FTC Part II: Investigations in Public Data for the FTC List of Meds
What even is the price of a drug?
We know that the origin of generic drug prices are not manufacturer list prices, but PBM MAC lists. PBM MAC lists are the only way you can get hundreds of different prices for the same drug (no drug price compendia that we are aware of will give you that many prices for a drug; although they can provide dozens of different prices). Furthermore, we know MAC lists are the predominant way that generic drug prices arise at the pharmacy counter. However, what is claimed about MAC pricing doesn’t seem to match what the data we analyze shows us. According to industry, “MAC pricing is designed to promote competitive pricing for pharmacies as an incentive for them to purchase less costly generic drugs available in the market, regardless of the manufacturer’s list price.” If that were the case, it would seem that MAC should be more uniform than it is - there ought to be one best price to purchase a drug. State run Medicaid programs (i.e., Fee-for-Service) generally conform to this definition of MAC (one low price for all), so why do analysis of Medicare, Medicaid Managed Care, or even commercial claims seem to not show uniformity to MAC prices?
We do not have an answer to that question; however, the FTC would appear to have recently reached the conclusion that there is something amiss with the manner with which a subset of generic drug prices are determined. In their second interim report, the FTC has identified 50 or so generic “specialty” medications (after previously studying just 2 in their prior interim report). With this more robust analysis they find the ‘Big 3 PBMs’—Caremark Rx, LLC (CVS), Express Scripts, Inc. (ESI), and OptumRx, Inc. (OptumRx)—marked up numerous specialty generic drugs dispensed at their affiliated pharmacies by thousands of percent, and many others by hundreds of percent. Such significant markups allowed the Big 3 PBMs and their affiliated specialty pharmacies to generate more than $7.3 billion in revenue from dispensing drugs in excess of the drugs’ estimated acquisition costs from 2017-2022 as well as separately generated an estimated $1.4 billion of income from spread pricing—i.e., billing their plan sponsor clients more than they reimburse pharmacies for drugs. Fascinatingly, at least to us, was that according to the FTC “Operating income from the Big 3 PBMs’ affiliated pharmacies dispensing of the analyzed specialty generic drugs accounted for 12 percent of the aggregated operating income reported by the parent healthcare conglomerates’ business segments that include their PBM and pharmacy businesses in 2021.” Fifty drugs is worth 10% of the business?! - perhaps that explains why though we have been writing about drugs like imatinib (generic Gleevec) since 2018, the industry has been unable to give up these drugs.
Some plan sponsors have apparently questioned some of these drugs. Though the details are redacted in the report footnotes, we know that groups like Mark Cuban Cost Plus Drugs have worked to educate plan sponsors and save them money on these excess drugs. Of course, while the FTC report is interesting, it is limited, as all reports are, by the words contained on the page. We wondered if there might be a data set out there to help educate folks about some of the generic drug pricing dysfunction that we could leverage to provide insights into what the FTC may be seeing. We fortunately found one that we believe can do just that.
County Roads…Take me home…To a place…of drug pricing transparency….
West Virginia has, in many ways, been on the forefront of drug pricing reform efforts. Whether it was their Medicaid program, which was one of the first to tackle learnings of spread pricing in Medicaid or their semi-recent passage of a drug pricing reform package that mandated NADAC + $10.46 drug prices for many of the programs in their state, they have made several significant legislative efforts to address one of the publics principal healthcare concerns - the price of drugs. Interesting, despite these efforts pharmacy in WV are still closing - going so far as for the Governor to petition big retail chains to keep their doors open. One of the legislative efforts that went under the radar (including to us) was a requirement that plan sponsors exempt from the NADAC + $10.46 mandate would publish the data regarding what payment outside of the legal mandate actually looks like in data (as an aside, people like to think we know everything that is going on, but we don’t so if you know of policy going on in your state don’t hesitate to drop us a line). Yes, you read that right, in West Virginia there is a repository of data regarding drug payments made by commercial plan sponsors on claims that fall 10% outside of the state’s mandated window. Now, the data sets are disparate; there isn’t a central repository of the information you have to go search for it and the data isn’t always formatted the same (though the law attempts to assure that it is), but the fact is that we have data on a large number of commercial claims in West Virginia. So we did what we do and gathered the largest data set we could find and made a dashboard of it, which we display below.
The West Virginia Generic Drug Pricing Transparency Dashboard
Express Scripts is the largest PBM in West Virginia. This is because the majority of employers in the state are using their services and they have millions of claims adjudicated in the state each year. We found their West Virginia data set landing page and downloaded the data and fixed it up such that it could be put in the dashboard. Inclusive within the data was the drug dispensed and its payment as well as the pharmacy that dispensed the medication. This means that we are able to evaluate the payment of drugs at specific providers, including PBM affiliated pharmacies and non-affiliated pharmacies. We realized that when the FTC released this second report we ought to push this data set out into the public domain such that those who may want to investigate the payment dynamics of those drugs the FTC identified (imatinib, dalfampridine, cinacalcet, etc.) both relative to the drug’s acquisition cost (as measured by NADAC), but also relative to the PBM affiliate vs. non-affiliate nature of the claims. In order to graph the trends we use a last observation carried forward effect, but give users the ability to control the interval selection. While we acknowledge that generic drug prices can change relatively frequently (monthly as measured by the NADAC survey), some of the drugs have a lot of observations whereas some do not have that many dispensing. The impact of the last observation carried forward is more meaningful on drugs with low utilization as opposed to those with high utilization. We also give users the ability to evaluate specific pharmacy chains (as that data is available). If you want to know if Wal-mart payment looks the same as the local independent, like say Fruth’s Pharmacy, you can do that on a drug-by-drug basis with the tool below.
Now we’re just starting to unpack the data in this data set, but what we’re already seeing seems to confirm, in large part, the findings of the FTC report (in at least, a hopefully more dynamic way). For example, something seems a little off with the reimbursement of imatinib 400 mg. If you’re the pharmacy affiliated with ESI you stand to potentially sell your product for double the cost of what a non-ESI affiliated pharmacy would see. If you’re a non-affiliated pharmacy, you might get paid just the drug cost in January 2024 (i.e., just the NADAC) whereas the affiliate pharmacy continues to see thousands in reimbursement. That seems generally aligned with the FTC report, but after Q1 2024 something seems to change where both affiliate and non-affiliate get paid effectively the same rate (a rate that is more than $10,000 above the drug costs). If you’re employer, this may be of particular interest since they historically seemed to have a means to charge the drug for much less than what you’re now seeing. Now, the dashboard we’ve put together doesn’t show us the number of prescriptions filled at affiliate vs. non-affiliate pharmacy (something the FTC second interim report notices is skewed significantly for the 50 drugs they’ve identified), but we could put something like that together if there is interest. I guess that is to say, if there is more that you want to see with this data set, drop us a line and we’ll see what we can do. Else, we encourage you to use this visualization to potentially draw your own conclusions regarding PBM reimbursement practices of generic drugs.
Teardrop in my Eyes
Look, we’ve come a long way in our collective understanding of drug pricing since we started 46brooklyn in 2018. In the before times, there were few that could spell PBM, now there are a lot of eyes on PBMs (including potential federal policy changes). To be clear, PBMs serve an important role in the US healthcare space. In the before PBM times we could in no way adjudicate and pay the sheer number of prescription drug claims we do today. In the before times, paying for a drug claim via insurance was a paper process and patients would pay the full cost up front before the seeking reimbursement from their insurer after the fact. If PBMs were to vanish tomorrow, we probably don’t go immediately back to those levels, but the risk should not be ignored. That said, we also think it is reasonable to test and question what we’re told about drug pricing. We’ve been told for years that specialty drugs are the key driver of increasing drug costs (things like though specialty drugs represent 2-3% of utilization, they represent 40%+ of drug costs). That may be true, but what does that truth look like when generic drugs are being grouped into this ‘specialty’ bucket and potentially being up charged to the point where 10%+ of operating income is concentrated in such a small subset of drugs. Saying it differently, what about drug pricing says that we should cost shift all these extra costs onto the people that need these medications? Are people with cancer, HIV or multiple sclerosis more likely to have the financial means to carry these extra costs? We’re not saying that these decisions are deliberate, what we’re trying to say is that when we don’t deliberately decide what we want drug prices to do, we shouldn’t be surprised that the system seems to arbitrarily decide that some peoples healthcare is more or less valuable (or more or less affordable).
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