Last year the state of Tennessee health plan paid $62,000 apiece for 775 patients who were on the biologic drug Humira. Humira is used for autoimmune and inflammatory conditions like rheumatoid arthritis, Crohn’s disease and others. All told Tennessee spent nearly $50 million on one drug. This is a lot of money for only 775 patients. What is even more amazing is that nine (9) different new drugs biosimilar to Humira just hit the market. The lowest price for a generic copy is $994 a month. That is shy of $12,000 a year, or about $50,000 a year cheaper than Humira.
The $50,000 dollar question is: why weren’t all patients on Humira switched to a biosimilar the first day one became available? The reason has to do with how drug plan managers are paid. Pharmacy benefit managers (PBMs) rely on a combination of management fees and rebates from drug companies for revenue. The PBM industry is highly concentrated and the three largest are owned by insurers. PBMs get much bigger rebates from Humira than cheaper, biosimilars that probably don’t pay any rebate. Thus, it’s sometimes in the PBM’s and health insurer’s self-interest to purchase high-priced drugs that come with high rebates when someone else is paying the bills.
The biggest hitch seems to be the PBMs. Express Scripts and Optum Rx, two of the three giant PBMs, have put biosimilars on their formularies, but at the same price as Humira. That gives doctors and patients little incentive to switch. So Humira remains dominant for now.
The biosimilars work the same way as Humira, an injectable treatment for rheumatoid arthritis and other autoimmune diseases. And countries such as the United Kingdom, Denmark, and Poland have moved more than 90% of their Humira patients to the rival drugs since they launched in Europe in 2018. Kaiser Permanente, which oversees medical care for 12 million people in eight U.S. states, switched most of its patients to a biosimilar in February and expects to save $300 million this year alone.
Why are cheaper biosimilars priced at the same tier as a similar drug that costs six times more? It’s all about money. Not the state of Tennessee’s money. It’s about the huge rebates AbbVie, the maker of Humira, gives the PBMs.
Industry sources also say the PBMs persuaded AbbVie to increase its Humira rebates — the end-of-the-year payments, based on total use of the drug, which are mostly passed along by the PBMs to the health plan sponsors. Although rebate numbers are kept secret and vary widely, some reportedly jumped this year by 40% to 60% of the drug’s list price.
PBMs are large drug purchasing organizations, which design and manage drug benefits for employers and health plan enrollees. PBMs are under scrutiny by lawmakers as contributing to the high drug prices rather than holding them down as they historically claimed was their business model. The business was straightforward before the industry consolidated to the point the three largest PBMs control 85% of the drug business. When so few businesses control that much of the market, they have more power to pursue their own self-interests.
Critics of the top PBMs see the Humira biosimilars as a potential turning point for the secretive business processes that have contributed to stunningly high drug prices.
The launch of the biosimilar Yusimry, which is being sold through Mark Cuban’s Cost Plus Drugs pharmacy and elsewhere, “should send off alarms to the employers,” said Juliana Reed, executive director of the Biosimilars Forum, an industry group. “They are going to ask, ‘Time out, why are you charging me 85% more, Mr. PBM, than what Mark Cuban is offering? What is going on in this system?’”
Perverse incentives appear all throughout the drug benefits business:
Executives from the leading PBMs have said their clients prefer high-priced, high-rebate drugs, but that’s not the whole story. Some of the fees and other payments that PBMs, distributors, consultants, and wholesalers earn are calculated based on a drug’s price, which gives them equally misplaced incentives, said Antonio Ciaccia, CEO of 46Brooklyn, a nonprofit that researches the drug supply chain.
“The large intermediaries are wedded to inflated sticker prices,” said Ciaccia.
Then there is anticompetitive behavior, that should warrant FTC scrutiny:
AbbVie has warned some PBMs that if Humira isn’t offered on the same tier as biosimilars it will stop paying rebates for the drug, according to Alex Jung, a forensic accountant who consults with the Midwest Business Group on Health.
It’s not just PBMs who rely on rebates, so do group purchasing organizations that sell medical supplies to hospitals. Often times when small competitors want to break into the medical supply market they are thwarted by group purchasing contracts that reward large suppliers who pay bigger rebates depending on how much business they receive. This blunts competition on thousands of individual products that otherwise would edge out competing products whose prices are too high. As with drugs, a biosimilar has a hard time edging out Humira when AbbVie tells PBMs it won’t pay rebates on several different AbbVie drugs unless biosimilar competitors are handicapped in their ability to price compete with Humira. Such activity makes it less likely that biotech companies will produce biosimilar drugs in the future to compete with blockbuster drugs.
The entire article in the LA Times is irritating (and worth reading): Save billions or stick with Humira? Drug brokers steer Americans to the costly choice – Los Angeles Times (latimes.com)