PBMs Refuse to Pay for High Cost Drugs
June 25, 2014
Katie Sullivan, MA
Increasingly, pharmacy benefit managers (PBMs) are refusing to purchase high-cost drugs from manufacturers or include them in their formularies — the lists of drugs that a health plan will cover. In particular, PBMs are targeting specialty drugs which can place large and sometimes even unreasonable cost strains on patients. When manufacturers refuse to lower drug costs, they can be excluded from health plans and sales can suffer.

Express Scripts, for instance, no longer covers the respiratory drug Advair and the diabetes medicine Victoza.  Within the first quarter of 2014, Advair sales declined 30% while a less expensive alternative respiratory medication rose 20%. Sales of Victoza also declined. Starting next year, Express Scripts will exclude an additional 48 drugs and medical products.  The company said its formulary decisions could save its subscribers $700 million — about 2-3% of its spending on prescription drugs.

CVS Caremark has also chosen to exclude an estimated 70 drugs from its formulary. Next year the list may reach 200 drug exclusions. CVS said health plans and patients could expect to save an estimated $67 for each lower-cost prescription included in their covered prescription list.

“The nation's healthcare system is in a period of transformative change, which is impacting consumers, employers, health care providers, and government,” Mr Larry J. Merlo, president and CEO of CVS Caremark said in a statement about the change. “As a result, CVS Caremark is evolving as an integrated healthcare company that is poised and ready to address the cost, quality and access conundrum in healthcare today.”

Typically, PBMs try to negotiate discounts from drug companies by offering better placement in its formulary. Less expensive drugs often have a lower co-payment to encourage patients to use it. Increasing use of coupons with drugs means that patients choose higher cost medications while drug companies loss incentive to bargain on drug costs. These shifts in contact negotiations may change formulary decision making.

“We need to be competitive whenever a payer basically makes the decision that they are going to narrow the formulary,” said Enrique Conterno, a diabetes expert at Eli Lilly.
Around the Web

Refusals to Pay High Drug Prices [The New York Times]

CVS Caremark CEO to Address Detroit Economic Club on Reinventing Pharmacy for Better Health [Yahoo!]