Reference Pricing: “Net” Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 103)

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying


Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Employers Turn to Deductibles, Out-of-Pocket (OOP) Limits to Manage Prescription Drug Costs

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A new survey report from the Pharmacy Benefit Management Institute (PBMI) finds that the use of pharmacy deductibles and annual out-of-pocket limits is rapidly rising among employers. But as plan sponsors look for ways to manage mounting drug costs, the report identifies several opportunities to improve cost management and/or clinical management without having to shift additional costs to members.

According to PBMI’s 2015-2016 Prescription Drug Benefit Cost and Plan Design Report, sponsored by Takeda Pharmaceuticals USA, Inc., 36% of employers reported having a prescription drug benefit deductible in 2015, compared with only 14% the year before. Plan sponsors are also shifting more costs to members through annual out-of-pocket limits, which were used by 33% of employers in 2015, up from 18% in the prior year’s survey. The survey results are based on the responses of 302 U.S. employers representing 16.3 million lives.

Sharon Frazee, Ph.D., vice president of research and education at PBMI, says the 22-percentage-point jump in deductible use is particularly “striking” given that deductibles have historically been much more common in the medical benefit, but not surprising since employers want to continue to provide an affordable benefit without raising premiums. “Consumers are not accustomed to this, and it’ll be interesting to see what happens as far as member satisfaction and in terms of clinical impact,” she suggests to DBN.

Meanwhile, several opportunities exist for greater plan sponsor adoption of utilization management tools such as reference-based pricing, pill-splitting and step therapy, observes PBMI. “Step therapy is really one of the bread-and-butter kinds of things for cost management and it’s something I think most consumers are used to, but it’s only used by 60% of smaller employers,” Frazee points out, referring to the 155 survey respondents with 5,000 or fewer covered lives. By comparison, nearly 80% of larger employers reported using step therapy in 2015. And reference-based pricing was used by only 11% of employers overall, compared with 12% the year before.

Tyrone’s Comment:  For those organizations seeking to lower pharmacy benefit service costs, reference pricing is one of the most overlooked tools. Every week I publish a list of prescription drugs and their true acquisition costs along with reference pricing instructions. It is a simple and inexpensive way to conduct effective data-mining without the huge overhead associated with big data analytics software. Companies willing to allocate 8 hours, per month, for reference pricing analysis can realize a significant reduction in PBM service costs seemingly overnight. Managing pharmacy related costs is no longer just an HR responsibility; it is a fiduciary one.    

The report also identified opportunities to squeeze out additional savings through pharmacy network innovation. For example, 29% of respondents in 2015 report using a preferred pharmacy network, while only 13% were using a limited network (i.e., eliminating at least one major pharmacy chain). Meanwhile, 60% of employers offer a 90-day-at-retail option, but only about one-third of them require that members obtain their 90-day supply of maintenance medications from a limited network pharmacy.

SOURCE: The Pharmacy Benefit Management Institute 2015-2016 Prescription Drug Benefit Cost and Plan Design Report, sponsored by Takeda Pharmaceuticals USA, Inc. Click here to download the report.

Despite Obamacare, prescription drug discount cards are still relevant

Providers of prescription drug discount cards have increased their efforts to reach out to employers, despite the Affordable Care Act’s or PPACA promise to decrease the ranks of the uninsured or those most likely to use the pharmacy discount cards.

Since many of their employees do not work full-time, employers with lower wage workers are primary beneficiaries.  Simply put, low wage employees tend to opt-out of the company health plan. Obviously, companies aren’t required to cover part-time employees, but this card would provide them a benefit.

Additionally, if employees opt out of the company plan this will also give them a benefit because the card is free to the consumer and free to the company.  One pharmacy discount card can cover an entire family without any registration or paperwork.

TransparentRx, a fiduciary pharmacy benefits manager, has negotiated discount prices at more than 65,000 pharmacies such as Walgreens, Target, CVS and Walmart. The discount prices are realized when their co-branded PrescriptionGiant discount drug card is presented by consumers.

The price depends obviously on the chain, the prescription itself, and even location. Most of the discounts appear with generics, but many are brand name prescription drugs.  The average savings for a discount card holder is 40% (not every medication qualifies for a discount) and can reach up to 75%.

PrescriptionGiant, which seeks to reduce the cost of prescription medicine for children, families and individuals by $50 million by the end of 2020, is one provider looking to educate more employers about its discount card program. PrescriptionGiant does not charge membership fees or collect personal information.

Reference Pricing: “Net” Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 102)

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying


Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.


When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

With coupon programs, drug industry hides ballooning costs of expensive new medicines

What are those clever drug companies up to? Plenty, I learned, recently browsing the website of Medical Marketing & Media, the trade pub that keeps healthcare marketers up-to-date on selling drugs, heart stents, and just about every other product the medical industrial complex dreams up. I spotted an e-book that answered my question. Called “Pathway to Specialty Access,” the book is a primer on how to market those new and very expensive specialty drugs like the hepatitis C medicine Sovaldi, which costs $84,000 for a course of treatment.

The 10-page “book” sponsored by TrialCard, a vendor of co-pay cards and vouchers, promises insights into “Patient access needs and hurdles along the specialty drug pathway, supplemented by trends, data and insights on this shifting market.”  It’s not just an interesting read for snoopy reporters but it’s a cautionary tale for journos and the public about future health system costs and how patients are manipulated in the quest for even greater profits.

The tip-off for what this itty-bitty volume can do for a drug maker comes in this statement:

“Clearly there is a vast undermet need for greater access to specialty medications and better support services for patients. The answer, for pharma, surely lies in an integrated, coordinated patient-centric approach.”

In other words, pharma can and should, the book advises, hold patients’ hands from the time of diagnosis through the process of buying and paying for one of these uber-expensive medicines, and make sure the patient stays on the drug regimen. That’s the name of the game in the drug biz. Long-term use equals more drugs sold equals more profits.

Clever drug companies have amassed an arsenal of strategies for getting more drugs into the hands of patients through speaking fees to doctors who prescribe the drugs, sponsorship of medical education programs, and very effective detailing or selling in the doc’s office to push the latest and greatest.

This time, though, the strategy is aimed at the patient’s pocket book, and the new world of specialty drugs opens up a box of possibilities for expanding their co-pay programs in which the drug company pays a significant portion of the cost-sharing an insurer requires. Pollpeter told me, “when a co-pay is optimized for the patients, they stay on the drug longer.”

How do these programs work? 

Manufacturer Drug Coupon Example

There’s the basic coupon, which doctors and druggists sometimes hand out, or patients can find them online. The industry calls them “pay-no-more” cards, telling patients they will pay no more than, say, $50 for their prescription. Discounts vary by therapeutic class with some drugs carrying larger discounts than others. Some work like loyalty programs. A patient can get a certain number of drugs for free after they’ve bought so many. That’s sort of like accumulating points for a free massage at a nail salon.

Then there are e-vouchers in which a prescription is sent from the pharmacist through a switch vendor that may provide other financial support to the patient. The drug maker works with the vendor to establish how much of the required cost sharing it will pay as well as other rules for the transaction. Both the rules and amounts the drug maker pays vary by the class of drugs. “The patient is blinded to the e-voucher,” Pollpeter says. “But they are happier when they see a lower copay.”

What’s wrong with this?

It seems like a win-win for the patient and the drug company, right?  The patient pays less out of pocket—sometimes a lot less. In one example, the e-book notes that a patient’s out-of-pocket spending for specialty drugs for MS and rheumatoid arthritis can be as little as $5 a script. The manufacturer reaps more sales because patients are less likely to abandon therapy. But there’s one significant downside. High drug prices are still with us. “Coupons shield consumers from the true cost of medications and are less likely to make decisions based on the true cost of the drug,” says Troy Filipek, an actuary with the consulting firm Milliman.

“There’s nothing transparent about any of this,” says John Rother, the CEO of the National Coalition on Health Care whose project the Campaign for Sustainable Rx Pricing has helped raise public awareness of the skyrocketing cost of medicines. “Effectively these programs raise overall costs in the name of protecting patients, but for everyone else they raise costs and therefore premiums. It obscures the fundamental issue of unsustainable pricing for many pharmaceuticals.”

By Trudy Lieberman

Reference Pricing: “Net” Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 101)

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying


Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Anthem seeks $3B more in drug savings from Express Scripts

Anthem vs Express Scripts

Indianapolis-based health insurer Anthem Inc. wants $3 billion a year more in savings on drugs from Express Scripts Holding Co., and is threatening to ditch the company in a move that would depose the pharmacy benefit manager as the country’s biggest.

The insurer, which contracts with Express Scripts to manage prescription drug costs for its members, believes the pharmacy manager should be passing along about $3 billion a year more in the savings it negotiates from drug companies, CEO Joseph Swedish told investors Tuesday at the J.P. Morgan Health Care Conference.

Express Scripts disputed Swedish’s description of the terms between the two companies, and the $3 billion figure.

“We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion,” Swedish said at the San Francisco meeting. “To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis.” Much of those savings would be passed on to clients, he said.

Tyrone’s Comment:  $3 billion is an overreach but still doesn’t negate the fact that Anthem, without question, is overpaying.  The amount is likely closer to $1 billion per an analysis of their 10-Qs over a three year span.  The worst part is Anthem sold their PBM business to Express Scripts in 2009!   Here’s my point.  If Anthem is significantly overpaying then so are you.  Fight back with full audit rights, market check and clawback language in your contracts.  This is only one step in the process of eliminating overpayments, but a very important one.  If you follow my blog or have read my white papers you know the other steps.

Anthem and Express Scripts have an unusual arrangement that stems from Anthem’s sale of its pharmacy-benefits business to Express Scripts in 2009. The insurer is entitled to periodic reviews of how much it pays for drugs, a process the companies last went through in 2012. They haven’t yet reached a deal on the most recent talks.

‘In good faith’

Express Scripts said that Anthem was mischaracterizing the situation.

“Express Scripts has consistently acted in good faith and is in full compliance with the terms of its agreement,” said Brian Henry, a spokesman for the company. “While the contract calls for good faith negotiations regarding a pricing review, it does not mandate specific price adjustments. Furthermore, Anthem is not entitled to $3 billion.” He said the company valued its relationship with Anthem.

The two may be running out of time. “We have a very involved dispute resolution process in the contract that has been fully exhausted,” Thomas Zielinski, Anthem’s general counsel, said Tuesday after the investor presentation. “That said, we remain in dialogue.” He said Anthem took the dispute public because the company wasn’t getting the savings it needed to offer more competitive products, such as Medicare drug plans.

Express Scripts shares fell 3.1 percent, to $82.92 each, in trading after the market closed.

Pharmacy benefit managers, led by Express Scripts, have helped force much of the current debate around drug prices in the U.S. They’ve succeeded in wringing steep discounts on expensive therapies by excluding some treatments unless their makers offer better prices. In 2014, Express Scripts said it would block Gilead Sciences Inc.’s hepatitis C treatment Harvoni from its main list of covered drugs in favor of a competing treatment from AbbVie Inc. The resulting price war led to discount from the drugs’ list prices that were worth thousands of dollars per patient.

The benefit to Anthem could ultimately be at least $600 million, partly because the savings would result in lower rates that would help the insurer attract and keep customers. Yet, Anthem, if it does drop the company, doesn’t have many options to turn to. Consolidation in the industry has led to just two other major players: CVS Health Corp., and OptumRx, a unit of Anthem competitor UnitedHealth Group Inc.

Click here to read more.

Reference Pricing: “Net” Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 100)

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.



How to Determine if Your Company [or Client] is Overpaying


Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

How Pfizer set the cost of its new drug at $9,850 a month

Days before Pfizer Inc. was to set the price for a new breast-cancer drug called Ibrance, it got a surprise: A competitor raised the monthly cost of a rival treatment by nearly a thousand dollars. Pfizer was left wondering if its list price of $9,850 a month for the pills was too low.

It was a tricky issue. Drug companies have been reaching for new heights of pricing. They routinely raise the cost of older medicines and then peg new ones to these levels.

Yet Pfizer knew setting a price too high for Ibrance might backfire. It could antagonize doctors and prompt health insurers to make prescribing the pills a cumbersome process with extra paperwork that doctors dislike.

A look at Pfizer’s long journey to set Ibrance’s price—a process normally hidden from view—illuminates the arcane art behind rising U.S. drug prices that are arousing criticism from doctors, employers, members of Congress and the public.

The average cost of a branded cancer drug in the U.S. is around $10,000 a month, double the level a decade ago, according to data firm IMS Health. Cancer doctors say high costs are unavoidable because all of the options are pricey.

Pfizer’s multistep pricing process shows drugmakers don’t just pick a lofty figure out of the air. At the same time, its process yielded a price that bore little relation to the drug industry’s oft-cited justification for its prices, the cost of research and development.

Instead, the price that emerged was largely based on a complex analysis of the need for a new drug with this one’s particular set of benefits and risks, potential competing drugs, the sentiments of cancer doctors and a shrewd assessment of how health plans were likely to treat the product.

In the end, “we went to the right point where patients get the maximum access, payers will be OK and Pfizer will get the [returns] for a breakthrough product,” Dr. Bourla said.

The process began in November 2011 when Mace Rothenberg, a scientist who oversees Pfizer’s development of cancer drugs, flew to California to review early clinical-trial data on a laboratory compound.

Then called simply PD-0332991, it grew out of work on proteins that help regulate how cells form and divide. In cancer, some of these can shift into overdrive. The research on this won a Nobel Prize. It also set off a hunt by drugmakers for a way to put the brakes on the overactive proteins, called cyclin-dependent kinases.

Visiting Pfizer labs in La Jolla, Dr. Rothenberg saw a slide with two curves veering far apart. It showed that the length of time before breast-cancer patients’ disease progressed was twice as long for those who took Pfizer’s compound in addition to an existing drug versus patients getting just the older drug.

“I think we have something special,” Dr. Rothenberg told the scientists leading the research.

When he got back to New York, he began talking up the compound to win the internal investment needed to develop it, as well as to involve others who would eventually set a price. Pfizer wasn’t going to fund further clinical testing and other development costs if it couldn’t anticipate good financial returns from a resulting drug.

In this case, the opportunity was clear. Pfizer’s novel compound targeted advanced breast cancer fueled by estrogen—a disease for which existing therapies, a decade or more old, offered only a modest extension of life. A drug that could do better would fill an unmet need and could be priced accordingly. So in 2012, while scientists continued their work, Pfizer employees on the commercial side started on the market analysis that would eventually lead to a pricing decision.

More clinical results arriving in December 2012 supported the compound’s promise, but also showed it was associated with lower counts of infection-fighting blood cells. The studies weren’t long enough to answer a key question: whether the compound helped people live longer.

They were encouraging enough to keep the Pfizer pricing team going, though. The team began interviewing cancer doctors, seeking to gauge interest in a possible drug with this one’s profile of benefits and risks.

Importantly, Pfizer wanted to know what the oncologists would consider comparable treatments.

Among the doctors consulted was Debu Tripathy, then co-leader of the Women’s Cancer Program at the University of Southern California. Dr. Tripathy, now at University of Texas MD Anderson Cancer Center in Houston, says he was excited about the prospective drug described, though he would have liked to see evidence it extended lives.

Pfizer’s compound “looks about as good as Herceptin. Maybe you should price it like that,” Dr. Tripathy recalls telling Pfizer.

Herceptin was much cheaper than most other branded breast-cancer drugs, he knew. It cost about $4,775 a month in late 2013, according to its maker, Roche Holding AG, and data firm Truven Health Analytics.

Dr. Tripathy says Pfizer staffers told him it would be better to compare their compound to newer drugs. These are much costlier than Herceptin. Pfizer says Herceptin wouldn’t have been a good benchmark because it wasn’t one of the newest drugs in use and because of differences in how it is taken, the kind of cancer it treats and the length of time it stalls tumor growth.

In 2013, Pfizer hired outside firms to conduct hourlong interviews with more than 125 cancer doctors in six cities, while commercial staffers observed. Doctors said they were impressed, and many said that despite having to monitor patients for infections, they would prescribe “Product X” if the price was reasonable.

Most of the doctors, according to two Pfizer staff members, pointed to three drugs the company should consider as pricing benchmarks: Kadcyla and Perjeta from Roche and Afinitor from Novartis AG.

Like Herceptin, two of these differed from Pfizer’s drug in the kind of breast cancer treated and in how they were administered. Only Afinitor closely paralleled Pfizer’s compound by attacking the same type of breast cancer and being in pill form.

For all three, the cost of treating a patient for a month was between $9,000 and $12,000, including any other drugs that had to be taken with them. These are list prices, from which health plans and insurers negotiate discounts of 20% or so.

Competing factors

The company wanted a price that would maximize its revenue without deterring health plans or keeping the drug from getting to patients it could help. Dr. Bourla recalls telling staff members in late 2014 that the company had “a moral obligation”: The patients had a deadly disease that this drug could help, and “it is our responsibility to get it to them.”

It was time to talk to insurers.

Pfizer hired firms that surveyed more than 80 health-plan officials such as medical directors and pharmacists. They were asked what restrictions, if any, they might place on a drug with this one’s profile, at various monthly prices from $9,000 to $12,000.

Pfizer Pfizer executive Albert Bourla gave final approval last January to a price for the company’s new breast-cancer drug Ibrance, following a years-long process by other Pfizer officials that included testing the views of oncologists and health-plan officials.

At $11,000 a month, one official said the plan “would definitely require physicians to document medical necessity for Product X,” according to a person familiar with the surveys. It was the kind of paperwork obstacle Pfizer wanted to avoid.

Staff members put together a chart estimating the revenue and prescription numbers at various prices similar to those of the three drugs Pfizer had decided to use as benchmarks.

The chart showed a 25% drop in doctors’ willingness to prescribe the new drug if it cost more than $10,000 a month. This indicated Pfizer might collect higher returns by charging toward the lower end of its range.

Pfizer also had been talking with the Food and Drug Administration. The agency agreed in late 2014 to a speedy review, without waiting for results from an elaborate “Phase 3” clinical trial, so that patients with life-threatening conditions could get the drug earlier. This sped up the time to market by about two years.

Pfizer took steps to put the drug in patients’ hands as fast as possible after FDA approval. Oral cancer medicines aren’t dispensed at local drugstores but at specialty pharmacies that help patients gain insurance approvals, remind them to take pills and assist with side effects. Pfizer lined up 24 of these to supply the drug once approved.

Hoping to smooth the drug’s way onto health-plan lists of covered medications, Pfizer economists created a dossier containing data on clinical benefits and risks, plus—important to the plans—the likely effect on their budgets.

The economists mined electronic health records, drug-prescription tallies and health-insurance claims to estimate the number of prescriptions, costs of treating side effects and monitoring patients for infections, and spending that might be avoided if the drug kept cancer at bay longer.

The economists cited a 2012 report showing that a typical million-member commercial health plan spent $320 per member a month, of which the spending on cancer drugs came to just $4.20. Scenarios they ran indicated the new drug, if priced below $10,000 a month, would increase that spending no more than six cents.

The staff felt they finally had it. When they met in November 2014 to nail down a price, they picked a figure just below the cutoff: $9,850 a month. This would be the list price, from which health insurers and pharmacy-benefit managers would negotiate discounts and rebates with Pfizer.

The price they had picked was well below the cost of treatment involving one of the three benchmark drugs Pfizer had identified. But it was close to the price of the other two, and slightly above the price of the most direct competitor, Novartis’s Afinitor.

Then, on Jan. 6, 2015, Novartis raised Afinitor’s price 9.9%. Novartis says it adjusts prices to reflect “an evolving health-care and competitive environment,” new evidence and the need to support R&D.

The new price for the close rival drug put its monthly price $687 above what Pfizer was planning to charge.

Meeting in Dr. Bourla’s New York office three days later, Pfizer staff members mentioned that price increase. Dr. Bourla asked if Pfizer, too, should go higher.

“This may make some plans just not use it, and some will make things difficult and that will frustrate patients,” he recalls being told.

Alternatively, Dr. Bourla asked, should Pfizer charge a lower price than it was planning? Would doing so reach substantially more patients? He says staffers told him that a price closer to $9,000 a month wouldn’t improve health-plan coverage, and Pfizer would be leaving money on the table.

They were back to $9,850. “Let’s go with that,” Dr. Bourla said.

By Jonathan D. Rockoff