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Our Take: Two new PBMs target high drug prices, lack of transparency

Nov 01, 2021

The Purchaser Business Group on Health (PBGH) — a coalition of private employers and public health care purchasers that collectively spends approximately $100 billion on health care per year — has launched a new company called Emsana Health that will develop health care products designed to meet the needs of large employers and their workers.

Among PBGH’s membership roster are household names such as AAA, Boeing, Chevron, Costco, Hewlett Packard Enterprise, Intel, Levi’s, Microsoft, Tesla, and Walmart.

The new company’s first business unit is a pharmacy benefit manager (PBM) called EmsanaRx. In the press announcement, PBGH said EmsanaRx was “built by employers, for employers.”

“EmsanaRx is structured to address the lack of accountability of the PBM industry to its employer clients, who largely lack access to information about drug costs, true discounts and administrative fees that contribute to huge profits — predominantly for three PBMs dominating 80% of the market,” the coalition stated.

Those three PBMs are CVS Health’s Caremark, UnitedHealth’s OptumRx, and Express Scripts, which Cigna now owns.

Greg Baker, a clinical pharmacist and CEO of EmsanaRx, said, “The pharmaceutical supply chain is broken. An opaque third-party payment system creates a profit haven for intermediaries whose interests are not aligned with their clients. PBMs have leveraged their solutions to weave interdependent revenue streams that are built into the price of drugs paid for by employers, employees, and their families.”

EmsanaRx will offer a fixed price per prescription and guidance from a dedicated clinical pharmacist account manager who will work with employers to design their own pharmacy network and modify their formulary. Employers using EmsanaRx will “own their own data” for the first time, Baker noted.

Elizabeth Mitchell, PBGH’s president and CEO, said, “Purchasers feel they’ve given the health care industry ample opportunity to reform the payment and delivery system, but it simply hasn’t happened.” By establishing EmsanaRx, she added, they’re “ taking bold action to improve health care value and quality.”

The new PBM will begin operating next year with a small number of regional medical centers, according to Healthcare Dive.

Our Take: The PBM industry has taken a lot of heat lately from several fronts, including legislators, insurers, government agencies, corporate employers, and drug companies.

PBMs serve as middlemen in the distribution chain, managing prescription drug benefits on behalf of various types of payers (e.g., commercial health insurers, large employers, and Medicare Part D drug plans). They negotiate rebates and discounts with drug manufacturers, and contract with pharmacies to reimburse them for the drugs they dispense to plan members. They also develop formularies for the health plans they contract with, deciding which drugs will be covered and what members’ out-of-pocket costs will be.

But PBMs’ general lack of transparency has led to considerable controversy over whether these middlemen are taking too big of a slice of the pie — in the form of “spread pricing” — for their services. The “spread” is the difference between how much a PBM pays a pharmacy for a dispensed drug and how much the health plan or employer reimburses the PBM for that drug.

Plus, some drugmakers have said they’ve had to raise drug prices to cover the rebates they pay PBMs, which essentially defeats a primary reason for using a PBM: to lower the cost of prescription drugs for payers and patients. When rebates are negotiated as a percentage of the manufacturer’s list price, PBMs receive a larger rebate for more expensive drugs, which may influence their choice of drugs included on a formulary.

Speaking of formularies, GoodRx released a research report last week showing that insurers are covering fewer drugs. An analysis of Medicare Part D plans revealed that while an average plan covered 73% of prescribed drugs in 2010, the average Part D plan covered just 55% of prescribed drugs in 2021.

The report also stated that insurance on covered drugs is becoming more restrictive (via quantity limits, step therapy, prior authorizations, and refill-too-soon limits). In 2021, 47% of drugs in Part D plans had some form of restriction, compared with 27% in 2010. These restrictions can cause patients to pay the full price of the drug out of pocket or choose not to have the prescription filled.

And patients are paying a bigger chunk of drugs costs in the form of higher copays, coinsurance, and, in some cases, a separate pharmacy deductible, according to the report. No big surprise there.

More drugs are being moved to the highest formulary tier, according to the report. Among Part D plans, on average, the percentage of drugs on the highest tier nearly doubled from 2010 to 2021 (from 10% to more than 18%).

PBGH is only one of several entities that have decided recently to form their own PBM in an attempt to increase transparency around drug costs and make prescription drugs more affordable for health plans and patients.

In fact, the Mark Cuban Cost Plus Drug Company — a generic drug company that Mark Cuban launched in January — also just launched a PBM, according to a report by The Wall Street Journal last Monday.

Like EmsanaRx CEO Greg Baker, the CEO of the Mark Cuban Cost Plus Drug Company, Dr. Alex Oshmyansky, also described the supply chain for distributing pharmaceuticals to patients as “broken.”

“We decided the only way to get our drugs to the people who need them is to build a parallel supply chain where we have control of all the intermediary players and ensure the same level of transparency at every level,” Dr. Oshmyansky said.

Approximately two-thirds of U.S. adults take prescription drugs, according to the Health Policy Institute. We don’t know if that percentage is based on prescriptions written or prescriptions dispensed, but we suspect the gap between the two is growing.

If these new PBMs can make inroads and start to whittle away at the 80% market share the Big Three currently hold, then maybe the gap will eventually start to close.

What else you need to know
The FDA authorized Pfizer and BioNTech’s COVID-19 vaccine Friday for emergency use in children ages 5 to 11. An expert panel voted 17-0 earlier in the week in favor of recommending the emergency use authorization; one panel member abstained. A separate panel of outside experts for the Centers for Disease Prevention and Control is slated to meet on Tuesday and Wednesday to discuss its recommendations. That panel is also expected to endorse the pediatric dose (one-third of the strength approved for older individuals) for this age group. If that happens, vaccinations could begin immediately.

Fluvoxamine, a selective serotonin reuptake inhibitor approved in 2008 to treat obsessive compulsive disorder, reduced COVID 19-related hospitalizations and deaths in the Phase III TOGETHER clinical trial, which included 1,497 participants (median age, 50) who were unvaccinated, had early, diagnosed COVID-19, and were at high risk for progression to severe disease. Dosing consisted of 100 mg of fluvoxamine twice daily for 10 days. Compared with placebo, fluvoxamine reduced hospitalizations by 66% and deaths by 91% among the subgroup of participants with good adherence. The trial results were published online Oct. 27 by Lancet Global Health. The efficacy of a lower dose of fluvoxamine is being evaluated in the ACTIV-6 trial.

The Department of Justice filed a consolidated complaint against Kaiser Permanente last Monday claiming the Oakland, Calif-based integrated health system defrauded Medicare out of an estimated $1 billion by upcoding claims for Medicare Advantage (MA) plan members from 2009 through 2018. With MA plans, more severe diagnoses can result in higher reimbursement. One of several whistleblowers has alleged that more than half of the health system’s physicians said they were forced to add diagnoses to patients’ medical records, sometimes months after a physician-patient visit occurred. The DOJ intervened in six whistleblower lawsuits against Kaiser Permanente in July; those lawsuits date back as far as 2013. In a statement on its website, the health system disputed the allegations.

Northwell Health is forming a joint venture with Aegis Ventures, a startup studio based in New York, to “ideate, launch, and scale artificial intelligence-driven companies to address health care’s most challenging quality, equity, and cost problems.” According to the announcement, Aegis Ventures intends to invest at least $100 million of seed-stage funds in the joint venture’s endeavors. The partners said they have already begun work in the areas of chronic disease prediction and improving maternal health outcomes.

Cerner has created a new operating unit called Cerner Enviza to accelerate the discovery, development, and deployment of therapies and advance clinical research. In a news release, Cerner said the new unit was established “to help get therapies to patients more quickly and at less expense.” It will also focus on expanding clinical trial participation in an attempt to achieve more equitable results. In April, Cerner finalized its acquisition of Kantar Health, a business that provides consulting, analytics, and research to the life sciences industry. Dr. David Feinberg just became Cerner’s CEO in October.

Kindred Healthcare and LifePoint Health plan to launch ScionHealth, a new company that will consist of 61 long-term acute care hospitals currently owned by Kindred and 18 community hospitals that Brentwood, Tenn.-based LifePoint Health currently owns. LifePoint signed a definitive agreement in June to acquire Louisville, Ky.-based Kindred for an undisclosed sum. Once the acquisition has been completed, ScionHealth will be launched as an entirely separate company with its own board of directors and leadership team, with Rob Jay serving as CEO. At that time, LifePoint will combine its remaining 65+ hospital campuses, its network of physician practices and outpatient centers, and Kindred’s rehabilitation and behavioral health businesses, and Kindred’s current CEO, Benjamin Breier, will step down.

What we’re reading
COVID Vaccine Makers Prepare for a Variant Worse Than Delta. Nature, 10.24.21
Pandemic to endemic: How the world can learn to live with COVID-19. McKinsey & Company, 10.28.21
The US Should Change Payment To Make Health Care More Equitable. Health Affairs, 10.26.21

What else we’re reading
The Price of Everything: A Parable of Possibility and Prosperity, by Russell Roberts.
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