Insurers, PBMs continue to fight for bigger, better drug price discounts

Health insurers and pharmacy benefit managers (PBMs) are hoping recent mergers and their growing market clout will help them win steeper drug discounts in their ongoing war with the pharmaceutical industry over specialty drug pricing.

However, they're still struggling to come up with effective new strategies to overcome the pricing power that drug companies are exercising with the new and usually better therapies they are bringing to market.

“It's all about scale and clout for either being able to stand up to the supply chain or stare down the supply chain,” said Dr. Glen Stettin, senior vice president of clinical, research and new solutions at Express Scripts, one of the largest PBMs in the U.S.

Some drug companies have conceded that their products' buyers are turning up the heat. David Epstein, a top executive at pharmaceutical giant Novartis, told investors this month the company is seeing “price pressure” from payers. But even after gaining a few concessions, payers worry that the pricing discounts they gain won't be enough to make a significant difference in drug spending.

The CMS said last week that prescription drug prices were a major reason for the sharp rise in healthcare spending from a historically low growth rate in 2013 to 5.5% annual growth in 2014. Drug spending in 2014 jumped 12.6%, the highest rate since 2002. Though it's scant consolation, the public backs insurers on the issue. Three-quarters of Americans say prescription drug costs are “unreasonable,” according to a June poll from the Kaiser Family Foundation, with half the public blaming drug companies for the problem.

Gilead Sciences' blockbuster hepatitis C drugs, Sovaldi and Harvoni, have become the poster children for rising drug costs. The next battle lines have already been drawn for a new class of costly drugs called PCSK9 inhibitors, injectable drugs that treat high cholesterol.

Competition from a second or third entry in a drug class has provided some relief for payers and the public. After Gilead's Sovaldi and Harvoni came to market with lofty retail price tags of $84,000 and almost $95,000, respectively, PBMs were able to negotiate discounts from AbbVie, whose hepatitis C product, Viekira Pak, came on the market in 2014.

“When you have a single-source drug that's in a monopoly position, there's no negotiation,” said John Rother, president of the National Coalition on Health Care and leader of the Campaign for Sustainable Rx Pricing. Viekira Pak's lower price enabled Express Scripts to expand the pool of patients who qualified for the treatment. “We love when there is competition,” Stettin said.

Feeling the heat, Gilead made deals with many insurers and PBMs to put its drugs on preferred formularies. The average discount Gilead offered for this year was 46%, the company said. Insurers still try to limit their financial exposure by adding clinical criteria as part of the drug's rebate, such as only treating the sickest people.

“We couldn't treat everybody,” said Sheila Arquette, director of pharmacy services at Independent Health, a Buffalo, N.Y.-based insurer with about 400,000 members. Independent Health reached a deal with Gilead for Harvoni. “We had to come up with a rational approach to care,” she said.

Some are unsure if the attained rebates are enough. While paying $50,000 for Gilead's drug regimen is cheaper than the retail price, it's still significantly higher than what is charged abroad. For example, Sovaldi costs about $900 for a full course of treatment in India.

“It's still a very, very expensive drug even with the discount,” Rother said. “It's a mistake to think negotiation solved the problem.”

Attention is now turning to Praluent, a new cholesterol drug made by Sanofi and Regeneron Pharmaceuticals that scored limited approval in July from the Food and Drug Administration. Praluent will cost $14,600 a year per patient, which Express Scripts said is 50 times higher than the annual price of generic statins. Drug company Amgen is working on a similar drug, which will receive a decision from the FDA this month and could create immediate competition.

Roughly 70 million Americans have high cholesterol, but Praluent has been approved for only the 5 million to 10 million people who have a family history of high cholesterol. The possibility that drug companies will either market the drugs off-label to a broader population or win an expanded indication worries many payers and PBMs. “This could be another Sovaldi,” Arquette said. “The number of patients who could be eligible is huge.”

Payers haven't solidified deals yet for Praluent, and the battle could intensify if more people become eligible for the treatment. “You can bet that our strategy would be very focused on getting the pricing down if it's going to be used more broadly,” Stettin said.

Jon Kaplan, managing director at Boston Consulting Group, said health insurance mergers are galvanizing insurers and PBMs to be more collaborative on drug discussions. “You could see a pathway forward where the PBMs become more integrated with the payers,” he said.