Tag Archives: PBMS

How to Disrupt Drug Prices

These days, we’re not surprised to open the paper and see another headline about the latest Epi-pen, Martin Shkreli or yet another new drug with an exorbitant price tag that has no basis in reality. Since Sovaldi, a pill to treat Hepatitis C, hit the market at a price point of $1,000 (never mind that you could purchase it for $4 per pill in India), it has become acceptable for mass-market therapies to suddenly become very expensive — often to the tune of $100,000 per therapy per patient per year.

So it might blow your mind to open up a newspaper (or your web browser) and learn that a new, more effective drug is significantly cheaper and better, especially if it is a cure for Hepatitis C.

Mavyret, manufactured by AbbVie, is the first example of a new, brand name Hepatitis C drug that is actually better for patients and costs far less. Eighty percent of patients with Hep C can do an eight-week course, versus the alternative, manufactured by companies including Gilead and Merck, which requires a 12-week course.

Mavyret is the only drug that works for genotypes 1-6, and it has a list price that is less than half of what the competitors charge, even when you factor in the bizarre middleman shenanigans. It ends up costing about $26,000 to cure a patient of Hep C. If that sounds high, just consider the fact that all the specialty meds for chronic conditions such as psoriasis are now $50,000-100,000 or more per year! Mavyret sounds too good to be true, right?

In the world of specialty pharmaceuticals — an intentional labyrinth of perverse financial incentives, with zero transparency for the payer or patient — it is actually not too good to be true. But clients and their employees probably still won’t reap the benefits. Unfortunately, our current system probably locks them into paying more for a drug for employees that is less effective, even though a cheaper alternative exists.

See also: Stop Overpaying for Pharmaceuticals  

Most of our efforts to manage pharmacy costs rely on working with a pharmacy benefit manager or PBM, which uses strategies like formulary management, prior authorization and step therapy. PBMs are, as Bloomberg News explains, “the middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold and for how much.”

For starters, your PBM may have contracted to have the more expensive drug on their formulary because that manufacturer offers them better rebates. This decision, of course, is not based on what is most effective for the patient, or cheaper for the payer. It is based on the formulary and written into the contract, so you are stuck with it. And with the bizarre economics of rebates for manufacturers, Gilead and other makers of Hep C drugs can argue that their post-rebate prices are only 50% to 60% of their list price, so they really aren’t committing too much highway robbery.

The New York Times recently reported that, contrary to conventional wisdom, an increasing number of patients are being steered away from lower-cost generic drugs toward brand name alternatives because this is a better financial arrangement for the PBM, thanks to steep rebates from manufacturers trying to “squeeze the last profits from products that are facing cheaper generic competition.”

We feel the financial pain of this broken system every day. Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending. Last year, specialty dug spending bloated to 38% — and by 2018, it will be an astounding 50%, which is an increase of $70 million a day!

The system is opaque and perverse — and it’s the only system we know. But it doesn’t have to be this way. Almost two decades ago, the internet revolution made the travel agency obsolete. Uber and Lyft have done the same thing to parts of the transportation industry, and Amazon continues to do this to many industries. What have all of these disruptive innovations taught us? They have taught us that we might, in fact, be able to make better decisions ourselves, without a middleman.

It is time for this type of disruptive innovation to hit the pharmacy benefit world. Today we have a system that focuses on controlling suppliers: PBMs that use profitability levers like formulary management, prior authorization and step therapy that, in reality, just limit our choices and prevent the functioning of a real market.

See also: Open Letter to Bezos, Buffett and Dimon

What if instead of focusing on supply, we focus on value? What if we begin by asking “is this drug really working for this patient? How well? And how does it compare with the alternatives?” This scenario represents an incredible opportunity for better health outcomes and savings compared with the status quo. What makes sense and saves cents at the same time isn’t being locked into a formulary choice, but the brave new world of opportunity for employees to get well sooner and pay less for a therapy like Mavyret.

As a benefits professional, breaking out of the status quo isn’t easy. After all, 10 years ago, it wouldn’t have worked to turn to your travel agent, taxi cab driver or storefront manager and tell them, “I need a new model for your industry, and I don’t need you anymore.”

Organizations that have a bit of flexibility to experiment can, should and will be the early adopters of better ways. Some already exist. Don’t settle for the status quo. Keep asking vendors, “What have you done for my clients and their employees today?”

The Yuuuuge Hidden Costs of Wellness

We  have written extensively on the direct costs of dealing with wellness vendors, which often do wellness to employees instead of doing it for them. Employers in self-administered programs tend to focus much more on cultural improvements—the “for” instead of the “to.” However, there’s not really a vendor business model in doing wellness for employees. Cultural improvements tend to be internally driven, generating few transactions of the type for which vendors get paid and brokers get commissioned.

In sharp contrast to the internal development of a wellness culture, the wellness industry is completely transactional. It’s all about the number of risk assessments, screens, coaching sessions, “biggest loser contest” participants, etc.

Further, the wellness industry is completely unregulated. It claims to offer healthcare, but it is required to know nothing about healthcare. The industry’s disregard for clinical guidelines is the stuff of legend—one vendor has even bragged about it—and it counts fines levied upon employees refusing to submit to pry-poke-and-prod as “savings.” Quite literally, you can become a wellness vendor with five days of classroom training.

See Also: Wellness Promoters Agree: It Doesn’t Work

Any time you have an unregulated industry, bad actors take over. You have the equivalent of Gresham’s Law in economics, which states that bad money chases out good, meaning that people hoard gold coins and spend paper currency. In wellness, dishonest vendors chase out honest vendors, because—aside from the esteemed Validation Institute—there is no resource a layperson can consult to know who’s telling the truth and who’s cheating. Vendors promising that wellness will generate massive savings will always win contracts over vendors who tell the truth, especially because consultants and brokers can’t seem to figure this stuff out for themselves or are chasing the greater fees that come with the easier route of making up high ROIs.

We see this at Quizzify, too. We guarantee an ROI, explicitly define how it is measured (while allowing customers to choose their own measurement instead) and have V-I validation. But we still hear: “Your fees are so low that your 2-to-1 guarantee won’t even save us $100/employee.” Um, yeah, but these very same employers actually lose at least $100/employee using dishonest wellness vendors and pay much more for the privilege.

Our past postings and articles have covered the direct damage that these dishonest wellness vendors have done to employers and employees: the fees, the harms to employees, the reduced productivity and the morale impact.  Others with different perspectives have addressed privacy/intrusiveness and economic discrimination.

But wait. There’s more.

The Indirect Harms of Wellness

Overlooked in the voluminous criticism of wellness vendors is the dog that didn’t bark in the nighttime. Specifically, there are a large number of important items that get overlooked or that are under-resourced in employer settings because of this pervasive wellness obsession. There are so many such items that ITL and I are going to run an entire series devoted to the topics below. These topics aren’t wellness, but that’s exactly the point: Wellness “harms” employees in the following ways because it distracts people in human resources from doing their jobs.

Hospital safety. It turns out to be comparatively easy to get hospitals to focus on safety: Simply don’t pay them for “never events” (shocking errors, such as surgery to the wrong part of the body, that should never occur). Hospital safety issues are very expensive and are far more common than you would think. Leapfrog Group has an entire strategy, policy and how-to guide on that.

PBMS. There’s a reason the pharmacy benefit management (PBM) industry has enjoyed the greatest stock appreciation of any industry in the last 30 years. It’s because those fancy contractual metrics they sell you are profit-making machines for them. The industry has more ways to snooker you than even wellness vendors do. The industry’s contracts take opacity to a new plateau. We’ll look at some of them in our later series and will see what can be done to get a better deal.

Overuse. While everyone is focused on preventing cardiometabolic admissions (which turn out to be quite rare to begin with in the employer-insured population), providers are running amok with spinal fusions and other procedures. Spinal fusions fail at a high rate and can entail painful complications. Even when they don’t, they are expensive and arduous to recover from. Yet, the average company spends more on spinal fusions than on any admissions category other than birth events and joint replacements.

Opioids. Marx was wrong: Religion isn’t the opiate of the masses. Opioids are the opiate of the masses. You may have a major problem and simply not know about it. Overuse of pain medication may be five to 10 times as big a problem in your workplace as overeating, so why would people spend five to 10 times the time and effort on overeating as on opioid addiction?

See Also: Triathlete’s View on Workplace Wellness

Non-inpatient spending. Aside from about 10 procedures, there is not a lot to be gained by trying to “keep people out of the hospital.” Most commercially insured people already are “out of the hospital.” Take out birth events, trauma and orthopedics… and maybe 3% of your employees end up in the hospital in a given year. Most of that 3% is simply not preventable. Yet, outside those hospital walls, a ridiculous numbers of resources are overused, misused, etc.—right under your eyes and are just completely ignored by wellness vendors. Our last post will cover this topic.

So, keep your eyes open. This series will appear approximately weekly, subject to breaking wellness news and, of course, the occasional demands of the darn day job.