pharmapricing

In this episode, GOLD speaks to Lenias Hwenda, Founder and CEO, Medicines for Africa, and Alexander Natz, Secretary General, European Confederation of Pharmaceutical Entrepreneurs (EUCOPE). Following on from GOLD’s recent ‘Pharma in South Africa’ feature, Lenias explains what the implementation of South Africa’s new healthcare system will mean for global pharma, as well as exploring genomics and market access. Alexander discusses his interest in pricing and access of pharmaceuticals, shares how value-based reimbursement is evolving and offers his thoughts on the new EU Health Technology Assessment procedure. 

If you’re interested in learning more about the topic areas discussed in this episode, check out the following content:

Pharma in South Africa https://www.emg-gold.com/post/pharma-in-south-africa

Margo Warren on global access to medicine https://www.emg-gold.com/post/podcast-margo-warren-on-global-access-to-medicine

Seeking solutions to low income, low access https://www.emg-gold.com/post/seeking-solutions-to-low-income-low-access

Operation vaccines: access all areas https://www.emg-gold.com/post/operation-vaccines-access-all-areas

So … let’s start here. Mostly this whole episode is about the so-called “Big Three” PBMs that provide between the three of them pharmacy benefit services for 95% of insured Americans. PBM stands for pharmacy benefit manager, and the Big Three PBMs being ESI, otherwise known as Express Scripts; OptumRx, which is a part (a big profitable part) of United Health Group; and then also CVS. Yes, CVS is not just for your retail pharmacy needs; they are also a huge pharmacy benefit manager.

Now, we get to the GoodRx part of our story. If you don’t know how GoodRx works, I would strongly encourage you to go back and listen to “An Expert Explains” with Dr. Ge Bai from last year (AEE13). That said, here’s the super short semi-reductive version to keep us all level set here. If you already know how GoodRx works, you can skip forward about four minutes. 

So, first of all, let’s all understand that GoodRx’s business model only exists because the pharmacy supply chain dominated by these three big PBMs that we just talked about is such a cluster. GoodRx profits from that dysfunction. So, as I said, here’s the short version of how they do that. It all hinges on so-called spread pricing, and this is what I mean by that.

Patient goes into pharmacy with a prescription for generic drug X. The patient has insurance—good news! Pharmacist checks the computer and sees that this patient should be charged, I don’t know, $50 for drug X. The patient’s insurance carrier picks up, say, $30 of the $50 cost; and the patient is left with, say, a co-pay of $20.

Who did that little math there in the computer? The PBM (the pharmacy benefit manager) did that math. That’s their thing, these PBMs. They adjudicate claims. That’s what this math is called. Anybody who goes into a pharmacy with a prescription, it’s the PBM on the back end who figures out how much the patient owes and how much their insurance will pay and what the patient responsibility is, etc.

Goodness, you might say. How much are the PBMs being paid to perform this useful service? Turns out, it’s free. That’s right … the Big Three PBMs do all this adjudication for free. No charge to plan sponsors. Isn’t that nice?

Except it’s actually not free if you dig into it. The PBM is certainly getting paid by means of arbitrage. They’re taking a little something something out of the middle of every single transaction. Here’s what that looks like in the example aforementioned. Recall the patient’s insurance paid $30, and the patient themselves paid $20.

The question is, how much did that drug cost the PBM? Remember, that’s commerce: Buy low, sell high, and all that. You buy something, and then you sell it for more than you bought it for.

OK, so we’re talking about a generic drug here. They’re cheap (usually). So, let’s just say drug X costs, I don’t know, $5. The PBM pays the pharmacy $5 for that generic script—and you can see how much money the PBM just made right there. The patient and their plan sponsor got charged $50, and the PBM’s cost of goods was $5. Multiply that profit margin by the billions of generic prescriptions in this country that run through insurance, and you have a tidy little business model there. UHG, the parent company of OptumRx, made $24 billion in profit in 2021. Not all of that was from generic drug arbitrage (ie, taking advantage of spread pricing), but some of it was. And $24 billion is an awfully big amount when you consider whose paychecks all those pennies were lifted from.

PBM services are anything but free. PBMs are collecting massive windfalls in the so-called spread between what the patient and the plan pay and what the PBM is actually buying those drugs for.

Here’s another wrinkle: When a PBM contracts with a pharmacy, part of their contractual terms is that the pharmacy’s list price for drugs cannot be lower than a certain amount usually having something to do with the PBM’s rates. So, pharmacy list prices become artificially high as a result, meaning that cash-pay patients who just wander into a pharmacy and try to pay cash pay an artificially high price.

Into this mess swoops GoodRx with a killer idea. They see all that money on the table that PBMs are cleaning up in that spread. They want a piece of that action. And in the beginning, PBMs were fully on board with this. They were fully on board because the market GoodRx was going after was the uninsured market, meaning untapped turf for PBMs. And because PBMs make so much money off of each transaction, PBMs are always hungry for more transactions (the Big Three PBMs, anyway). They love more transactions. The more more more with the transactions, the more more more with the money.

So, GoodRx goes to the PBMs and says, “Hey … if a cash-pay patient shows up in a pharmacy, what price would you charge them for you to adjudicate that claim? You know how much money you have to pay the pharmacy, so what can the patient price be? What spread are you willing to accept? GoodRx will take a little off the top, but you can keep your spread on this new frontier of patients that you haven’t historically had access to because … uninsured. Oh, by the way, we, GoodRx … we’re gonna go around to all your competitors, too (just saying)—the other two PBMs—and we’re gonna show their prices, too, in our GoodRx app at different pharmacies. So, you’re gonna have to compete with other PBMs in this model.”

This is why GoodRx cash prices for generics are so very very often less than what the patient will pay if they use their insurance. In the GoodRx app, PBMs have competition. So, by not using their insurance, patients often pay less for generic drugs—which, by the way, are 90% of the scripts written in this country—and also, as an added bonus, patients don’t have to jump through all the weird and arduous prior auths or step therapies or other hurdles that a PBM might toss in the mix. So, from a patient perspective, using GoodRx could save money, save time, and you could get your drugs faster because you don’t have to wait around for some prior auth to go through.

But this was not what PBMs had originally thought they were signing up for. They were working with GoodRx to gain new market share from the uninsured market, not lose market share to more and more patients forgoing their insurance, meaning forgoing shelling out to the PBM their spread on the transaction.

Cue my conversation today with Dr. Ge Bai. Ge Bai, PhD, CPA, is a professor of accounting at Johns Hopkins Carey Business School and a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.

In this healthcare podcast, Ge Bai and I discuss the reactions of the Big Three PBMs to consumers getting all consumer-y when it comes to buying their generic drugs—despite the fact that, in my interview with Dr. Sunita Desai (EP334), she said that studies have shown that 67% of patients are unaware that they might be able to get a better price by not using their insurance and shopping around on GoodRx or Amazon or at a cost-plus pharmacy like Blueberry in Pittsburgh or Mark Cuban’s new thing. Despite that, it means 33% (one-third) of patients are aware that they can price shop and potentially get a better price not using their insurance on generic drugs; and apparently, it’s making some people at some PBMs nervous.  

Check the ESI (Express Scripts) blog post about their new prescription benefit that automatically applies discounts. Hmmm … sounds like a defensive play to me? What do we make of this? That’s my first question to Dr. Ge Bai in this episode.  

Also, if you’re really intrigued by generic drug goings-on, go back and listen to the show with Dr. Steven Quimby (EP344) when you have a chance. It’s about the high cost of generic drugs, and we go deep into supply chain machinations. 

You can learn more on Ge’s Web site at Johns Hopkins University. You can also connect with her on LinkedIn.

Ge Bai, PhD, CPA, is professor of accounting at the Johns Hopkins Carey Business School and professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. She is an expert on healthcare pricing, policy, and management. Dr. Bai has testified before the House Ways and Means Committee, written for the Wall Street Journal, and published her studies in leading academic journals such as the New England Journal of Medicine, JAMA, JAMA Internal Medicine, Annals of Internal Medicine, and Health Affairs. Her work has been widely featured on ABC, CBS, NBC, Fox News, CNN, and NPR and in the Los Angeles Times, New York Times, Wall Street Journal, Washington Post, and other media outlets and used in government regulations and congressional testimonies.

08:45 What is ESI doing by automatically applying discounts to generic drugs?
10:00 Why are PBMs losing money when consumers don’t use their benefit?
10:46 “GoodRx disrupted the ongoing game.”
11:04 How are PBMs using the Amazon discount card to discourage their patients from moving away from using their benefits?
12:13 Amazon pricing versus GoodRx pricing.
12:50 How much money is a PBM really making?
14:00 EP344 with Steven Quimby, MD.
14:29 EP334 with Sunita Desai, PhD.
14:43 How is future fear playing into the PBM business model?
16:55 Is there a negative consequence to subtracting from the bottom line in a PBM model?
17:50 “I think to have strong PBMs does not mean necessarily bad things for patients.”
19:39 What happens if everyone uses Amazon for drugs?
22:40 If every PBM gets their own discount cards, what will happen?
25:38 “We are actually witnessing a potential sea change.”
26:25 How do cost-plus pharmacies factor into the current market?
29:16 Is a profit shortfall inevitable?
29:35 “PBMs have to give a slice of their profit back to consumers. That’s just reality.”
30:11 Can anything be done on the PBM side to generate a higher margin in the generic space?
31:41 “Naive plan sponsors are a big problem.”

You can learn more on Ge’s Web site at Johns Hopkins University. You can also connect with her on LinkedIn.

@GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

What is ESI doing by automatically applying discounts to generic drugs? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Why are PBMs losing money when consumers don’t use their benefit? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

“GoodRx disrupted the ongoing game.” @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

How are PBMs using the Amazon discount card to discourage their patients from moving away from using their benefits? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Amazon pricing versus GoodRx pricing. @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

How much money is a PBM really making? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

How is future fear playing into the PBM business model? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Is there a negative consequence to subtracting from the bottom line in a PBM model? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

“I think to have strong PBMs does not mean necessarily bad things for patients.” @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

What happens if everyone uses Amazon for drugs? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

If every PBM gets their own discount cards, what will happen? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

“We are actually witnessing a potential sea change.” @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

How do cost-plus pharmacies factor into the current market? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Is a profit shortfall inevitable? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

“PBMs have to give a slice of their profit back to consumers. That’s just reality.” @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Can anything be done on the PBM side to generate a higher margin in the generic space? @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

“Naive plan sponsors are a big problem.” @GeBaiDC of @JohnsHopkins discusses #PBMs on our #healthcarepodcast. #healthcare #podcast #healthcarepricing

Recent past interviews:

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Nikhil Krishnan, Shawn Rhodes, Pramod John (EP353), Pramod John (EP352), Dr Eric Bricker, Katy Talento, Stacey Richter (INBW33), Stacey Richter (INBW32), Dr Steve Schutzer (Encore! EP294), Lisa Trumble, Jeb Dunkelberger, Dr Ian Tong, Mike Schneider, Peter Hayes, Paul Simms, Dr Steven Quimby, Dr David Carmouche (EP343), Christin Deacon, Gary Campbell, Kristin Begley, David Contorno (AEE17), David Contorno (EP339), Nikki King, Olivia Webb, Brandon Weber, Stacey Richter (INBW30), Brian Klepper (AEE16), Brian Klepper (EP335)

For the season finale of the GOLD Podcast, we look back at our 'GOLD Medal Moments' from the past 12 months, revisiting interviews with some of our top guests. Marc and Helena pick out the most important and challenging topics from 2021, including combatting misinformation, the evolving role of medical affairs, improving access to medicine and producing results in times of crisis.

In this health care podcast, I’m speaking with Maura Calsyn from the Center for American Progress—or CAP—and we’re talking about value-based drug pricing and the impact that COVID-19 may have on its definition, operationalism, and broad adoption.

I remember a situation (kind of years ago, actually) where a pharma company decided to lower its price on an infused product. Normal supply and demand would dictate that if you lower your price, you will get more overall business, which will result potentially in more overall revenue—the old supply-and-demand curve at work. In this case, though, that pharmaceutical brand’s business plummeted. The Pharma had to raise their price again to capture the market share that they wound up losing by lowering their price. Why? Because doctors get paid a percentage of the drug cost to administer the product. So, the lower the drug price, the less a physician gets paid. Provider organizations have a big incentive to prescribe the highest-priced product—so, you know, the opposite of whatever you learned in Economics 101.

On the other hand, and possibly more often, we have Pharma pricing products based on what they think the market will bear. And historically, that has meant a really high price point because the market will bear, it turns out, quite a lot. There’s this perception that our national and employer pocketbooks are unlimited when it comes to health care spending. And I can see how the health care industry would get that idea, because it pretty much has always been a true statement. Despite a lot of grousing and complaining, the bill gets paid.

But pain causes change. It is very possible that this pandemic will not only change how medical care is delivered, which we’ve been talking a lot about in the past few episodes; but also it will have an impact on how pharmaceutical drugs are priced and patented. If you think about it, and I started to think about it after this conversation with Maura, the optimal price for a pharmaceutical product would be an amount that enables everyone in a population who needs the drug to be able to get it. What a tragedy it is when there is a drug, when science has produced a drug that can help someone who is suffering but they can’t get it. Maybe this is because a health care middleman is trying to game the system for as much profit as possible, or maybe it’s because the manufacturer set their price high to earn as much money as they can from those who can pay, but at a sacrifice of those who cannot.

Maura and I talk about the emerging “Netflix Model” or the “Australian Model” of paying for drugs in this health care podcast also, which is pretty interesting.

Prior to her role at the Center for American Progress, my guest Maura Calsyn worked at HHS in the general counsel’s office and was lead attorney and/or worked on a number of Medicaid initiatives, including the Medicaid rebate program.

You can learn more at americanprogress.org. You can also connect with Maura on Twitter at @maura_calsyn. 

Maura Calsyn is the managing director of health policy at the Center for American Progress. In this capacity, she plays a leading role in American Progress’s health policy development and advocacy efforts. She has authored and coauthored work published in The New England Journal of Medicine, JAMA Internal Medicine, US News & World Report, and The Hill. Her work covers a range of topics, including Medicare and Medicaid payment reform, health care transparency, and trends in employer-sponsored insurance. She has also testified before Congress.

Prior to joining American Progress, Calsyn was an attorney with the US Department of Health and Human Services Office of the General Counsel. During her time there, she served as the department’s lead attorney for several Medicare programs and advised the department on implementation of the Affordable Care Act. Before joining the Office of the General Counsel, Calsyn worked as a health care attorney at two international law firms and represented a wide variety of health care payers, providers, and manufacturers. Calsyn first worked in health policy as a health care legislative assistant for Rep. Anna Eshoo (D-CA) before attending law school.

Calsyn graduated cum laude from Harvard Law School and received her bachelor’s degree summa cum laude from Hamilton College.

03:48 The value of pharmaceutical products.
06:58 “We’re dealing with what might seem like an infinite amount of resources, but it’s really not.”
07:03 The “Netflix” or “Australian” payment models vs value-based pricing.
09:35 “You need a transparent and really replicable process.”
10:41 Considerations of equity and affordability.
11:10 “Everybody wants people to get the drugs that they need … I think the question really is just, ‘Who is paying for it?’”
11:44 What value-based pricing really means in the pharma industry.
13:22 “We’re confusing what is actually a value-based price with some of the tools that are used to try to get closer to that.”
14:03 Why extracting prices by future impact holds implications for the health industry on the whole.
15:44 “Value-based pricing is a tool to be able to lower health care prices across the board.”
16:15 The problem with shifting costs.
17:20 Generic pricing and the patent system.
18:30 Leveraging fear.
20:40 “There’s the ability for extraordinary amounts of money to be made here in a way that really does not advance the health of the country.”
21:33 Next steps for value-based pricing in Pharma.
23:08 “How are you going to justify those prices?”
23:28 “If you keep pressing and pressing and pressing, there’s going to become a breaking point.”
24:42 “We need to preserve a way to make sure that those products are developed.”
26:26 “Are there other ways that we need to finance and bring to market drugs?”
27:43 The call to action for value-based pricing in Pharma.

You can learn more at americanprogress.org. You can also connect with Maura on Twitter at @maura_calsyn. 

Check out our newest #healthcarepodcast with @maura_calsyn of @amprog as she discusses #valuebasedpricing in #pharma. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

The value of pharmaceutical products. @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“We’re dealing with what might seem like an infinite amount of resources, but it’s really not.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

The “Netflix” or “Australian” payment models vs value-based pricing. @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“You need a transparent and really replicable process.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“Everybody wants people to get the drugs that they need … I think the question really is just, ‘Who is paying for it?’” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“We’re confusing what is actually a value-based price with some of the tools that are used to try to get closer to that.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“Value-based pricing is a tool to be able to lower health care prices across the board.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

What’s the problem with shifting costs? @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

Generic pricing and the patent system. @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“There’s the ability for extraordinary amounts of money to be made here in a way that really does not advance the health of the country.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“If you keep pressing and pressing and pressing, there’s going to become a breaking point.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“We need to preserve a way to make sure that those products are developed.” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic

“Are there other ways that we need to finance and bring to market drugs?” @maura_calsyn of @amprog discusses #valuebasedpricing in #pharma on #healthcarepodcast. #healthcare #podcast #digitalhealth #healthtech #covid19 #pandemic