Pharmacy Benefits Uncut

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Today I’m sharing an updated post on PBM rebates that I originally wrote at the end of last year. What prompted me to update it was Stacey Richter’s conversation on the Relentless Health Value Podcast with Anne Lewandowski in which they discuss pharmacogenomic testing and PBM rebates. By the way, if you don’t already listen to Stacey’s smart, informative podcast you absolutely should. It’s a must-listen for anyone remotely connected to the employer-sponsored healthcare industry.

The traditional PBM model posits that negotiating rebates on behalf of employers keeps drug prices low. But this is not true. PBMs play the rebate game to pad their bottom lines, not reduce your drug prices.

Too many employers, however, buy into the myth that higher rebates lead to lower drug prices. Today I’m going to debunk this myth for you.

First, a bit of background about PBM rebates.

Pharmaceutical manufacturers offer rebates off the list price of drugs to PBMs in return for including their high-cost drugs in a formulary, ideally on the preferred formulary tier that is associated with fewer restrictions and greater incentives for use.

In the traditional PBM model (think the Big 3 – CVS/Caremark, Express Scripts, and OptumRx) the PBM passes on a portion of the rebate to the employer while retaining the remainder. It is estimated that PBMs retain up to 22% of rebates in the commercial market.

Clearly retaining rebates incentivizes PBMs to maximize these rebates by offering preferred formulary status to drugs with higher list prices. Think of it this way: would you prefer to retain 22% of $1000 or 22% of $10,000?

Naturally, this leads to a PBM strategy of preferring high-list price-high-rebate drugs over therapeutically similar options with lower list prices and lower rebates.

But this strategy doesn’t always lead to the lowest net price for the employer. Let’s look at a situation where a bigger rebate isn’t in fact better.

Humira (adalimumab) is a biologic drug used to treat chronic inflammatory conditions such as rheumatoid arthritis and ulcerative colitis and is one of the bestselling drugs of all time. Its list price is $7,299 for a one month’s supply. The list price for one month’s supply of Yusimry, a biosimilar of Humira, is $995. Let’s say AbbVie, the manufacturer of Humira, offers a 60% discount on Humira’s list price. This would result in a net price of $2,920, still almost three times the list price of Yusimry.

Chasing large rebates to lower drug costs has led some manufacturers to launch the same product at two different price points, one with high list price and high rebate and another with a low list price and low rebate. For example, Amgen launched Amjevita, a biosimilar of Humira at two different list prices: $3,288 and $1,557 for a 40 mg pen device, the higher-price version with rebates designed to incentivize PBMs to give it preferred formulary placement in return for a rebate, some of which will be retained by the PBM.

Also, this traditional PBM model focused on rebates often excludes therapeutically equivalent generics and biosimilars with lower list prices in favour of versions of these drugs with higher list prices and large rebates. This practice leads, in turn, to two other important issues: non-evidence-based formulary decisions and health inequities.

Because rebates are often the overriding factor for PBMs when making formulary placement decisions, evidence of clinical effectiveness and cost-effectiveness bears less weight when designing formularies. By failing to prioritize access to clinically effective and cost-effective drugs, plan members may not be able to achieve optimal long-term health outcomes.

Second, plan member cost sharing (e.g. co-pays and deductibles) is often based on a percentage of a drug’s list price rather than its net price, meaning as the difference between the list price and net price increases, plan members’ share of the drug cost also increases. In fact, data have shown that larger rebates are associated with higher out-of-pocket costs for plan members. This finding is troubling since it exacerbates existing inequities to medication access in the employer-sponsored pharmacy benefits market. Although you may not be aware of this, a considerable number of individuals who receive pharmacy benefits through an employer-sponsored plan report experiencing cost-related non-adherence to medications (e.g. skipping medication doses, taking less medication, delaying filling a prescription, not filling a prescription).

And here's where I’d like to highlight Stacey’s conversation with Anne. It focused on the link between PBM rebates and pharmacogenomic testing, something I admit I hadn’t really thought a lot about until hearing their discussion. Pharmacogenetic testing is becoming an increasingly important tool to ensure clinically effective and cost-effective medication use since it can detect how an individual’s genetic makeup affects their response to medications. It helps to identify patients who have the greatest chance of treatment success with a particular drug as well as those who may be at greatest risk of experiencing adverse effects of a drug. Evidence shows pharmacogenomics testing leads to reduced emergency room visits and hospitalizations, resulting in overall healthcare savings. And although your members will benefit from it, your PBM likely isn’t on board given that PBMs make more money as prescription drug use increases and pharmacogenomics could well reduce prescription drug use. In fact, PBMs are withholding rebates on drugs that are subject to pharmacogenomics testing and putting you and your plan members between a rock and a hard place: if you use a clinical tool to help get the right drug to the right plan member, you’re going to have to pay full price because it negatively affects their bottom line.

The solution

Ideally, rebates as a means of setting drug prices should be eliminated. Drug prices should be negotiated so they represent value, meaning that plan sponsors should be willing to pay higher prices for new drugs that provide greater improvements in health compared to new drugs that only provide incremental improvements.

Truthfully, we are a long way off from getting rid of rebates, but there are a few things employers can do to avoid the high list price/high rebate trap.

The most important thing you can do is ensure your PBM contract is optimized for obtaining the lowest net cost for every drug. And pharmacogenomic testing is yet another reason to shift the focus away from rebates to lowest net cost.

A lowest net cost approach requires that all components of drug pricing be objectively defined in the contract with unit costs listed for all generic drugs. For brand drugs, the average wholesale price (AWP) minus a percentage rebate can be specified since there is typically only one manufacturer. Aggregate rebates allow for a lot of cost variability and can lead to higher prices which is why you need to ensure that prices are clearly defined for individual drug products. For a detailed discussion of this issue, check out this Validation Institute White Paper by Scott Haas and Terry Killilea.

Although some newer PBMs have emerged over the past few years with the goal of upending the traditional PBM model, beware the terms “pass through” and “transparency”. They’ve become part of the PBM lexicon recently, and almost gimmicky in some cases. Keep in mind they are describing a process and DO NOT guarantee the actual price of a drug. In many cases they also perpetuate the high list price/high rebate strategy that is responsible for the ever-increasing cost of prescription drugs.

If you make the effort to understand the PBM rebate game that’s being played and take concrete steps to objectively secure the lowest possible drug prices in your PBM contract, you’ve taken a huge leap towards ensuring your drug plan is sustainable for both your organization and your plan members.

That’s all for this week.

See you in two weeks,

Nina

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Pharmacy Benefits Uncut is produced by Healthcare Decision Making, a consultancy that helps small and medium sized employers optimize their pharmacy benefits plan. We offer a comprehensive range of services focused on three areas: PBM procurement, ongoing management of your pharmacy benefits plan, and self-policing and oversight of your pharmacy spend. To learn more about how Healthcare Decision Making can help you, email Nina Lathia at nina.lathia@healthcaredecisionmaking.com

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