Archive for February, 2019

The Wizard Behind The Curtain – Addendum To Drive Home The Point

Thursday, February 14th, 2019

Among other things, yesterday’s post made a point about the way the PBM system (if you can call it that) makes it difficult for uninsured Type 1 diabetics to buy insulin, because of price. To beat that horse even deader, here is an excerpt from a Kaiser Health News article, in partnership with NPR, published yesterday entitled, Insulin At A Fraction Of US Cost:

Almost one year to the day after her daughter’s diagnosis, Lija Greenseid and her family were visiting Quebec City, Canada, in July 2014. Her daughter’s blood sugar started spiking and Greenseid feared her insulin might have gone bad, so she went to a pharmacy. With no prescription and fearing that her daughter’s life was on the line, Greenseid was prepared to pay a fortune.

Instead the box of insulin pens that normally costs $700 in the U.S. was only around $65 or so.

“At that point I started tearing up. I could not believe how inexpensive it was and how easy it was,” Greenseid said.

“I said to [the pharmacist], ‘Do you have any idea what it’s like to get insulin in the United States? It’s just so much more expensive.’ And he turned to me and said, ‘Why would we want to make it difficult? You need insulin to live.’”

The more Greenseid traveled with her family, the more they realized how inexpensive insulin was everywhere except in the United States. In Nuremberg, Germany, she could get that $700 box of insulin pens for $73. The same box was $57 in Tel Aviv, Israel, $51 in Greece, $61 in Rome and $40 in Taiwan.

“We get so accustomed in the United States to thinking that health care has to be difficult and so expensive that people don’t even consider the fact that it could be so much easier and less expensive in other places,” Greenseid said. “In fact, that is the case in most countries.”

Take a moment out of your busy day and think about that. Please.

And answer this question: Do you  believe America’s 1.3 million Type 1 diabetics  who require insulin every day ─ just to stay alive ─ should be forced to pay hundreds, even thousands, of dollars a month for that medicine? Or are they not worthy enough to be treated like their fellow diabetics the world over?

The Wizard Behind The Curtain – Part 2

Wednesday, February 13th, 2019

Let me tell you a story.

The year is 2015, and a workers’ compensation consultant is sitting in a highly respected insurer’s plush conference room. The consultant is meeting with the insurer’s Senior Vice President of Claims to negotiate price for an innovative specialty medicine program. What kind of program? Doesn’t matter.

The consultant has come armed with pro formas showing all costs of the program. Down to the penny. The problem is the insurer and the program are miles apart on what the insurer will pay the program’s doctors for each patient encounter. The Senior Vice President says, “Look, this isn’t exactly in our fee schedule, but the closest we can come to what is in the fee schedule is to pay your folks $85 per visit.” Hearing this, the consultant once again begins to explain why the fee needs to be $150 per visit.

This goes on for another half hour. The Senior VP finally says, “Well, maybe we could go to $91 per visit, but it’s the best we can do. Take it or leave it.” The consultant offers $140, but won’t go lower, because to do so would torpedo the program, which has demonstrated far more success, accompanied by significant cost savings, than others of its kind.

And then, it happens. The Senior Vice President in that plush conference room of this highly respected insurer says, “Hang on a minute. I’ve got it. You’re a specialty program, so we have a little latitude there. Charge us $300. We’ll pay you $150, and save our insureds $150 in the process.”

And that was how it was done. And it’s perfectly legal.

I tell that story by way of analogy.

Now let’s dream a bit. Imagine for a moment you are a pharmaceutical company CEO. You produce drugs that help sick people be healthy. Trouble is, the great big US healthcare system in which you operate makes Rube Goldberg seem like Thomas Edison. And in the center of your part of it sit pharmacy benefit managers, PBMs.

As we saw in Part One, the PBM industry has evolved in a rather chaotic way since Pharmaceutical Card System, Inc., invented the plastic benefit card in 1968. Over the intervening years, pharmacies and PBMs have developed into sometimes incestuous relationships. Today, three PBMs, Express Scripts, CVS Caremark and Optum RX, control 78% of the market. They wield tremendous power in drug pricing in a system designed to be opaque.

Essentially, the PBM’s job is to negotiate with pharmacies and drug companies, like yours, on behalf of their insurer and health plan clients. They create formularies, negotiate prices down (you give them a big discount in return for your drug being listed in their formulary), return some of the savings, called rebates,  to the clients (nobody really knows how much), and keep some for themselves. Seems simple, right? Well, it’s not. It’s infinitely more complicated and complex. And because only a very few actually understand PBMs, they remind me of the shenanigans in The Wizard Of Oz. However, it is that way only because we have allowed it to happen over the last four decades.

But back to you, Here’s your issue as a drug company CEO: You know, regardless of what price you set for your super-duper drug, you’re going to have to give a lot of it back as a discount to the PBM so it can give rebates to its clients. What’s a busy CEO to do?

Well, one answer is to set the price, the list price, so high that you’ll be able to provide a generous discount and still make what your finance folks say you must have for a profit. Just like in my analogy from above.

In a weird sort of way, this works most of the time for patients, but only if they have health insurance. What happens if they don’t? This is where things get sticky. Uninsured people get stuck paying the full list price, the one you inflated in order to provide the discount that allows you to make a profit and PBMs to (kind of) save money for their customers. This has been especially difficult for some uninsured Type 1 diabetics, who, as we have written previously (here and here), have had great difficulty paying for the insulin they need to take every day ─  just to stay alive.

Many employers have had enough of this. According to the National Business Group on Health, 75% of surveyed employers believe the rebate system does not serve to lower prices for employees, and 91% believe an alternative, more simple approach is required. Then there is CMS’s Alex Azar, of Ely Lilly fame, who wants you to price your drugs like Europeans do, which is a water fall lower than prices in the US. And let us not forget the current occupant of 1600 Pennsylvania Avenue, who, as yet unable to fulfill a campaign promise about a wall, has an outside chance of fulfilling one about drug prices.

Neither the healthcare industry, nor the US Chamber of Commerce like any of this. I imagine it might also be a bit awkward for quite a few US legislators who have been significant beneficiaries of the healthcare industry’s largesse, largess of the campaign contribution variety.

Regardless, I’m an optimist, and I keep hoping that in some way the wizard behind the healthcare curtain will go ‘poof,’ and be gone. Silly me.

 

 

The Wizard Behind The Curtain – Part One

Friday, February 1st, 2019

Suddenly, everybody’s out to get Pharmacy Benefit Managers, or PBMs. CMS, state legislatures, state Medicaid officials, a boatload of experts and even Donald Trump, who appears to actually and sincerely believe PBMs have created a rigged system.

The issue, what you and I pay for medicine, is getting a lot of ink and airtime. As well it should. Drug prices in the US are nearly twice as high as other developed nations. How did it come to this, and are PBMs a big part of the problem or are they a modern Horatius at the Bridge holding back an invading army of even steeper costs?

The PBM industry was born in the late 1960s when Pharmaceutical Card System, Inc., (PCS) invented the plastic benefit card. By the mid-1970s, PCS was serving as a fiscal intermediary by adjudicating drug claims. In other words, it was a prescription Third Party Administrator (TPA). By working for insurers and health plans, PCS (later AdvancePCS) and others figured out that they could leverage the buying power of their clients to negotiate lower drug prices.  And until around 1992, that’s they did. During that approximately 20 year period, PBMs saved insurers, health plans and consumers money by driving physicians and patients to use lower cost generic drugs. This was a valuable service for all.

In 1992, however,  PBMs began to change their focus. As noted by the Wall Street Journal in August, 2002, from 1992 through 2002, PBMs had “quietly moved” into marketing expensive brand name drugs. Since then, two major problems have emerged.

First, there is an incestuous relationship between PBMs and pharmacy companies. This occurred over three periods.

From 1968 through 1994, pharmaceutical companies acquired PBMs. For example, in 1994 Eli Lilly bought PCS for $4 billion and SmithKline Beecham bought Diversified Pharmaceutical Services (from insurer UnitedHealth) for $2.3 billion. But the FTC saw anti trust implications these deals created and ordered the acquisitions to stop and the pharmaceutical firms to divest the PBMs.

So, Eli Lilly sold PCS Health Systems to Rite Aid for $1.5 billion,  SmithKline Beecham sold Diversified Pharmaceutical Services to Express Scripts for $700 million and Merck spun off Medco Health Solutions, the PBM for 68 million Americans at the time.

The third PBM evolutionary period, the one we’re now living in, has seen mergers between PBMs and PBMs with pharmacy chains. In 2000, Advance Paradigm bought PCS for $1 billion, and changed the name to AdvancePCS; in 2003 Caremark bought AdvancePCS for $5.6 billion; and in 2007, CVS bought Caremark for $26.5 billion. Similar long and winding roads have resulted in three PBMs, CVS Caremark, Express Scripts and OptumRX cornering 78% of the nation’s PBM business, serving 266 million Americans. Revenue for these three firms in 2017 was about $300 billion. And these costs are growing at an accelerated pace. According to the American Academy of Actuaries:

In some years, prescription drug spending growth has far exceeded the growth in other medical spending, while in others it has fallen below other medical spending growth. Over the next decade, however, the Centers for Medicare and Medicaid Services (CMS) projects that spending for retail prescription drugs will be the fastest growth health category and will consistently outpace that of other health spending.

Which brings us to the second big problem. The one everyone’s talking about.

More about that next week. After the Patriots win Super Bowl LIII!