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It's commonly known that the cost of prescription drugs in the U.S. has been rising well above inflation, 7.5% in some cases. Ironically, the current pandemic-driven inflation rate may technically put an end to that, though sadly it will not stop rising drug prices.
According to the IQVIA Institute, specialty drugs account for 53% and branded drugs account for 30% of the overall drug spend, most of which are still under patent with limited competition. However, generics and biosimilar drugs are available at a substantially lower price for some of these drugs, but surprisingly, evidence shows that these lower cost options are often excluded from our formularies by the very vendor we entrust to manage our costs.
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Health plans and self-insured employers hire middlemen called pharmacy benefit managers (PBMs) to manage prescription drug plans. PBMs establish the plan formulary deciding which drugs are covered and their respective copay tiers, which establish employee cost-sharing.
PBMs negotiate rebates from drug manufacturers in return for inclusion in the formulary and for favorable placement on the copay tiers. PBMs keep a portion of these rebates and pass the balance on to the health insurer or self-insured employer. Unfortunately, this creates a perverse incentive for the PBM to place a higher-priced drug on the formulary to pad its own bottom line at the expense of its client – the self-insured employer.
Commercial plan design data for generic and biosimilar drugs is not readily available to the public, but Medicare Part D plan data is available and the activity there is alarming. Biosimilar drugs typically come onto the market at 30% or more below the reference branded drug. Generics often enter the market at an even steeper discount. Both should be wins for health plans and their covered participants; however, the percentage of newly released generic or biosimilar drugs covered in the first year by Medicare Part D plans dropped to 21%.
What's even more disturbing is the percentage of generic or biosimilar drugs covered on the generic tier of the health plan dropped from 93% to 43% over the past decade according to a recent Avalere study. This means that plan participants have no incentive to take the lower-cost drug. That is not an accident. The PBM is quietly encouraging plan participants to take the drug that makes them more money at the expense of your plan's bottom line and at greater out-of-pocket costs for your employees.
Commercial plans use the same PBMs as Medicare Part D and there is no reason to believe that they are behaving any differently in commercial plans. Money is a strong motivator of behavior; we must understand that our vendors act in their own economic self-interest if not managed properly.
According to the market research firm HIRC, the top three PBMs control 80% of the U.S. drug market making them formidable players in the prescription drug supply chain. A disturbing example of their power shows up in the insulin market. There are three main insulin manufacturers that are under the highest scrutiny for inflated list prices. One manufacturer reports that list prices over the past decade have grown 143%, but the net price has dropped by 54% over that same period. The difference represents the rebates paid by manufacturers for formulary placement.
All three major insulin manufacturers came out with an unbranded generic version of their own branded drugs to offer them at a lower list price to patients. Only in the U.S. prescription drug market would it make sense for a company to market a generic of their own product. The generic versions are not subject to the same PBM contracts that cover their branded offerings. Unfortunately, these lower-cost drugs were not picked up on plan formularies, resulting in low availability at pharmacies and thwarting participant savings during the deductible period.
Another recent scenario is a biosimilar that was released as an interchangeable substitute for long-acting insulin, Lantus. The biosimilar manufacturer, Viatris, launched two versions of their drug. One under the brand Semglee, with a high list price and rebates for the PBM, and another generic, dubbed insulin glargine-yfgn, with a lower list price and no rebate. Again, why would a company need to do that if the marketplace functioned normally?
There is ample evidence that PBMs are operating in their own self-interest at the expense of patients and employers. Employers should take note. We strongly encourage you to look at your vendor contracts with PBMs to ensure you and your employees have access to the most affordable medications. Your costs will likely drop. Your participants with chronic conditions will be more likely to adhere to their prescribed therapy, and you will likely experience lower hospital and other related costs – a win-win.
George Huntley is a founding member of the Diabetes Leadership Council and currently serves as CEO of both the Diabetes Leadership Council and its affiliate, the Diabetes Patient Advocacy Coalition. He has been living with type 1 diabetes since 1983 and has 3 other family members also living with type 1. A passionate advocate for people with diabetes, George served as the National Chair of the Board of the American Diabetes Association (ADA) in 2009. George is also the Chief Operating Officer and Chief Financial Officer of Theoris Group, Inc., a professional services firm headquartered in Indianapolis, Indiana that provides engineering and information technology solutions. In his corporate role, George has been the plan administrator of a self-insured health plan for over 20 years.
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