemicade, most are tied up in court battles over patents. And thosebiosimilars that have made it to market are now the subject of newareas of legal challenge.

In mid-September, Pfizer filed what will be a closely watchedantitrust lawsuit against Johnson & Johnson. The case allegesthat J&J is using exclusionary contracts and the threat ofwithdrawing rebates to protect Remicade from Pfizer’s lower-pricedbiosimilar, Inflectra, which hit the market last winter.

J&J defends its contracts, saying they are “drivingdeeper discounts that will lead to overall lower costs.”

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Kaiser HealthNews (KHN) is a national health policy news service. It isan editorially independent program of the Henry J. Kaiser FamilyFoundation which is not affiliated with KaiserPermanente.

Arguments for and against rebates

Rebates are under increasing scrutiny, amid growing alarm aboutsoaring prescription drug prices in the United States. But thePharmaceutical Care Management Association, the PBM industry’strade lobby, said that complaints that rebates help fuel higherprices are unfounded.

These rebates, the lobby says, help save the health systemmillions of dollars by shifting dollars back to insurers or otherclients, who can then use them to lower future premium increases.This year, it commissioned a study that found no correlation between rebates and the risinglist prices of the top 200 brand-name drugs, suggesting higherrebates didn’t necessarily drive higher prices.

“The rebate system exists because [insurers, employers and otherclients] want discounts,” said Steve Miller, chief medical officerfor Express Scripts, one of the nation’s three largest PBMs.

Express Scripts offers clients an option to give patients thediscount directly, but most choose not to, he said.

“While individual patients would get the benefit, everyoneelse’s premiums would go up [because the rebate savings would notflow back to the insurer],” Miller said. “Changing where the rebategoes doesn’t lower the price of the drug.”

But rebates play a role in what some patients pay at thepharmacy counter.

It stems from a simple calculation: whether a patient’sinsurance copayment is based on a percentage of the drug’swholesale price or the drug’s price after rebates are given to themiddlemen.

Heidi Barrett , a mother of five from Everett, Wash., faces a 10percent copay whenever she or one of her four children who have RA,all of whom have been on medication for years, go for their monthlyinfusion of Remicade.

Although Barrett is shielded from much of the cost because shehas good employer-based insurance through her husband’s job, thequestion of whether her monthly copayments are based on thewholesale price or the after-rebate price rankles her.

“I have asked that question of the insurance company. I’ve askedthat of our union,” said Barrett, 47, a paralegal who isn’t workingbecause she spends so much time on her children’s treatments. “Inever got any answers back.”

Based on data analyzed by Bach’s group at Sloan Kettering todetermine the cost of 100 milligrams of Remicade, it appears she ispaying based on the pre-rebate price.

Here’s how that works: Barrett’s 18-year-old son recentlyreceived a 600 mg dose that required a copay of $655. That is closeto 10 percent of Remicade’s average U.S. wholesale price for thatdose of $6,450, the Bach analysis showed.

Barrett is not benefiting from the rebate that middlemenreceive.

Rebates and discounts, however, drive down the price forpharmacy benefit managers, hospitals or doctors.

According to the analysis, the average net cost of a 600 mg doseis $4,140, once all discounts are calculated. If Barrett could usethat base price as her copay, she would save more than $240. Forher entire family — all her children and Barrett take similar doses— that equals a savings of $1,000 a month.

With her current insurance, Barrett quickly meets a yearly$12,900 deductible. She considers herself lucky that her insurerthen picks up the drug’s full cost. But the experience has changedher motherly advice to her children, who are 10, 18, 19 and 25,about what to hope for in life.

“I tell them, you can be anything you want when you go grow up.But you need to go to a company with good health insurance, evenbefore you look at the salary or whether you’ll be happy there,your first priority is health insurance,” Barrett said. “It’s aninsane world we live in.”

Kaiser HealthNews (KHN) is a national health policy news service. It is aneditorially independent program of the Henry J. Kaiser Family Foundation whichis not affiliated with Kaiser Permanente.