This is a guest post by Taylor J. Christensen, M.D. (@taylorjayc). Dr. Christensen is an internal medicine physician and health policy researcher with a background in business strategy and health services research.
Since any mystery in the healthcare system intrigues me, I’ve been working on understanding pharmacy benefit managers (PBMs) lately.
Why did PBMs arise in the first place, and how did they come to have this somewhat strange role in the drug market? Let’s look at the evolution of PBMs, which I will categorize into three distinct phases.
Forewarning: There isn’t a lot of publicly available information on this stuff, so some of this is my best piecing together of things I’ve read plus supplemented by direct communications with people who work for insurers or PBMs.
Way back before PBMs, people used to pay for medications 100% up front out of pocket. They’d keep their receipts and then submit them all to their insurer later for partial reimbursement according to their insurance plan’s formulary.
That clearly had some downsides. If a patient couldn’t afford the full price up front, they would be stuck choosing which of their meds they’re not going to get, which is bad for both patients (nonadherence) and pharmacies (lost sales). Insurers also had to spend tons of time reconciling shoeboxes full of receipts.
If only there were a way to integrate an insurer’s formulary into the pharmacy’s computer system so that patients only pay their exact copay at the time they fill a prescription! Everyone would be a lot happier. Patients wouldn’t have to forego quite so many medications, pharmacies wouldn’t lose out on as many medication sales, and insurers wouldn’t have to deal with people sending in shoeboxes full of receipts. Win win win.
Enter the precursors to pharmacy benefit managers—they were essentially groups of software engineers tasked with working with pharmacies to get insurers’ formularies into the pharmacies’ computer systems. And they succeeded! After that, when a patient showed up to fill a prescription, the pharmacy would simply enter the patient’s insurance information into their system and the exact co-pay for that medicine would magically appear on the cash register’s screen. The patient paid their amount, and the transaction was then sent to the insurer to reimburse the rest.
But how did these precursor PBMs evolve into today’s PBMs that, among other things, “manage benefits”? My guess is that it went something like this . . .
These precursor PBMs got pretty good at integrating formularies into pharmacies’ systems, so they began to expand their customer base by helping lots of other insurers do the same thing.
Soon they became more familiar with all the complexities and intricacies of formularies than anyone else. And, as companies are wont to do, they leveraged that competency to make more money by offering a new service, which they maybe pitched to insurers like this: “Hey insurer, we already know all the details of your formulary. And we know where you could save money since formularies are kind of our thing. Why don’t you outsource your formulary-making efforts to us? We’ll make you a better formulary and charge less than it’s costing you to do it in-house right now. No-brainer, right?” And thus, not too long after their inception, PBMs officially started managing pharmacy benefits.
But that’s not where the story ends.
Phase 3 (dun dun dun)
Soon these PBMs found that they had amassed significant indirect control over which medicines patients get. Set a lower copay for a medicine and, sooner or later, more patients will end up taking it. And the one making the formulary is the one who sets the copays.
What did PBMs do with that power? They tried to leverage it to get better drug prices from manufacturers, which would allow them to offer an equivalent but cheaper formulary to their customers (insurers). But how, if they are not actually in the drug supply chain (that goes from drug manufacturers à drug wholesalers à pharmacies à patients) could they do that?
They cleverly reached out to the drug manufacturers directly and said something like this: “Hey drug manufacturer, we don’t actually have a direct financial relationship with you (yet). But we have significant control over how many sales you get because we set patients’ copays. How about we guarantee that your drug will, from now on, be the only one from its category in the lowest-copay tier? This will increase your sales quite a bit! And, in exchange for helping you get more sales, you can send us a “rebate” on every sale. So this is how it will work. We already keep track of every drug transaction, so every quarter we will send you the data to show how many patients using our formulary bought your drug, and you will send us a $10 rebate for each one.”
Contrary to popular belief, PBMs don’t keep all of this rebate money. Remember, their goal is to outbid other PBMs to offer the best formulary for the cheapest. And if the PBM market is competitive, they will have some degree of price competition that will force them to pass along some of those rebates on to their customers (insurers) in the form of lower fees.
I spoke with someone who works at an insurer and is in charge of contracting with their insurer’s PBM, and this person indicated that it is very possible for an insurer to get multiple bids from PBMs and identify which one is the best deal. Although, with the complexity involved, this process generally requires a specialist healthcare consultant who is an expert on navigating PBM contracts. I spoke with such a consultant, who had also worked for PBMs directly before becoming a consultant to insurers, and this person estimated that PBMs only keep about 20% of the rebates they receive from drug manufacturers. Other studies have been done on this topic, but attribution is tricky since PBMs are able to rename the monies they are receiving from drug manufacturers to fudge the numbers, which is probably why the Government Accountability Office reported in 2019 that PBMs only retain about 1% of rebates.
Well, there you have it. Phase 3 was the start of all the wheeling-dealing complexities that give PBMs their shady reputation.
I believe this is helpful background to have when you’re trying to improve the drug market (i.e., solve the problem of expensive drugs) because without understanding the incentives of the parties involved, you cannot get to the root of the problems with that system.
Prescription drugs with some of the highest Medicare spending also had the highest level of direct-to-consumer advertising, a recently-released GAO report found.
By the numbers: The GAO found the Medicare program and its beneficiaries spent nearly $324 billion on prescription drugs advertised to beneficiaries and other consumers between 2016 and 2018.
This amount is more than half (58%) of total Medicare Parts B and D spending on drugs during that time, the most recent data available.
- Seven of the top 25 drugs in Part D and two of the top 25 drugs in Part B with the highest spending were also among the top 25 drugs with the highest consumer advertising spending that year.
- For example, Trulicity, as well as Lyrica, Eliquis and Humira were among the top 25 drugs in Part D and direct-to-consumer advertising spending.
- Keytruda and Botox were among the top 24 drugs in Part B and direct-to-consumer advertising spending.
With a $56,000-a-year price tag, Biogen’s newly approved Alzheimer’s drug Aduhelm is dovetailing into the debate on Capitol Hill over how to lower prescription drug prices.
- Actually addressing Aduhelm’s price raises complicated policy challenges, Axios’ Caitlin Owens reports.
Why it matters: Democrats may be positioning themselves to push policy measures that assign value to drugs and then price them accordingly — a huge potential blow to the pharmaceutical industry.
To truly address its launch price, policymakers have to grapple with big questions the U.S. system currently avoids: How should we determine the value of a drug, and who gets to make that decision?
- President Biden proposed giving an independent review board the power to determine the Medicare rate for new drugs that don’t have any competition.
- Democrats’ most prominent drug legislation is a House bill that gives Medicare the power to negotiate drug prices.
- Sen. Ron Wyden, the chairman of the Senate Finance Committee, recently called out Aduhelm by name in a document outlining the principles that will guide the Senate’s drug pricing bill, a hint that the Senate’s legislation will take a different direction than the House’s.
The bottom line: “Any kind of process for valuing new drugs like Aduhelm take you immediately into the controversial quagmire of how to quantify improvements in quality of life for people,” said KFF’s Larry Levitt.
UPDATE: May 21, 2021: Late Thursday, drug manufacturing giant Eli Lilly filed a motion in an Indiana district court to halt 340B-related monetary penalties, scant days after the Biden administration set a June 1 deadline for biopharmaceutical companies to comply with new conditions in the drug discount program and allow hospital contract pharmacies access to discounted drugs.
The suit alleges a Monday letter from Diana Espinosa, acting head of the Health Resources and Services Administration, gives “no legal explanation or justification for the arbitrary June 1 deadline.”
Lilly previously filed an almost identical lawsuit January 2020. The Indianapolis-based biopharma said it expected the government to follow the briefing schedule outlined in that suit before mandating compliance with 340B and forcing it to pay “substantial and irretrievable sums of money.”
“If the Court ultimately decides Lilly was required to extend 340B pricing to contract pharmacies, Lilly will comply with that decision. Conversely, if the Court ultimately decides manufacturers are not required to extend 340B pricing to contract pharmacies, then we surely expect the government will comply with that decision. But there is no explanation or justification for the government’s attempt to make Lilly pay now, other than to evade this Court’s review and leave Lilly without recourse for such payments,” the motion reads.
In the petition, Lilly, which brought in $6.2 billion in profit last year, alleges the shifting terms of the program are due to HHS director Xavier Becerra bending to political pressure to “take action” against drug manufacturers, as pharmaceutical prices continue to climb.
Lilly asked the district court to temporarily block HHS from moving against Lilly until the drugmaker’s request for a preliminary injunction is resolved; and for an accelerated legal schedule to settle its claims before the looming June deadline.
An HRSA spokesperson declined to comment on the suit.
- HHS’ Health Resources and Services Administration called out six pharmaceutical companies Tuesday for violating rules under the 340B drug discount program, ordering them to repay affected providers for previous overcharges and warning of more penalties if they don’t comply.
- In July 2020 some drugmakers stopped giving the 340B ceiling price on their products sold to covered entities and dispensed through contract pharmacies, while others limited sales by requiring specific data or selling products only after a covered entity demonstrated 340B compliance, according to HRSA.
- In letters from Diana Espinosa, acting administrator of HRSA, the agency requested AstraZeneca, Eli Lilly, United Therapeutics, Sanofi, Novo Nordisk and Novartis give an update on their plans to restart selling covered outpatient drugs at the 340B price to covered entities that dispense medications through contract pharmacies by June 1.
Providers and drugmakers have sparred for years over the 340B drug discount program that requires pharmaceutical companies to give discounts on outpatient drugs for providers serving low-income communities.
AHA along with five other provider groups in December filed a federal lawsuit against HHS, alleging the department failed to enforce 340B program requirements and allowed actions from drug companies that undermined the program. That lawsuit was later dismissed.
But with the change in administrations, providers now seem to have an ally in the fight.
Previously, as California’s Attorney General, newly minted HHS chief Xavier Becerra led a group of states pushing the agency to force drugmakers to comply with the law late last year.
Provider groups cheered the move after raising the alarm last year that an increasing number of drug companies were refusing to offer discounts to such eligible hospitals.
“The denial of these discounts has damaged providers and patients and must stop. It is vital that these companies immediately begin to repay the millions of dollars owed to these providers,” 340B Health CEO Maureen Testoni said in a statement.
In separate letters to drugmakers, HRSA outlines complaints against them and their actions, ultimately saying their policies violated the statute and resulted in overcharges that need to be refunded. The companies must work to ensure all impacted entities are contacted and efforts are made to pursue mutually agreed upon refund arrangements, according to the letters.
Any additional violations will be subject to a $5,000 penalty for each instance of overcharging under the program’s Ceiling Price and Civil Monetary Penalties final rule.
The American Hospital Association also praised the agency in a release for “taking the decisive action we’ve called for against drug companies that skirt the law by limiting the distribution of certain 340B drugs through community pharmacies.”
Hospitals in the 340B program provide 60% of all uncompensated care in the U.S. and 75% of all hospital care to Medicaid patients, according to 340B Health.
Some countries have stockpiles. Others have nothing. Getting a vaccine means living in the right place — or knowing the right people.
A 16-year-old in Israel can get a vaccine.
So can a 16-year-old in Mississippi.
And an 18-year-old in Shanghai.
But a 70-year-old in Shanghai can’t get one. Older people are at high risk for severe illness from Covid-19. But Chinese officials have been reluctant to vaccinate seniors, citing a lack of clinical trial data. Neither can an 80-year-old in Kenya. Low vaccine supply in many countries means only health care employees and other frontline workers are eligible, not the elderly.
Nor a 90-year-old in South Korea. Koreans 75 and older are not eligible until April 1. Only health care workers and nursing-home residents and staff are currently being vaccinated. The government initially said it was awaiting assurances that the AstraZeneca vaccine was safe and effective for older groups.
Anyone in Haiti.
Anyone in Papua New Guinea.
Anyone in these 67 countries. These countries have not reported any vaccinations, according to Our World in Data. Official figures can be incomplete, but many countries are still awaiting their first doses.
It wasn’t supposed to be like this: Covax, the global vaccine-sharing initiative, was meant to prevent unequal access by negotiating vaccine deals on behalf of all participating nations. Richer nations would purchase doses through Covax, and poorer nations would receive them for free.
But rich nations quickly undermined the program by securing their own deals directly with pharmaceutical companies. In many countries, they have reserved enough doses to immunize their own multiple times over.
Anyone who can afford a smartphone or an internet connection in India and is over 60 can get one. Mostly wealthy Indians are being inoculated in New Delhi and Mumbai, hospitals have reported, since vaccine appointments typically require registering online. Less than half of India’s population has access to the internet, and even fewer own smartphones.
And anyone who can pay $13,000 and travel to the U.A.E. for three weeks and is 65 or older or can prove they have a health condition.
A member of Congress in the United States. Friends of the mayor of Manaus, Brazil. Lawmakers in Lebanon. A top-ranking military leader in Spain. The extended family of the deputy health minister in Peru. The security detail to the president of the Philippines. Government allies with access to a so-called “V.I.P. Immunization Clinic” in Argentina. Around the world, those with power and connections have often been first in line to receive the vaccine — or have cut the line altogether.
A smoker in Illinois can get one. But not a smoker in Georgia.
A diabetic in the United Kingdom can. A diabetic in Connecticut can’t.
Countries have prioritized different underlying health conditions, with the majority focusing on illnesses that may increase the risk of severe Covid-19. In the U.S., health issues granted higher priority differ from state to state, prompting some people to travel across state borders.
A pregnant woman in New York. Not a pregnant woman in Germany. Up to two close contacts of a pregnant woman in Germany. Pregnant women were barred from participating in clinical trials, prompting many countries to exclude them from vaccine priority groups. But some experts say the risks to pregnant women from Covid-19 are greater than any theoretical harm from the vaccines.
A grocery worker in Texas, no. A grocery worker in Oklahoma, yes.
Many areas aim to stop the virus by vaccinating those working in frontline jobs, like public transit and grocery stores. But who counts as essential depends on where you live.
A police officer in the U.K. A police officer in Kenya. A postal worker in California. A postal worker in North Carolina. A teacher in Belgium. A teacher in Campeche, Mexico. Other jobs have been prioritized because of politics: Mexico’s president made all teachers in the southern state of Campeche eligible in a possible bid to gain favor with the teacher’s union.
Medical staff at jails and prisons in Colombia. A correctional officer in Tennessee. A prisoner in Tennessee. A prisoner in Florida. The virus spread rapidly through prisons and jails, which often have crowded conditions and little protective equipment. But few places have prioritized inoculating inmates.
An undocumented farm worker in Southern California. A refugee living in a shelter in Germany. An undocumented immigrant in the United Kingdom. Britain has said that everyone in the country is eligible for the vaccine, regardless of their legal status.
A Palestinian in the West Bank without a work permit. Despite leading the world in per-capita vaccinations, Israel has so far not vaccinated most Palestinians, unless they have permits to work in Israel or settlements in the occupied West Bank.
An adult in Bogotá, Colombia. An adult in the Amazonian regions of Colombia that border Brazil. In most of Colombia, the vaccine is only available to health care workers and those over 80.
But the government made all adults in Leticia, Puerto Nariño, Mitú and Inírida eligible, hoping to prevent the variant first detected in Brazil from arriving in other areas. A police officer in Mexico City. A teacher in rural Mexico.The government of populist president Andrés Manuel López Obrador has prioritized vaccinating the poor and those in rural communities, despite the country’s worst outbreaks occurring in major cities.
Native populations not federally recognized in the United States. The pandemic has been particularly deadly for Native Americans. But only tribes covered by the Indian Health Service have received vaccine doses directly, leaving about 245 tribes without a direct federal source of vaccines. Some states, including Montana, have prioritized all Native populations.
Indigenous people living on official indigenous land in Brazil.
These 43 countries, mostly high income, are on pace to be done in a year. These 148 countries, mostly low income, are on pace to take until next year or even longer. Countries like the U.S. continue to stockpile tens of millions of vaccine doses, while others await their first shipments.
“The vaccine rollout has been inequitable, unfair, and dangerous in leaving so many countries without any vaccine doses at all,” said Gavin Yamey, director of Duke University’s Center for Policy Impact in Global Health.
“It’s a situation in which I, a 52-year-old white man who can work from home and has no pre-existing medical conditions, will be vaccinated far ahead of health workers or a high-risk person in a middle- or low-income country.”
COVID-19 accelerated a number of trends already brewing in the healthcare industry, and that’s not likely to change this year, according to a new report from CVS Health.
The healthcare giant released its annual Health Trends Report on Tuesday, and the analysis projects several industry trends that are likely to define 2021 in healthcare, ranging from technology to behavioral health to affordability.
“We are facing a challenging time, but also one of great hope and promise,” CVS CEO Karen Lynch said in the report. “As the pandemic eventually passes, its lessons will serve to make our health system more agile and more responsive to the needs of consumers.”
Here’s a look at four of CVS’ predictions:
1. A looming mental health crisis
Behavioral health needs were a significant challenge in healthcare prior to COVID-19, but the number of people reporting declining mental health jumped under the pandemic.
Cara McNulty, president of Aetna Behavioral Health, said in a video attached to the report that it will be critical to “continue the conversation around mental health and well-being” as we emerge from the pandemic and to reduce stigma so people who need help seek it out.
“We’re normalizing that it’s important to take care of our mental well-being,” she said.
Data released in December by GoodRx found that prescription fills for depression and anxiety medications hit an all-time high in 2020. GoodRx researchers polled 1,000 people with behavioral health conditions on how they were navigating the pandemic, and 63% said their depression and/or anxiety symptoms worsened.
McNulty said symptoms to look for when assessing whether someone is struggling with declining mental health include whether they’re withdrawn or agitated or if there’s a notable difference in their self-care routine.
2. Pharmacists take center stage
CVS dubbed 2021 “the year of the pharmacist” in its report.
The company expects pharmacists to be a key player in a number of areas, especially in vaccine distribution as that process inches toward broader access. They also offer a key touchpoint to counsel patients about their care and direct them to appropriate services, CVS said.
CVS executives said in the report that they see a significant opportunity for pharmacists to have a positive impact on the social determinants of health.
“We’ve found people are not only open and willing to share social needs with their pharmacists but in many cases, they listen to and act on the advice and recommendations of pharmacists,” Peter Simmons, vice president of transformation, pharmacy delivery and innovation at CVS Health, said in the report.
3. Finding ways to mitigate the cost of high-price therapies
Revolutionary drugs and therapies are coming to market with eye-popping price tags; it’s not uncommon to see new pharmaceuticals priced at $1 million or more. For pharmacy benefit managers, this poses a major cost challenge.
To address those prices, CVS expects value-based contracting to take off in a big way. And drugmakers are comfortable with the idea, according to the report. Novartis, for example, is offering insurers a five-year payment plan for its $2 million gene therapy Zolgensma, with refunds available if the drug doesn’t achieve desired results.
CVS said the potential for these therapies is clear, but many payers want to see some type of results before they fork over hundreds of thousands.
“Though the drug may promise to cure these patients for life, these are early days in their use,” said Joanne Armstrong, M.D., enterprise head of women’s health and genomics at CVS Health, in the report. “What we’re saying is, show us the clinical value proposition first.”
CVS said it’s also offering a stop-loss program for gene therapy to self-funded employers contracted with Aetna and/or Caremark to assist them in capping the expenses associated with these drugs.
4. Getting into the community to address diabetes
Diabetes risk is higher among vulnerable populations, such as Black patients, and addressing it will require local and community-based solutions, CVS executives said in the report. Groups at the highest risk for the disease are less likely to live in areas with easy access to a supermarket, for example, which boosts their risk of unhealthy eating, according to the report.
The two key hurdles to addressing this issue are access and affordability. The rise in retail clinics and ambulatory care centers can get at the access issue, as they can offer a way to better meet patients where they are.
At CVS’ MinuteClinics, patients can walk in and receive a number of services to assist them in managing diabetes, including screenings, consultations with providers and connections to diabetes educators who can assist with lifestyle changes.
Retail locations can also assist with medication costs, creating a one-stop-shop experience that’s easier for many diabetes patients to slot into their daily lives, CVS said.
“Diabetes is a case study in how a more connected experience can translate to simpler, affordable and more accessible care for underserved communities,” said Dan Finke, executive vice president of CVS Health and president of its healthcare benefits division.
The COVID-19 pandemic has accelerated the pace of artificial intelligence adoption, and healthcare leaders are confident AI can help solve some of today’s toughest challenges, including COVID-19 tracking and vaccines.
The majority of healthcare and life sciences executives (82%) want to see their organizations more aggressively adopt AI technology, according to a new survey from KPMG, an audit, tax and advisory services firm.
Healthcare and life sciences (56%) business leaders report that AI initiatives have delivered more value than expected for their organizations. However, life sciences companies seem to be struggling to select the best AI technologies, according to 73% of executives.
As the U.S. continues to navigate the pandemic, life sciences business leaders are overwhelmingly confident in AI’s ability to monitor the spread of COVID-19 cases (94%), help with vaccine development (90%) and aid vaccine distribution (90%).
KPMG’s AI survey is based on feedback from 950 business or IT decision-makers across seven industries, with 100 respondents each from healthcare and life sciences companies.
Despite the optimism about the potential for AI, executives across industries believe more controls are needed and overwhelmingly believe the government has a role to play in regulating AI technology. The majority of life sciences (86%) and healthcare (84%) executives say the government should be involved in regulating AI technology.
And executives across industries are optimistic about the new administration in Washington, D.C., with the majority believing the Biden administration will do more to help advance the adoption of AI in the enterprise.
“We are seeing very high levels of support this year across all industries for more AI regulation. One reason for this may be that, as the technology advances very quickly, insiders want to avoid AI becoming the ‘Wild Wild West.’ Additionally, a more robust regulatory environment may help facilitate commerce. It can help remove unintended barriers that may be the result of other laws or regulations, or due to lack of maturity of legal and technical standards,” said Rob Dwyer, principal, advisory at KPMG, specializing in technology in government.
Healthcare and pharma companies seem to be more bullish on AI than other industries are.
The survey found half of business leaders in industrial manufacturing, retail and tech say AI is moving faster than it should in their industry. Concerns about the speed of AI adoption are particularly pronounced among small companies (63%), business leaders with high AI knowledge (51%) and Gen Z and millennial business leaders (51%).
“Leaders are experiencing COVID-19 whiplash, with AI adoption skyrocketing as a result of the pandemic. But many say it’s moving too fast. That’s probably because of current debate surrounding the ethics, governance and regulation of AI. Many business leaders do not have a view into what their organizations are doing to control and govern AI and may fear risks are developing,” Traci Gusher, principal of artificial intelligence at KPMG, said in a statement.
Future AI investment
Healthcare organizations are ramping up their investments in AI in response to the COVID-19 pandemic. In a Deloitte survey, nearly 3 in 4 healthcare organizations said they expect to increase their AI funding, with executives citing making processes more efficient as the top outcome they are trying to achieve with AI.
Healthcare executives say current AI investments at their organizations have focused on electronic health record (EHR) management and diagnosis.
To date, the technology has proved its value in reducing errors and improving medical outcomes for patients, according to executives. Around 40% of healthcare executives said AI technology has helped with patient engagement and also to improve clinical quality. About a third of executives said AI has improved administrative efficiency. Only 18% said the technology helped uncover new revenue opportunities.
But AI investments will shift over the next two years to prioritize telemedicine (38%), robotic tasks such as process automation (37%) and delivery of patient care (36%), the survey found. Clinical trials and diagnosis rounded out the top five investment areas.
At life sciences companies, AI is primarily deployed during the drug development process to improve record-keeping and the application process, the survey found. Companies also have leveraged AI to help with clinical trial site selection.
Moving forward, pharmaceutical companies will likely focus their AI investments on discovering new revenue opportunities in the next two years, a pivot from their current strategy focusing on increasing profitability of existing products, according to the survey. About half of life sciences executives say their organizations plan to leverage AI to reduce administrative costs, analyze patient data and accelerate clinical trials.
Industry stakeholders are taking steps to advance the use of AI and machine learning in healthcare.
The Consumer Technology Association (CTA) created a working group two years ago to develop some standardization on definitions and characteristics of healthcare AI. Last year, the CTA working group developed a standard that creates a common language so industry stakeholders can better understand AI technologies. A group also recently developed a new standard to advance trust in AI solutions.
On the regulatory front, the U.S. Food and Drug Administration (FDA) last month released its first AI and machine learning action plan, a multistep approach designed to advance the agency’s management of advanced medical software. The action plan aims to force manufacturers to be more rigorous in their evaluations, according to the FDA.