Following the Money Trail on Insulin Prices

Of course we've been closely following the hot topic of high insulin prices, hoping to find some answers about how to best address this quagmire.

A recent Business Insider article and this Wall Street Journal article shed light on the "middle men" at work, known as Pharmacy Benefit Managers (PBMs) -- while a Bloomberg piece uncovered the "secret rebates" between those PBMs and insulin manufacturers.

PBMs have been under fire for contributing to the sharp rise in healthcare costs; earlier this year Anthem accused Express Scripts of overcharging it by as much as $3 billion a year!

In our own Diabetes Community, one D-Mom in Mississippi has taken on the task of "following the money trail" of insulin pricing in her own corner of the country. That woman is Nicki Nichols, who has both a husband and young daughter with type 1 and leads the Living in the World of Test Strips group on Facebook.

She is the woman whose predicament made headlines this summer when she wrote to the Mississippi House of Representatives for help, and a lawmaker replied with the callous statement: "Have you thought about buying the supplies with money that you earn?" When Nicki's frustration and curiosity boiled over, she set out to do some digging for answers.

Here's what she has to say...

An Insulin Price Analysis by D-Mom Nicki Nichols

Can a stay-at-home mom from Mississippi crack the code on insulin profits?

She can darn well try! I stumbled into this research when I discovered what our pharmacy is getting paid for my daughter's insulin. That, coupled with the furor over rising insulin prices, sparked a natural curiously about where the money goes.

I began by referencing pharmacy records and insurance claims, then combing through statements made by pharmaceutical CEOs and spokespeople, scouring two years worth of Bloomberg and Forbes reports, government documents, and quarterly earnings reports.

This is a graphic I created, based on what I found:

My research indicates that the Pharmacy Benefit Managers (PBMs) are raking in as much as 45% of the profits on a vial of Lantus. The manufacturer, Sanofi, comes in second with approximately 20% of the profits. The pharmacy and drug wholesaler split the remaining 35%.

I think we have been screaming at the wrong people about the wrong thing. I'm not saying the the drug manufacturers are blameless. They hold their fair share of the responsibility. But the devil is in the details, and the details point to businesses like Express Scripts, OptumRx, and CVS Health as raking in more profit than what many of us would've imagined. 

The world of pharmaceutical profits is incredibly confusing, and that's intentional. There is no "set" price for anything. Everything is an average, even contract agreements are based on the median figures of combined averages, created by even more averages. Albert Einstein would probably beat his head against a brick wall trying to figure this stuff out.

I'm no Einstein, I'm just a really stubborn, determined mom, trying to find the reasons for the constant increase of insulin prices.

Basically, the PBMs are a key part of this process nowadays, affecting the process in several ways:

  • PBMs are paid fees by health insurance providers to administer prescription drug plans and save them money by negotiating prices with pharmaceutical manufacturers. In essence, the PBM is often the main middle-man who determines everything from drug formularies, management of mail order programs and claims processing, overseeing clinical programs and prior auths, and determining who's eligible for certain benefits.
  • The PBMs negotiate the "maximum allowed cost" for a drug with the insurance provider, then negotiate discounted prices with pharmacies. Both agreements are confidential. The amount paid by insurance companies can be significantly higher than the price paid by the PBM to the pharmacy.
  • PBMs can legally keep the difference in payments and consider it revenue (aka profit).
  • In this position, PBMs can "force Pharma companies to the table," making manufacturers basically compete for the best access to health insurance coverage and ultimately to more patients. The bidding comes in the form of rebates paid by manufacturers to reduce the cost of medicines, and those rebates are kept confidential. While PBMs generalize and summarize in earnings reports, the actual amount of rebates passed down isn't made public -- in the name of forcing competition, but really forcing manufacturers to raise list prices and work to recoup those costs elsewhere.

With all of that basic info in mind, my research of what's publicly available shows that the PBM in my case brought in 45% of the total profit from a single prescription for Lantus. My co-pay was $35, but in the end all of the parties involved on the pricing side get their own piece of a much bigger pie.

The PBMs are essentially bribing the pharmaceutical companies, slashing drugs from formularies if the rebates aren't high enough. Manufacturers are not blameless in this, as they continue to raise prices in an effort to recoup the rebates. Which leads to even more problems with affordability and access for individuals with diabetes. These practices are partially responsible for the higher costs to health insurance providers, resulting in higher premiums, co-pays and deductibles. American consumers are hit hardest.

It's time for each and every one of us to stand up. This isn't limited to insulin, or even diabetes. This affects us all. Stop waiting on someone else to lead the way. Get out there. Be vocal. Have a question? Go find the answer. It took me two days. When you find what you're looking for, tell everyone you know.

Questioning the Rebate Game

We certainly commend Nicki's initiative to find some answers. But with the crazy messed-up complexity of our American healthcare system (some call it a hairball) we're not convinced that PBMs are the one and only heart of the problem.

Payers (health insurance carriers) have stated publicly that just looking at the supposed rebate amounts doesn't provide an accurate representation of what the PBMs consider "profit."

This USA Today infographic from early October captures the entire process pretty phenomenally, and if you take the data as gospel then the PBMs are certainly not walking away with mass profit.

We even queried some PBMs ourselves to get their POV.

CVS Health Corp. is a leading national PBM whose spokeswoman Christine Cramer says "the vast majority of rebates" are funneled back to clients -- the employers, insurance companies, and governmental agencies that have hired them. Express Scripts says the same, noting that it returns at least 90% of rebates to its customers, meaning it would only keep a max of 10% as compensation for its services.

Express Scripts spokesman David Whitrap tells us that Nicki's chart is "misleading," in large part because of the rebate component.

"This chart falsely speculates that rebates are kept by the PBM. These rebates are discounts we negotiate for our clients, the employers who pay for the majority of the cost of prescription drugs," he says. "Approximately 90% of the rebates we receive -- and in many cases, 100% -- are passed straight through to our clients. I can’t think of another industry where a negotiated discount off of a manufacturer’s suggested retail price is portrayed as 'profit' for the payer."

Whitrap claims the PBMs' clients have full transparency into what the prices are and how Express Scripts is being compensated, and they can audit the company at any point. From annual report information, Whitrap quotes Express Scripts' profit margin as 2.4%, or $5 per prescription, lower than a typical drug manufacturer.

Hmm, sounds convincing, right?

Funny how stats and facts can be used to make various sides of an argument.

In scouring the public realm for information ourselves, it seems almost impossible to verify everything the PBMs say in justifying their business model. For example, this survey done on 2015 claims shows that not all rebates are passed along to employers.

It's like the black box in an airplane, really -- where all the vital information is locked up from public view.

It's hard to take Express Scripts' "full transparency" claim seriously with so many news reports circulating about big corporate clients unhappy with healthcare coverage processes and PBMs.

Consider for example the Health Transformation Alliance (HTA), a new coalition of 30 of the country's biggest employers who want to get more for their healthcare dollars. These employers -- including American Express, Caterpillar, Coca-Cola, IBM, Shell Oil, and Verizon -- are very unhappy indeed with the $20+ billion they spend each year on health benefits, and they see PBMs as a key part of the problem.

As one of its first projects, the HTA is developing a data warehouse of information allowing its corporate members to compare healthcare pricing and outcomes. That's tied to a another project aimed at helping health plans better control their drug benefits by separating the PBM services to get a better idea of how PBMs are spending the money -- which they obviously don't know enough about currently!

There is no quick solution here, so we're glad to see this coalition taking the initiative to analyze -- and publicize! -- how the healthcare money trail actually works.

Urging Transparency

Honestly, this is all crazy complicated. No one seems to have the complete picture, and the modus operandi seems to be to just point fingers and pass on the blame.

It's useless to just scream “Lower insulin prices!” or “Fix the healthcare system!” without having real suggestions on how to make that happen.

We'd like to start by taking a page from the business world playbook: “If you can’t measure it, you can’t manage it.

The idea being that none of us can start effectuating change until we know what’s inside that black box of insulin pricing. We have to understand the starting point in order to know where to go next...

Therefore, we think the first-step for all parties involved -- from the manufacturers, to the insurers and the various middle men -- is to start being transparent on list prices, rebates, profits and administrative costs.

Only then, can we have any hope of understanding this insulin pricing dilemma and how to address it.

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Originally published at DiabetesMine on Oct. 18, 2016.


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