During the final days of 2014 and first week of 2015, newspapers around the nation announced three new developments that purportedly changed the prescription coverage world:
- On December 19th, the FDA finally approved another new treatment for hepatitis C, AbbVie’s Viekira Pak 
- Only days later, the largest Pharmacy Benefit Management company, Express Scripts, proclaimed it had negotiated a “significant discount” from AbbVie, and Express Scripts would therefore make Viekira Pak the exclusive Formulary treatment available to all individuals regardless of their disease’s severity 
- On January 6th, the second largest Pharmacy Benefit Management company, Caremark, announced it would make Gilead’s two hepatitis C treatments – Sovaldi and Harvoni – Caremark’s exclusive Formulary treatments
At first glance, these developments appeared to be welcome news: Another new treatment for a potentially deadly disease. The two largest PBMs in the nation exercising their clout, presumably to create downward pricing pressure. And the possibility that all plan participants might finally be able to receive lower-cost hepatitis C drugs.
However, the picture is far more complex than newspaper stories revealed. Therefore, every HR exec trying to protect fund assets and plan participants’ health should take note of several underlying realities.
Will Health Plans Benefit From PBMs’ Recent Deals?
During the past year, health plans have been confronted with crushing costs from 3 new hepatitis C treatments: Gilead’s Sovaldi and Harvoni, and Janssen’s Olysio. The sticker prices of these 3 drugs for a 12 week treatment were about $84,000, $94,500 and $66,000 per patient.
Thus, many HR execs awaited the FDA’s approval of the next new hepatitis C treatment. When the FDA finally approved Viekira Pak on December 19th, and AbbVie fixed its sticker price at $83,300, the only question was whether AbbVie would agree to decrease its price to gain market share.
Enter Express Scripts and its claim that it had negotiated a “significant discount” from AbbVie, followed shortly thereafter by Caremark’s announced deal with Gilead.
But to what extent would either of these PBM deals actually benefit any of their clients?
After all, no one knows the amount of Express Scripts’ “significant discount” or whether Caremark even obtained a discount.
Even more important, no one knows to what extent either PBM will pass through any discount to its clients. Unfortunately, there’s good reason to believe that they won’t.
Notably, a drug “discount” can take many different forms: It may be a discount off a drug’s Average Wholesale Price (AWP). Or a discount off a drug’s Wholesale Acquisition Cost (WAC). Or a rebate. Or a chargeback. Or a reduction in price using some other label invented by the PBM negotiating with a manufacturer, of which there are dozens of such labels.
Tellingly, in our firm’s review of hundreds of PBM/client contracts, we’ve discovered that most PBMs are not passing through most of the above “discounts” to their clients.
For example, in connection with AWP (or WAC) discounts: Some PBM contracts require pass-through pricing for drugs dispensed through retail pharmacies. But very few PBM contracts require the PBM to pass through its actual costs for drugs dispensed through specialty drug pharmacies. Therefore, PBMs typically do not do so.
Notably, all 4 of the new hepatitis C drugs are usually dispensed by specialty drug pharmacies. Moreover, when announcing its deal with AbbVie, Express Scripts made clear that it will only allow Viekira Pak to be dispensed from Express Scripts’ Specialty Drug Pharmacy. Thus, if the “significant discount” that Express Scripts negotiated with AbbVie takes the form of an AWP (or WAC) discount, Express Scripts’ clients may never obtain any of the financial benefit of this purportedly “significant discount.” That may also be true of any AWP (or WAC) discount negotiated by Caremark.
Similarly, discounts that are structured as “rebates” may never get passed through to clients. Most PBM contracts do not require that PBMs pass through all rebates. And many PBM contracts explicitly state that PBMs are only obligated to pass through rebates on retail and mail drugs (meaning specialty drugs are excluded from the rebate obligation).
So what should every HR exec in the country now be doing?
Given the exorbitant sticker prices of all 4 hepatitis C drugs – and the large number of participants who may be given hepatitis C treatment – all HR execs should immediately access their claims data and determine whether, and to what extent, their PBMs are discounting each drug.
Note that in RFPs conducted by our consulting firm, when forced to do so, certain PBMs have bound themselves contractually to provide a specified guaranteed discount on every specialty drug, meaning clients are able to obtain drug-by-drug discounts for more than 800 drugs. And certain PBMs have agreed to provide guaranteed discounts for Sovaldi, Harvoni and Olysio that are as high as AWP-17%. That discount amounts to a lot of money on drugs that cost approximately $1,000 per day. Accordingly, every health plan should be receiving discounts of at least that amount on these three drugs.
Also note that in RFPs conducted by our consulting firm, when forced to do so, certain PBMs have contractually bound themselves to pass through 100% of all forms of third party “financial benefits” (whether they are labeled “rebates,” “administrative fees,” “chargebacks,” “grants,” or any other name). And these PBMs have agreed to do so for every type of drug – retail, retail 90, mail and specialty. Therefore, every HR exec should determine whether it is receiving “rebates” or any other form of third party payments for any of the hepatitis C drugs, and what those payments actually are.
Does It Make Sense To Expand Treatment To All Participants With Hepatitis C?
At first glance, it was also welcome news that Express Scripts now intends to dispense Viekira Pak to all plan participants using Express Scripts National Preferred Formulary and suffering from genotype 1 infection. After all, given the high cost of hepatitis C treatments, many PBMs have been curtailing the new treatments to only those with serious illness.
But again, the picture is far more complex, and HR execs must obtain the facts lurking beneath the surface.
According to the Centers for Disease Control and Prevention (the CDC), approximately 15% to 25% of hepatitis C patients clear their bodies of the hepatitis C infection without any treatment at all. The CDC also states that 60% to 70% of hepatitis C patients develop chronic liver disease, meaning 30% to 40% do not.
Therefore, it’s questionable whether any PBM should force all health plans using a specified Formulary to provide treatment to all plan participants. That’s especially true if large numbers of people have been diagnosed with the disease, the treatment has an enormous sticker price, and the amount of the discount that will be passed through to health plans is entirely unknown.
In other words, it may be that Express Scripts will benefit from its new, seemingly beneficent approach, but health plans will only go broke.
Tellingly, as long as Express Scripts fails to pass through all its negotiated AbbVie “discount” to its clients, Express Scripts will obtain profits for every patient treated. And the more patients it treats, the greater will be its profits.
In contrast, even if Express Scripts negotiated a “significant discount” with AbbVie, unless that discount is very steep and Express Scripts is passing through all (or at least most) of the discount to health plans, health plans’ costs may explode if every hepatitis C patient is treated.
Moreover, why would anyone treat every hepatitis C patient immediately, given that the disease typically develops over the course of many years, and at least two other new treatments may become available within the next two years, potentially reducing prices dramatically?
For patients, a sudden rush to treatment also makes little sense. After all, many individuals with hepatitis C are asymptomatic and will not suffer any harm from the disease for many years. Furthermore, the mid- and long-term efficacy, safety and side effect profiles of new drugs only become known with the passage of time. Therefore, those who don’t need treatment right away will likely be better off if treatment is delayed until more is known about each treatment.
So what should HR execs do given the above facts?
To protect health plan assets – and patients’ health – it makes sense to curtail the use of these new drugs to those who really need them. Thus, every HR exec should revolt if its PBM wants to impose mandatory treatment on all hepatitis C patients. And every HR exec should insist that its PBM implement an effective Prior Authorization Program for hepatitis C drugs. Only through these Programs can HR execs successfully control their costs and also ensure their participants will receive wise treatment.
Plans Must Control The Costs Of All New-To-Market Specialty Drugs
A final lesson can be learned from recent hepatitis C developments: Every HR exec should create contractual “protections” to control the prices of every new specialty drug that will enter the market in the future.
The contract terms that should be in every health plan’s PBM contract include the following:
- A stated “default discount guarantee” that the PBM must automatically provide for every new-to-market drug
- The client’s right to negotiate an improved guaranteed discount on any specialty drug, if a better discount becomes available in the marketplace
- And if a PBM won’t provide a competitive discount when it’s requested, the client’s right to carve-out the specialty drug and have another vendor (that will provide the competitive discount) dispense the drug
If the above protections currently existed in every PBM contract, when a new drug like Viekira Pak entered the market, every PBM would be forced to provide an automatic default discount on the drug. Thereafter, every health plan could negotiate with its PBM to improve the discount it was receiving to ensure the discount matched what was competitively available. And if its PBM wouldn’t cooperate by providing a competitive discount, every health plan could turn to another vendor to dispense the drug at the lowest available cost.
In short, rather than relying on PBMs to create purported downward pricing pressure that may not bring about actual health plan savings, HR execs could exercise their own pricing pressure and truly change the prescription drug marketplace. Now wouldn’t that be an amazing development!
 See http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm427530.htm.
 See http://phx.corporate-ir.net/phoenix.zhtml?c=69641&p=irol-newsArticle&ID=2001457.
 See http://www.cdc.gov/hepatitis/HCV/HCVfaq.htm.