How Long Is Your Plan Willing To Throw Away Thousands of Dollars Per Script For An MS Drug?
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Review your Plan’s most expensive therapeutic categories, and it’s virtually certain you’ll find multiple sclerosis drugs among those that are ringing up the largest tab for your Plan, even though it’s estimated that less than 1 million people in the United States are living with multiple sclerosis (“MS”).
Among the MS drugs that are likely creating the largest costs for your Plan is Biogen’s blockbuster brand drug Tecfidera.
Tecfidera treats MS through the NRF2 activator pathway. As described in greater detail below, there are now three brand drugs that use this pathway to treat MS, and the FDA has recently approved numerous generic alternatives that are chemically identical and therefore therapeutically equivalent to one of those brand drugs – Tecfidera. Unfortunately, in most instances Plans may not reap the financial benefits of the new generics for many months, or even years, resulting in Plans overpaying by as much as $7,000 per person, per 30 day script.
How is this possible? Because most Plans rely on their PBM’s standard Formulary, and most PBMs – including Express Scripts and Caremark – do not appear to be taking advantage of the entrance of generic alternatives to Tecfidera.
Moreover, most PBMs are also adding to their standard Formularies a new Biogen brand drug alternative (Vumerity), which the FDA approved approximately a year ago, even though Vumerity is far more expensive than generic Tecfidera and has not been shown to be any more effective.
Thus, the MS category demonstrates why every Plan should insist on complete customization rights over the Plan’s Formulary. Every Plan should also require drug-by-drug rebate information to enable the Plan to determine the “net cost” of every drug (factoring in rebates), which will enable every Plan to determine which drugs to exclude, include and favor. Other contract changes are also necessary to protect Plans financially, as described in greater detail below.
Recent Changes in the MS Category
Until relatively recently, there were only two brand drugs that had been approved that relied on the NRF2 activator pathway to treat multiple sclerosis:
(i) Blockbuster Tecfidera (dimethyl fumarate)
(ii) A little used bioalternative Bafiertam (monomethyl fumarate)
However, during 2019 and 2020, several noteworthy events occurred:
In late October 2019, Biogen obtained FDA approval for another brand drug — Vumerity — that used the same approach to treat MS as Tecfidera. At the time, Biogen was battling challenges in court to its Tecfidera patents. By launching its new drug Vumerity, Biogen undoubtedly hoped to maintain its MS market share by moving Tecfidera patients to Vumerity before those patients started using generic equivalents to Tecfidera.
In June 2020, a West Virginia court ruled that certain Biogen patent claims related to Tecfidera were invalid, clearing the way for Mylan to obtain approval for a generic copycat of Tecfidera. But for this decision, the Tecfidera patent would not have expired until 2028, meaning if the court decision was upheld on appeal, the decision would erode numerous years of patent exclusivity for Tecfidera.
In August 2020, Mylan rolled out its generic drug, taking the risk that Biogen might prevail on appeal and prevent Mylan’s generic drug from being distributed. This was the first time an oral, generic MS treatment entered the market in the U.S.
In September 2020, a Delaware court cleared the way for several other generic versions of Tecfidera to be approved, meaning competition among generic manufacturers might significantly reduce the prices of generic alternatives.
By November 2020, there were eight generic manufacturers that had entered the market to dispense generic Tecfidera.
The FDA has since approved three additional generic manufacturers, each of which will presumably soon enter the market with additional generic versions of Tecfidera.
However, the 2021 Formularies of the two largest PBMs – Express Scripts and Caremark – make it likely there will be increased Vumerity sales in the future and Tecfidera sales will remain relatively high: Both Express Scripts and Caremark are including Tecfidera and Vumerity on their 2021 Formularies, as are many smaller PBMs. As for the third largest PBM — Optum — it acted somewhat differently: On Optum’s Select Formulary, Optum is excluding Vumerity, but is continuing to include Tecfidera on Tier 2, while placing generic Tecfidera on Tier 1. On its Premium Value Formulary, Optum is excluding both Tecfidera and Vumerity and placing Tecfidera’s generic on Tier 1.
A Therapeutic Comparison of Vumerity and Tecfidera (and its generic alternatives)
The first line of inquiry when deciding whether to exclude or include a new drug on a Formulary — and if included, favor or disfavor the new drug through tier placement and Prior Authorizations — must be to evaluate the therapeutic value of the drug and its safety and side effect profiles as compared to alternative drugs.
Brand and generic Tecfidera are chemically equivalent; Therefore, there is no clinical reason to include brand Tecfidera on a Formulary (assuming it’s more expensive).
Moreover, if generic (or brand) Tecfidera is available on a Formulary, there does not appear to be any clinical reason to include Vumerity, let alone to favor it. When Biogen obtained approval for Vumerity, Biogen relied on the previous findings of efficacy and safety for Tecfidera. Biogen could do so, because Tecfidera and Vumerity are both rapidly converted to the same active ingredient — monomethyl fumarate.
Biogen has claimed that Vumerity provides an improvement over Tecfidera in its gastrointestinal side effects. However, an examination of the underlying clinical trial on which Biogen’s claim is based reflects that the purported improvement that Vumerity offered in a six-week study was, on average, one less day of gastric intolerance. Moreover, the study found that gastric intolerance abated over time for both drugs.
Thus, when deciding which drugs to exclude, include or favor, each PBM — and Plan — is in a position to focus and make its decisions on the “net costs” that can be obtained for each of the relevant drugs, and the likely trajectory of costs over time.
The Complex World of Evaluating the Costs of Each of the Relevant Drugs
It’s always difficult for Plans to evaluate and compare the costs of drugs. The task in this instance is no different.
The Table below provides core “list price” information about each of the relevant products. Note, to simplify matters, we’ve included only the 240 mg dosages of Tecfidera, Vumerity and generic Tecfidera. While each of these products is manufactured with 120 mg dosages and starter kits, the pricing is essentially the same across dosage levels and starter kits; Therefore, we need only examine one dosage level. Since Bafiertam is only made with a 95 mg dosage, that is the dosage level we have included for it.
Let’s walk through the information in the Table together to understand its implications.
To begin, note that the three brand drugs are listed at the top of the Table – Tecfidera, Vumerity and Bafiertam. Note also that Bafiertam, which has limited market share, has only one dosage level (95 mg), and therefore requires twice the quantity to equate to a 240 mg dosage level of Tecfidera or Vumerity. Therefore, Bafiertam’s total cost will be based on twice the listed AWP or WAC of those drugs.
Thereafter, the Table lists 8 manufacturers of generic Tecfidera — dimethyl fumarate.
The two Columns on the right, respectively, show each of the drug’s per unit AWP (average wholesale price) and per unit WAC (wholesale acquisition cost).
As you probably know, a national reporting service’s AWP – and a manufacturer’s WAC – are entirely fabricated numbers. Neither AWPs nor WACs bear any relationship to the actual cost for a manufacturer to make a drug. Nor do AWPs or WACs have any relationship with any wholesaler’s or pharmacy’s actual acquisition costs to purchase a drug.
For brand drugs, there is a relationship between WAC and AWP: The manufacturer creates the WAC, and the national reporting services typically generate the AWP at “WAC plus 20%”. Looking at the WACs and AWPs of the three brand drugs — Tecfidera, Vumerity and Bafiertam — you can see that mathematical relationship.
However, for generic drugs, there is no such mathematical relationship between WAC and AWP. That is because the AWP of the generic product that initially enters the market is typically listed at slightly below the AWP of the chemically equivalent brand. And the AWPs of other generic entrants are thereafter typically listed at about the same AWP. However, WAC is a different story: As time passes and more generic manufacturers enter the market, generic manufacturers typically reduce their WACs.
These facts come to life in the graphic below, created by our brilliant friends at 3 Axis Advisors, LLC, a consulting firm with enormous expertise in drug analytics. As reflected in the graphic, the initial generics’ AWPs were exactly 10% lower than brand Tecfidera’s AWP. And the average AWP across all generics has actually increased slightly as more manufacturers have come to market (the short, solid blue line on the far right in the graphic below). This is exactly the opposite of what would happen in a normal “market” (although the prescription drug market is anything but normal). However, generic Tecfidera’s average WAC has declined. In fact, the rapidity and magnitude of the decline in generic Tecfidera’s average WAC is astounding, falling from $119 per capsule to just $22 per capsule over a period of just four months (the dashed blue line).
Also, turning back to our earlier Table, while the AWPs of the generic all remain at approximately the same high price — slightly below brand Tecfidera — the WACs vary greatly, and some have already reached very low numbers. For example, while the WAC of brand Tecfidera is $137.93 per unit, the WACs of generic Tecfidera, depending on the manufacturer, are per unit at $119.04, $43.45, $29.78, $15.72, $13.79, $13.33 and as low as $5.83!
Why does all this matter? PBMs purchase drugs like Tecfidera at prices close to (or likely even below) WAC. Therefore, PBM Specialty Drug pharmacies are already able to purchase generic Tecfidera at steep discounts below brand Tecfidera. And PBMs may even be able to purchase generic Tecfidera for as little as $5.83 per unit (or even less)!
However, the price guarantees in PBM-Plan contracts are based on AWP discounts. Therefore, Plans’ specialty drug guarantees are based on the far higher AWPs.
Given the enormous differentials between AWPs and WACs for generic Tecfidera, unless Plans obtain extremely steep discounts off AWP from their PBMs for generic Tecfidera — of as much as AWP-96% — PBMs can invoice Plans and make an enormous “profit spread” on every generic script dispensed. In fact, if PBMs provide the “typical” Specialty Drug discount of AWP-16% – or even a discount that is somewhat higher, like AWP-17% – Plans will pay their PBMs thousands of dollars more per script for generic Tecfidera than PBMs are paying to acquire the drug.
All of the above spells a potential “win, win, win…” for any PBM that wants to generate profits for itself, and a potential “lose, lose, lose…” for a Plan, like yours, regardless of whether your Plan’s PBM decides to include and favor (i) generic Tecfidera, or (ii) brand Tecfidera, or (iii) brand Vumerity, unless your Plan’s PBM contract requires your PBM to pass through its actual acquisition costs to your Plan.
Here’s why. Consider what happens if your PBM pursues any of the following three options (or a combination of them):
Your PBM Includes Generic Tecfidera on Its Standard Formulary. As described above, your PBM can (i) purchase a generic product for the PBM’s subsidiary Specialty Drug Pharmacy to dispense, or if your PBM uses a third party specialty pharmacy, require that pharmacy to cover generic Tecfidera; (ii) obtain the generic at a steeply discounted price based on a generic manufacturer’s available WAC; (iii) but invoice your Plan at a far higher price based on the generic manufacturer’s AWP; and (iv) still satisfy any Specialty Drug Guarantee that exists in your PBM contract, since (a) your Plan contract contains a single Specialty Drug Guarantee that typically is an AWP discount of -16% or -17%, or (b) your Plan contract contains drug-by-drug Guarantees for a list of drugs, which clearly won’t include generic Tecfidera (since this drug just entered the market).
Your PBM Includes Brand Tecfidera on Its Standard Formulary. Your PBM can contract with Biogen to (i) continue to include Tecfidera on the PBM’s standard Formulary; (ii) obtain rebates on Tecfidera to pass through to your Plan, and thus maintain or increase its rebate guarantees and make it appear that the PBM is “saving” your Plan large amounts, even though your Plan would be far better off if generic Tecfidera were dispensed at cost; and (iii) simultaneously require Biogen to also pay “other monies” (besides rebates) to the PBM in order to remain on the PBM’s standard Formulary, with the PBM secretly retaining those “other monies” without disclosing or passing through any of those “other monies” to your Plan.
Your PBM Includes Brand Vumerity on Its Standard Formulary. Your PBM can take essentially the same approach with Vumerity: Contract with Biogen to (i) include Vumerity on the PBM’s standard Formulary; (ii) obtain rebates on Vumerity to pass through to your Plan, and thus maintain or increase its rebate guarantees and make it appear that the PBM is “saving” your Plan large amounts, even though your Plan would be far better off if generic Tecfidera were dispensed at cost; and (iii) simultaneously require Biogen to also pay “other monies” (besides rebates) to the PBM that the PBM can secretly retain, without disclosing or passing through any of those “other monies” to your Plan.
In contrast, your Plan will “lose, lose, lose….” in each of the above three scenarios, or any combination of those approaches: Your Plan will fail to benefit financially to the extent it should, given the extremely low cost of generic Tecfidera. In fact, your Plan will pay thousands of dollars more than it should, each time a 30 day script of any of these three drugs is dispensed.
One can see why the above conclusions is correct — and even estimate the potential financial loss to your Plan — by running a few calculations:
Your Plan’s Extra Costs if Generic Tecfidera is Dispensed. Based on two generic manufacturers’ already low WACs of $5.83 per unit for generic Tecfidera, if your PBM were to pass through its actual acquisition cost of generic Tecfidera, your PBM would invoice your Plan at a cost of approximately $349.80 per script ($5.83 x 2 capsules per day x 30 days). Alternatively, if we calculate generic Tecfidera’s actual cost based on the current, average generic WAC of $22 per capsule, your PBM’s “pass through” cost to your Plan would be $1,320 per script ($22 x 2 capsules per day x 30 days). (Note that there are already five generic manufacturers with WACs that are considerably less than $22; Therefore, $22 likely exceeds the price your Plan should pay.) In contrast, if your PBM invoices your Plan for the same generic script based on a PBMs’ “typical” strong specialty drug discount of AWP-17%, your PBM will invoice your Plan at approximately $7,420 per script (the AWP of approximately $149, less the 17% discount x 2 capsules per day x 30 days). In short, whether your PBM is acquiring generic Tecfidera for about $349.80 per script — or about $1,320 per script — or something in between — if your PBM invoices your Plan $7,420 per script, your Plan will pay your PBM approximately $6,100 to $7,000 too much each time a 30 day script of generic Tecfidera is dispensed!
Your Plan’s Extra Costs if Brand Tecfidera Is Dispensed. Alternatively, what will be your Plan’s per script cost if your PBM dispenses brand Tecfidera, again based on a PBM’s “typical” Specialty Drug discount of AWP-17%? Your PBM will invoice your Plan approximately $8,242 per script(the AWP of $165.51, less the 17% discount x 2 capsules per day x 30 days). If your PBM passes through a rebate on the script, how much will your PBM pass through? It’s virtually certain your Plan can’t find out whether your PBM is passing through a Tecfidera rebate, or what the amount of that rebate might be, since almost no PBMs will disclose drug-by-drug rebate information. (Note that our firm contractually binds every PBM to disclose the above information to our clients.) However, even if your PBM passes through rebates on Tecfidera — and the rebates are quite large — it’s extremely unlikely that the rebates will reduce the invoiced cost of an $8,242 script to anything close to $349.80 (based on a $5.83 per unit generic cost) or $1,320 (based on a $22 per unit generic cost). Therefore, each time a brand script of Tecfidera is dispensed, your Plan will pay thousands of dollars too much.
Your Plan’s Extra Costs if Brand Vumerity Is Dispensed. Finally, what will be your Plan’s per script cost if Vumerity is dispensed, with an AWP-17% discount? Your Plan will be invoiced at approximately $3,601 per script(the AWP of $72.32, less the 17% discount x 2 capsules per day x 30 days). Assuming your PBM is obtaining and passing through a Vumerity rebate, it’s likely that your Plan can’t determine the amount of the rebate (since almost no PBM will disclose any drug-by-drug rebate information). However, it’s extremely unlikely even a large rebate will reduce Vumerity’s invoiced cost of $3,601 to anything close to the $349.80 or $1,320 per script cost of generic Tecfidera. Therefore, each time a brand script of Vumerity is dispensed, your Plan will pay several thousand dollars too much.
Thus, with all three approaches — or any combination that a PBM employs on its standard Formulary — your Plan (and almost all other Plans) will lose thousands of dollars per 30 day script, each time a script is dispensed.
Note, too, that if a Plan requires its beneficiaries to pay a percentage of the cost of Specialty Drugs — for example, a coinsurance payment of 10% or 20% — a Plan’s beneficiaries may pay far more than they might otherwise pay, regardless of whether the beneficiaries use generic Tecfidera, brand Tecfidera or Vumerity. Given most PBMs’ likely conduct, Plan beneficiaries’ only recourse to control their costs will be to use coupons to eliminate or reduce their coinsurance payments.
Additional Financial Reasons to Block Tecfidera and Vumerity and Only Cover Generic Tecfidera
If you track brand and generic costs over time, you likely realize that there are additional reasons for your Plan to block brand Tecfidera and Vumerity and include only generic Tecfidera on your Formulary: The AWPs — and WACs — of brand drugs almost always increase over time.
The graphic created by our friends at 3 Axis Advisors reflects that fact (via the solid and dashed green lines).
Also, we provide the Table below to allow you to see the actual AWPs and WACs of brand Tecfidera since Tecfidera entered the market in 2013. Look at the bottom of the Table, which reflects AWPs and WACs in 2013, and scroll upward to see Tecfidera’s increased AWPs and WACs until January 1st, 2020:
Moreover, the relentless increases in list prices of brand drugs is unlikely to abate now! Biogen will likely increase its prices still more in the coming months, since brand drug manufacturers often drastically increase their prices when chemically equivalent generic drugs enter the market. Doing so enables the brand manufacturers to maintain their profits when fewer brand drugs are sold given the generic competition.
In contrast, generic drugs’ actual acquisition costs typically decrease over time, especially when there are multiple manufacturers of the drug. This is clearly demonstrated in the graphic developed by 3 Axis Advisors above (look at the plunging, dashed blue line). Therefore, we can expect generic Tecfidera’s prices to fall even more.
Thus, while Biogen has created a WAC for Vumerity that is currently lower than Tecfidera’s WAC, to the extent your Plan beneficiaries begin to use Vumerity, your Plan will likely incur ever-increasing costs when Biogen increases Vumerity’s WAC over time, and the national reporting services increase Vumerity’s AWPs as a result. In contrast, if your Plan prevents Vumerity coverage from the outset, your Plan won’t face that problem. And if your Plan beneficiaries only have access to generic Tecfidera, your Plan’s costs will decrease over time (assuming you are getting pass-through pricing).
What Should Your Plan Do?
Despite all the above facts, as previously mentioned, the two largest PBMs — Express Scripts and Caremark — have included both brand Tecfidera and Vumerity on their “standard” Formularies in 2021, and Optum continues to include brand Tecfidera on one of its Formularies. These three PBMs dominate the marketplace, covering thousands and thousands of Plans. Other smaller PBMs have also implemented the same approach — covering brand Tecfidera and Vumerity on their 2021 Formularies. Moreover, almost no Plans have PBM contracts in place that require that their PBMs pass-through their acquisition costs for generic Specialty Drugs.
Therefore, what should your Plan do?
As soon as your Plan can do so, your Plan needs to escape from its existing PBM contract and put in place a contract that allows your Plan to customize its Formulary.
To do so, take a look at the “termination provision” in your existing PBM contract and see when you are allowed to end the contract. Approximately six to nine months before your Plan can terminate, your Plan should initiate a PBM RFP.
Please note: Don’t waste your time trying to negotiate one-on-one with your incumbent PBM, expecting to accomplish a better contract that allows your Plan to customize. Why not? Because you’ll likely negotiate for months, and then discover your PBM will not provide the terms you need, and your Plan has run out of time to obtain a better contract from another PBM! As a result, your Plan will be required to extend its existing PBM contract for an additional year (or if your incumbent PBM insists, for three years)!
Note, too: If your Plan is relatively small (say, 10,000 covered lives or less), your Plan may want to avoid the resource burden of conducting a RFP. It can instead try to find a Coalition to join, in which case your Plan may need only about four months “lead time” to improve its situation. However, your Plan needs to make sure that the Coalition has a contractual “right to customize” — and the other contract rights mentioned below — and the Coalition is actually customizing a Formulary for all Coalition Members. Otherwise, all your Plan will do when it joins a Coalition is pay an additional fee for being a Coalition Member, without lowering your Plan’s costs! (Here’s a way to detect whether a Coalition is effectively customizing its Formulary for all Coalition Members: Look at its 2021 Formulary and see whether the Coalition is covering brand Tecfidera or Vumerity!)
Your Plan’s next PBM contract — or the Coalition’s contract — must also bind your next PBM to provide drug-by-drug rebate information, meaning “net cost” information, to enable your Plan to compare drugs’ “net costs” and determine how to customize the Formulary.
Ideally, your Plan’s next contract — or the Coalition’s contract — should also require the PBM to “pass through” its actual acquisition costs for every Specialty Drug. But note that almost no PBMs do so. Most PBMs claim they are providing “pass-through pricing” — including for Specialty Drugs — but all they are doing is “passing through” their “negotiated rates” with their own subsidiary specialty drug pharmacies. Needless to say, passing through “negotiated rates” means the PBM can pass through any rates the PBM has selected with to put in place with its own subsidiary – it does not mean the rates are competitive rates! Therefore, “negotiated rates” almost never bear any relationship to the PBM pharmacies’ actual acquisition costs.
In addition to (i) the right to customize your Plan’s Formulary, (ii) the right to obtain “net cost”, drug-by-drug rebate information, and (iii) ideally, a pass-through of acquisition costs for every specialty drug, your Plan’s next contract — or the Coalition’s contract — should contain the following provisions to ensure you are financially protected against all the disastrous outcomes outlined in this article:
A drug-by-drug “Minimum Discount Guarantee” for every existing Specialty Drug, meaning you should obtain 1,400+ separate guarantees (including individual guarantees for each existing MS drug, by paying attention to the existing WACs for each drug, and ensuring that your AWP discount guarantee for each drug results in a cost that is approximately the same as the existing WAC for each drug);
A “Default Discount Guarantee” for every new-to-market Specialty Drug (so when a new drug — like generic Tecfidera — enters the market, your Plan will automatically receive a guaranteed discount on the drug);
A “right to negotiate” with your PBM and improve any Minimum Discount Guarantee — and/or the Default Discount Guarantee for any newly approved drug — on a quarterly basis (so your Plan can “track” marketplace changes in AWPs and WACs, and obtain improved discount guarantees as available prices fall, just as generic Tecfidera’s price has already done, and will likely continue to do in the future);
A “right to carve-out” any Specialty Drug and have an alternative Specialty Drug Pharmacy dispense the drug, with your PBM still obligated to adjudicate the drug (to give your Plan the “leverage” when it exercises its “right to renegotiate” to obtain better guarantees, either from the PBM’s specialty drug pharmacy or an alternative specialty drug pharmacy);
A contract provision binding the PBM to pass through 100% of manufacturers’ rebates — and 100% of manufacturers’ “other payments” — to ensure that if a manufacturer pays your PBM to include and favor a high-cost drug on the Formulary, as Biogen may be doing, your Plan will know about and benefit from all such payments, and if your Plan continues to cover any high-cost brand drug, your Plan will at least obtain the full financial savings that are available; and
Contract provisions providing your Plan with the ability to audit each of the above terms to ensure that your PBM is complying with them.
Conclusion
If your Plan currently had all the above provisions in its existing PBM contract, your Plan could have immediately responded to the new developments in the MS category when they occurred, customized its Formulary, obtained the lowest-possible costs for generic Tecfidera, and your Plan would already be saving thousands of dollars on each MS script that was dispensed. And your Plan would be “blocking” use of any of the three brand drugs for all new users, meaning your Plan would have limited its “exposure” to higher costs, and locked in potentially lower costs for generic Tecfidera.
Instead, your Plan is probably not getting the financial benefit of any of the new developments, and your Plan has no way to control when it will begin to reap those financial benefits. Will it take six months, or a year, or a few years before your Plan stops overpaying by thousands of dollars per 30 day script?
In short, as soon as you can, take action: Change your PBM contract!
Then take advantage of your new contract terms to customize your Formulary – not only by blocking the three identified brand drugs, but also by making dozens of other changes that will also save you large amounts of money.
You can hire a full-time expert to work in-house — or retain a third-party consulting firm with clinical and claims data expertise — to customize on an ongoing basis. Either way, the savings you reap will far exceed the added costs your Plan incurs to pay for the above services.
For example, if your Plan provides coverage to approximately 5,000 lives, it’s likely spending $6 million or more on drugs. If you save 15% + of your total “drug spend” through customization (which is a minimum savings result based on our experience), your Plan will save far more than it has spent to obtain expertise. If your Plan provides coverage to far more individuals, retaining expert help is a no-brainer. You’ll reap the savings we’ve described in this article on MS drugs, and undoubtedly mega-millions of dollars of savings on many other drugs as well.
Recent MS Drug Developments Demonstrate Plans Should Obtain Customized Formularies ASAP
How Long Is Your Plan Willing To Throw Away Thousands of Dollars Per Script For An MS Drug?
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Review your Plan’s most expensive therapeutic categories, and it’s virtually certain you’ll find multiple sclerosis drugs among those that are ringing up the largest tab for your Plan, even though it’s estimated that less than 1 million people in the United States are living with multiple sclerosis (“MS”).
Among the MS drugs that are likely creating the largest costs for your Plan is Biogen’s blockbuster brand drug Tecfidera.
Tecfidera treats MS through the NRF2 activator pathway. As described in greater detail below, there are now three brand drugs that use this pathway to treat MS, and the FDA has recently approved numerous generic alternatives that are chemically identical and therefore therapeutically equivalent to one of those brand drugs – Tecfidera. Unfortunately, in most instances Plans may not reap the financial benefits of the new generics for many months, or even years, resulting in Plans overpaying by as much as $7,000 per person, per 30 day script.
How is this possible? Because most Plans rely on their PBM’s standard Formulary, and most PBMs – including Express Scripts and Caremark – do not appear to be taking advantage of the entrance of generic alternatives to Tecfidera.
Moreover, most PBMs are also adding to their standard Formularies a new Biogen brand drug alternative (Vumerity), which the FDA approved approximately a year ago, even though Vumerity is far more expensive than generic Tecfidera and has not been shown to be any more effective.
Thus, the MS category demonstrates why every Plan should insist on complete customization rights over the Plan’s Formulary. Every Plan should also require drug-by-drug rebate information to enable the Plan to determine the “net cost” of every drug (factoring in rebates), which will enable every Plan to determine which drugs to exclude, include and favor. Other contract changes are also necessary to protect Plans financially, as described in greater detail below.
Recent Changes in the MS Category
Until relatively recently, there were only two brand drugs that had been approved that relied on the NRF2 activator pathway to treat multiple sclerosis:
(i) Blockbuster Tecfidera (dimethyl fumarate)
(ii) A little used bioalternative Bafiertam (monomethyl fumarate)
However, during 2019 and 2020, several noteworthy events occurred:
However, the 2021 Formularies of the two largest PBMs – Express Scripts and Caremark – make it likely there will be increased Vumerity sales in the future and Tecfidera sales will remain relatively high: Both Express Scripts and Caremark are including Tecfidera and Vumerity on their 2021 Formularies, as are many smaller PBMs. As for the third largest PBM — Optum — it acted somewhat differently: On Optum’s Select Formulary, Optum is excluding Vumerity, but is continuing to include Tecfidera on Tier 2, while placing generic Tecfidera on Tier 1. On its Premium Value Formulary, Optum is excluding both Tecfidera and Vumerity and placing Tecfidera’s generic on Tier 1.
A Therapeutic Comparison of Vumerity and Tecfidera (and its generic alternatives)
The first line of inquiry when deciding whether to exclude or include a new drug on a Formulary — and if included, favor or disfavor the new drug through tier placement and Prior Authorizations — must be to evaluate the therapeutic value of the drug and its safety and side effect profiles as compared to alternative drugs.
Brand and generic Tecfidera are chemically equivalent; Therefore, there is no clinical reason to include brand Tecfidera on a Formulary (assuming it’s more expensive).
Moreover, if generic (or brand) Tecfidera is available on a Formulary, there does not appear to be any clinical reason to include Vumerity, let alone to favor it. When Biogen obtained approval for Vumerity, Biogen relied on the previous findings of efficacy and safety for Tecfidera. Biogen could do so, because Tecfidera and Vumerity are both rapidly converted to the same active ingredient — monomethyl fumarate.
Biogen has claimed that Vumerity provides an improvement over Tecfidera in its gastrointestinal side effects. However, an examination of the underlying clinical trial on which Biogen’s claim is based reflects that the purported improvement that Vumerity offered in a six-week study was, on average, one less day of gastric intolerance. Moreover, the study found that gastric intolerance abated over time for both drugs.
Thus, when deciding which drugs to exclude, include or favor, each PBM — and Plan — is in a position to focus and make its decisions on the “net costs” that can be obtained for each of the relevant drugs, and the likely trajectory of costs over time.
The Complex World of Evaluating the Costs of Each of the Relevant Drugs
It’s always difficult for Plans to evaluate and compare the costs of drugs. The task in this instance is no different.
The Table below provides core “list price” information about each of the relevant products. Note, to simplify matters, we’ve included only the 240 mg dosages of Tecfidera, Vumerity and generic Tecfidera. While each of these products is manufactured with 120 mg dosages and starter kits, the pricing is essentially the same across dosage levels and starter kits; Therefore, we need only examine one dosage level. Since Bafiertam is only made with a 95 mg dosage, that is the dosage level we have included for it.
Let’s walk through the information in the Table together to understand its implications.
To begin, note that the three brand drugs are listed at the top of the Table – Tecfidera, Vumerity and Bafiertam. Note also that Bafiertam, which has limited market share, has only one dosage level (95 mg), and therefore requires twice the quantity to equate to a 240 mg dosage level of Tecfidera or Vumerity. Therefore, Bafiertam’s total cost will be based on twice the listed AWP or WAC of those drugs.
Thereafter, the Table lists 8 manufacturers of generic Tecfidera — dimethyl fumarate.
The two Columns on the right, respectively, show each of the drug’s per unit AWP (average wholesale price) and per unit WAC (wholesale acquisition cost).
As you probably know, a national reporting service’s AWP – and a manufacturer’s WAC – are entirely fabricated numbers. Neither AWPs nor WACs bear any relationship to the actual cost for a manufacturer to make a drug. Nor do AWPs or WACs have any relationship with any wholesaler’s or pharmacy’s actual acquisition costs to purchase a drug.
For brand drugs, there is a relationship between WAC and AWP: The manufacturer creates the WAC, and the national reporting services typically generate the AWP at “WAC plus 20%”. Looking at the WACs and AWPs of the three brand drugs — Tecfidera, Vumerity and Bafiertam — you can see that mathematical relationship.
However, for generic drugs, there is no such mathematical relationship between WAC and AWP. That is because the AWP of the generic product that initially enters the market is typically listed at slightly below the AWP of the chemically equivalent brand. And the AWPs of other generic entrants are thereafter typically listed at about the same AWP. However, WAC is a different story: As time passes and more generic manufacturers enter the market, generic manufacturers typically reduce their WACs.
These facts come to life in the graphic below, created by our brilliant friends at 3 Axis Advisors, LLC, a consulting firm with enormous expertise in drug analytics. As reflected in the graphic, the initial generics’ AWPs were exactly 10% lower than brand Tecfidera’s AWP. And the average AWP across all generics has actually increased slightly as more manufacturers have come to market (the short, solid blue line on the far right in the graphic below). This is exactly the opposite of what would happen in a normal “market” (although the prescription drug market is anything but normal). However, generic Tecfidera’s average WAC has declined. In fact, the rapidity and magnitude of the decline in generic Tecfidera’s average WAC is astounding, falling from $119 per capsule to just $22 per capsule over a period of just four months (the dashed blue line).
Also, turning back to our earlier Table, while the AWPs of the generic all remain at approximately the same high price — slightly below brand Tecfidera — the WACs vary greatly, and some have already reached very low numbers. For example, while the WAC of brand Tecfidera is $137.93 per unit, the WACs of generic Tecfidera, depending on the manufacturer, are per unit at $119.04, $43.45, $29.78, $15.72, $13.79, $13.33 and as low as $5.83!
Why does all this matter? PBMs purchase drugs like Tecfidera at prices close to (or likely even below) WAC. Therefore, PBM Specialty Drug pharmacies are already able to purchase generic Tecfidera at steep discounts below brand Tecfidera. And PBMs may even be able to purchase generic Tecfidera for as little as $5.83 per unit (or even less)!
However, the price guarantees in PBM-Plan contracts are based on AWP discounts. Therefore, Plans’ specialty drug guarantees are based on the far higher AWPs.
Given the enormous differentials between AWPs and WACs for generic Tecfidera, unless Plans obtain extremely steep discounts off AWP from their PBMs for generic Tecfidera — of as much as AWP-96% — PBMs can invoice Plans and make an enormous “profit spread” on every generic script dispensed. In fact, if PBMs provide the “typical” Specialty Drug discount of AWP-16% – or even a discount that is somewhat higher, like AWP-17% – Plans will pay their PBMs thousands of dollars more per script for generic Tecfidera than PBMs are paying to acquire the drug.
All of the above spells a potential “win, win, win…” for any PBM that wants to generate profits for itself, and a potential “lose, lose, lose…” for a Plan, like yours, regardless of whether your Plan’s PBM decides to include and favor (i) generic Tecfidera, or (ii) brand Tecfidera, or (iii) brand Vumerity, unless your Plan’s PBM contract requires your PBM to pass through its actual acquisition costs to your Plan.
Here’s why. Consider what happens if your PBM pursues any of the following three options (or a combination of them):
In contrast, your Plan will “lose, lose, lose….” in each of the above three scenarios, or any combination of those approaches: Your Plan will fail to benefit financially to the extent it should, given the extremely low cost of generic Tecfidera. In fact, your Plan will pay thousands of dollars more than it should, each time a 30 day script of any of these three drugs is dispensed.
One can see why the above conclusions is correct — and even estimate the potential financial loss to your Plan — by running a few calculations:
Your Plan’s Extra Costs if Generic Tecfidera is Dispensed. Based on two generic manufacturers’ already low WACs of $5.83 per unit for generic Tecfidera, if your PBM were to pass through its actual acquisition cost of generic Tecfidera, your PBM would invoice your Plan at a cost of approximately $349.80 per script ($5.83 x 2 capsules per day x 30 days). Alternatively, if we calculate generic Tecfidera’s actual cost based on the current, average generic WAC of $22 per capsule, your PBM’s “pass through” cost to your Plan would be $1,320 per script ($22 x 2 capsules per day x 30 days). (Note that there are already five generic manufacturers with WACs that are considerably less than $22; Therefore, $22 likely exceeds the price your Plan should pay.) In contrast, if your PBM invoices your Plan for the same generic script based on a PBMs’ “typical” strong specialty drug discount of AWP-17%, your PBM will invoice your Plan at approximately $7,420 per script (the AWP of approximately $149, less the 17% discount x 2 capsules per day x 30 days). In short, whether your PBM is acquiring generic Tecfidera for about $349.80 per script — or about $1,320 per script — or something in between — if your PBM invoices your Plan $7,420 per script, your Plan will pay your PBM approximately $6,100 to $7,000 too much each time a 30 day script of generic Tecfidera is dispensed!
Your Plan’s Extra Costs if Brand Tecfidera Is Dispensed. Alternatively, what will be your Plan’s per script cost if your PBM dispenses brand Tecfidera, again based on a PBM’s “typical” Specialty Drug discount of AWP-17%? Your PBM will invoice your Plan approximately $8,242 per script (the AWP of $165.51, less the 17% discount x 2 capsules per day x 30 days). If your PBM passes through a rebate on the script, how much will your PBM pass through? It’s virtually certain your Plan can’t find out whether your PBM is passing through a Tecfidera rebate, or what the amount of that rebate might be, since almost no PBMs will disclose drug-by-drug rebate information. (Note that our firm contractually binds every PBM to disclose the above information to our clients.) However, even if your PBM passes through rebates on Tecfidera — and the rebates are quite large — it’s extremely unlikely that the rebates will reduce the invoiced cost of an $8,242 script to anything close to $349.80 (based on a $5.83 per unit generic cost) or $1,320 (based on a $22 per unit generic cost). Therefore, each time a brand script of Tecfidera is dispensed, your Plan will pay thousands of dollars too much.
Your Plan’s Extra Costs if Brand Vumerity Is Dispensed. Finally, what will be your Plan’s per script cost if Vumerity is dispensed, with an AWP-17% discount? Your Plan will be invoiced at approximately $3,601 per script (the AWP of $72.32, less the 17% discount x 2 capsules per day x 30 days). Assuming your PBM is obtaining and passing through a Vumerity rebate, it’s likely that your Plan can’t determine the amount of the rebate (since almost no PBM will disclose any drug-by-drug rebate information). However, it’s extremely unlikely even a large rebate will reduce Vumerity’s invoiced cost of $3,601 to anything close to the $349.80 or $1,320 per script cost of generic Tecfidera. Therefore, each time a brand script of Vumerity is dispensed, your Plan will pay several thousand dollars too much.
Thus, with all three approaches — or any combination that a PBM employs on its standard Formulary — your Plan (and almost all other Plans) will lose thousands of dollars per 30 day script, each time a script is dispensed.
Note, too, that if a Plan requires its beneficiaries to pay a percentage of the cost of Specialty Drugs — for example, a coinsurance payment of 10% or 20% — a Plan’s beneficiaries may pay far more than they might otherwise pay, regardless of whether the beneficiaries use generic Tecfidera, brand Tecfidera or Vumerity. Given most PBMs’ likely conduct, Plan beneficiaries’ only recourse to control their costs will be to use coupons to eliminate or reduce their coinsurance payments.
Additional Financial Reasons to Block Tecfidera and Vumerity and Only Cover Generic Tecfidera
If you track brand and generic costs over time, you likely realize that there are additional reasons for your Plan to block brand Tecfidera and Vumerity and include only generic Tecfidera on your Formulary: The AWPs — and WACs — of brand drugs almost always increase over time.
The graphic created by our friends at 3 Axis Advisors reflects that fact (via the solid and dashed green lines).
Also, we provide the Table below to allow you to see the actual AWPs and WACs of brand Tecfidera since Tecfidera entered the market in 2013. Look at the bottom of the Table, which reflects AWPs and WACs in 2013, and scroll upward to see Tecfidera’s increased AWPs and WACs until January 1st, 2020:
Moreover, the relentless increases in list prices of brand drugs is unlikely to abate now! Biogen will likely increase its prices still more in the coming months, since brand drug manufacturers often drastically increase their prices when chemically equivalent generic drugs enter the market. Doing so enables the brand manufacturers to maintain their profits when fewer brand drugs are sold given the generic competition.
In contrast, generic drugs’ actual acquisition costs typically decrease over time, especially when there are multiple manufacturers of the drug. This is clearly demonstrated in the graphic developed by 3 Axis Advisors above (look at the plunging, dashed blue line). Therefore, we can expect generic Tecfidera’s prices to fall even more.
Thus, while Biogen has created a WAC for Vumerity that is currently lower than Tecfidera’s WAC, to the extent your Plan beneficiaries begin to use Vumerity, your Plan will likely incur ever-increasing costs when Biogen increases Vumerity’s WAC over time, and the national reporting services increase Vumerity’s AWPs as a result. In contrast, if your Plan prevents Vumerity coverage from the outset, your Plan won’t face that problem. And if your Plan beneficiaries only have access to generic Tecfidera, your Plan’s costs will decrease over time (assuming you are getting pass-through pricing).
What Should Your Plan Do?
Despite all the above facts, as previously mentioned, the two largest PBMs — Express Scripts and Caremark — have included both brand Tecfidera and Vumerity on their “standard” Formularies in 2021, and Optum continues to include brand Tecfidera on one of its Formularies. These three PBMs dominate the marketplace, covering thousands and thousands of Plans. Other smaller PBMs have also implemented the same approach — covering brand Tecfidera and Vumerity on their 2021 Formularies. Moreover, almost no Plans have PBM contracts in place that require that their PBMs pass-through their acquisition costs for generic Specialty Drugs.
Therefore, what should your Plan do?
As soon as your Plan can do so, your Plan needs to escape from its existing PBM contract and put in place a contract that allows your Plan to customize its Formulary.
To do so, take a look at the “termination provision” in your existing PBM contract and see when you are allowed to end the contract. Approximately six to nine months before your Plan can terminate, your Plan should initiate a PBM RFP.
Please note: Don’t waste your time trying to negotiate one-on-one with your incumbent PBM, expecting to accomplish a better contract that allows your Plan to customize. Why not? Because you’ll likely negotiate for months, and then discover your PBM will not provide the terms you need, and your Plan has run out of time to obtain a better contract from another PBM! As a result, your Plan will be required to extend its existing PBM contract for an additional year (or if your incumbent PBM insists, for three years)!
Note, too: If your Plan is relatively small (say, 10,000 covered lives or less), your Plan may want to avoid the resource burden of conducting a RFP. It can instead try to find a Coalition to join, in which case your Plan may need only about four months “lead time” to improve its situation. However, your Plan needs to make sure that the Coalition has a contractual “right to customize” — and the other contract rights mentioned below — and the Coalition is actually customizing a Formulary for all Coalition Members. Otherwise, all your Plan will do when it joins a Coalition is pay an additional fee for being a Coalition Member, without lowering your Plan’s costs! (Here’s a way to detect whether a Coalition is effectively customizing its Formulary for all Coalition Members: Look at its 2021 Formulary and see whether the Coalition is covering brand Tecfidera or Vumerity!)
Your Plan’s next PBM contract — or the Coalition’s contract — must also bind your next PBM to provide drug-by-drug rebate information, meaning “net cost” information, to enable your Plan to compare drugs’ “net costs” and determine how to customize the Formulary.
Ideally, your Plan’s next contract — or the Coalition’s contract — should also require the PBM to “pass through” its actual acquisition costs for every Specialty Drug. But note that almost no PBMs do so. Most PBMs claim they are providing “pass-through pricing” — including for Specialty Drugs — but all they are doing is “passing through” their “negotiated rates” with their own subsidiary specialty drug pharmacies. Needless to say, passing through “negotiated rates” means the PBM can pass through any rates the PBM has selected with to put in place with its own subsidiary – it does not mean the rates are competitive rates! Therefore, “negotiated rates” almost never bear any relationship to the PBM pharmacies’ actual acquisition costs.
In addition to (i) the right to customize your Plan’s Formulary, (ii) the right to obtain “net cost”, drug-by-drug rebate information, and (iii) ideally, a pass-through of acquisition costs for every specialty drug, your Plan’s next contract — or the Coalition’s contract — should contain the following provisions to ensure you are financially protected against all the disastrous outcomes outlined in this article:
Conclusion
If your Plan currently had all the above provisions in its existing PBM contract, your Plan could have immediately responded to the new developments in the MS category when they occurred, customized its Formulary, obtained the lowest-possible costs for generic Tecfidera, and your Plan would already be saving thousands of dollars on each MS script that was dispensed. And your Plan would be “blocking” use of any of the three brand drugs for all new users, meaning your Plan would have limited its “exposure” to higher costs, and locked in potentially lower costs for generic Tecfidera.
Instead, your Plan is probably not getting the financial benefit of any of the new developments, and your Plan has no way to control when it will begin to reap those financial benefits. Will it take six months, or a year, or a few years before your Plan stops overpaying by thousands of dollars per 30 day script?
In short, as soon as you can, take action: Change your PBM contract!
Then take advantage of your new contract terms to customize your Formulary – not only by blocking the three identified brand drugs, but also by making dozens of other changes that will also save you large amounts of money.
You can hire a full-time expert to work in-house — or retain a third-party consulting firm with clinical and claims data expertise — to customize on an ongoing basis. Either way, the savings you reap will far exceed the added costs your Plan incurs to pay for the above services.
For example, if your Plan provides coverage to approximately 5,000 lives, it’s likely spending $6 million or more on drugs. If you save 15% + of your total “drug spend” through customization (which is a minimum savings result based on our experience), your Plan will save far more than it has spent to obtain expertise. If your Plan provides coverage to far more individuals, retaining expert help is a no-brainer. You’ll reap the savings we’ve described in this article on MS drugs, and undoubtedly mega-millions of dollars of savings on many other drugs as well.
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