Amgen has just announced a 60% cut in the price of its innovative anti-cholesterol medicine, Repatha. That is big news to people at risk for heart attacks and strokes, many of whom had been forgoing the treatment because of high out-of-pocket costs.
But it is also big news to anyone who cares about drug prices generally. To understand why, let’s go shopping for a car.
Let’s say you have a friend who says she knows how to get a better price from the dealer and volunteers to negotiate for you. You agree, and sure enough, she delivers. You go to the dealer, write the check and drive off.
What you don’t know is that she actually negotiated a much deeper discount, and as you are driving away the dealer is paying her a kickback. Your friend looks like a hero to you, and the only one who knows for sure how much she pocketed is the car dealer, who isn’t telling.
This kind of secrecy is rampant in pharmaceutical pricing. In the drug world, your friend becomes the pharmacy benefit manager (PBM), and the rebates she is negotiating can run as high as 40% to 50%. That adds up to billions of dollars in kickbacks. Worse, it is the sickest patients—who need the most expensive medications—who often end up getting the short end of the deal.
The Repatha announcement delivers a giant dose of transparency and sets the stage for more to come from other manufacturers. It’s as if the car dealer, (in the drug world, that’s Amgen AMGN, +0.12% ) decided that he could set a lower, non-negotiable price and hope to sell more cars to make up the difference.
The new transparency also deals a major blow to the practice of steering patients to higher- priced drugs, where the secret discounts to the PBMs are the largest. Imagine that your friend helping you buy the car got to choose which make and model car you bought. The higher the sticker price, the bigger her rebate after negotiations. Similarly, the largest PBMs design their formularies to direct you to expensive brand drugs with high list prices, and steep rebates to them.
In theory the PBMs can’t act with total impunity because they work for big employers who want some share of the rebates themselves. The companies use the money to help pay health-insurance premiums for their workers. If the companies believe they aren’t getting a good deal, they can switch PBMs.
However, the dramatic consolidation in the PBM industry means that employers have fewer and fewer options. Today, just three PBMs — Express Scripts ESRX, +3.72% CVS Caremark (part of CVS Health CVS, +1.23% and OptumRx (part of UnitedHealth Group UNH, +3.09% — account for 85% of the market.
Drug manufacturers are beginning to respond to this muddle in ways that give hope to those who seek market-oriented solutions. That brings us back to Repatha.
Clinical trials showed that the drug, a monoclonal antibody known as a PCSK9 inhibitor, reduced the risk of heart attacks and strokes for people whose levels of cholesterol don’t respond to traditional therapies like Pfizer’s PFE, +2.19% Lipitor. Amgen introduced the treatment at a cost of about $14,000 annually.
The large number of patients who could potentially benefit from Repatha and competing PCSK9 products — projected above 8 million — meant a lot of potential spending by insurers, employers and the government. Some alarmists warned spending could reach $100 billion per year.
Payers balked, and as a result, only half of patients initially prescribed PCSK9 inhibitors received coverage approval. One-third of approved prescriptions were not filled due to high patient copayments. The payers were so successful that Wall Street analysts strikingly reduced their sales forecasts.
Amgen will lower the list price 58% to $5,850 per year—a transparent move that dramatically diminishes the opportunities for secret kickbacks. It will also bring down the out-of-pocket costs for patients, since most co-payments are based on the list price. Not surprisingly, Amgen can now expect sales to pick up considerably.
Similarly, prices for Hepatitis C cures are headed down. Drugs like Harvoni, manufactured by Gilead Sciences GILD, +0.90% eliminate the virus with over 90% effectiveness and few, if any, side effects. But these cures were introduced with a steep price tag of $84,000. The entrance of competitors eroded Gilead’s pricing power, and discounts of more than 60% became the norm. Yet the high list prices persisted, and for some Medicare patients this meant out-of-pocket costs of up to $7,000.
Last month, Gilead took the unprecedented step of issuing its own “authorized generic” version of Harvoni through a new subsidiary. The authorized generic will have a much lower list price ($24,000) and provide a pathway to lower out-of-pocket costs and more transparency on pricing.
These moves by drugmakers look a lot like the efforts of some car retailers to attract more customers by setting clear prices with no haggling.
And it means PBMs can become more like the friend who negotiates a decent price but doesn’t run off with a huge secret kickback. If this trend grows, they will still have a purpose but they won’t be pulling as much unwarranted amounts of income from the drug supply chain.
Dana Goldman is director of the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California’s Sol Price School of Public Policy and School of Pharmacy. He has consulted for Gilead and Amgen, and both have provided unrestricted research and education grants to the center.
