Author: Tyrone Squires, MBA, CPBS

This author has written 1305 articles

A Federal Agency (CMS) has Requested Copies of our Purchase Invoices for Wholesale Prescription Drugs

The Centers for Medicare & Medicaid Services, the largest purchaser of prescription pharmaceuticals, is eliminating or at least leveling the playing for itself and patients.  CMS is collecting wholesale invoices from pharmacies across the country (see below).  
 
CMS will use a combination of calculus, statistics and probability to determine a national average acquisition cost for every prescription medication on its formulary.  It will then send out an RFP stating these are the prices (based upon the calculated acquisition costs) we’re willing to pay for prescription drugs listed on our formulary – take it or leave it!  
 
If you’re a self-insured employer or a broker this is exactly what you should be doing for clients and employees alike.  It doesn’t matter the size of your organization.  If you pay for PBM services accept nothing less than full transparency.  
 
In this case, that means paying only true acquisition costs for all prescription drugs and not a penny more.  If you need help in calculating and/or verifying acquisition costs get off your butt and send me an e-mail I’ll be happy to help.  In the meantime, read the letter sent to us by CMS. 
Information asymmetry occurs when one party has significantly more information than another.  More important, the party with more information takes advantage of its position.  In business, this often leads to a lack of transparency and abhorrent price disadvantages for purchasers.  
 
It’s quite simple, don’t do business with any PBM that isn’t willing to: (1) share all their price lists/wholesale invoices and (2) provide full audit rights.  If you would like a copy of the original letter simply send me an e-mail and we’ll get one out to you.

New Report Shows Drugstore Lobby Agenda Raises Rx Costs for Small Businesses and Government Programs

Federal and state policymakers should avoid enacting laws that undermine payers’ ability to use mail-service pharmacies, preferred pharmacy networks, and other innovative pharmacy benefit management (PBM) tools, the National Center for Policy Analysis (NCPA) asserts in a new report,”Unnecessary Regulations that Increase Prescription Drug Costs.”

“This report shows policymakers that appeasing the drugstore lobby means higher prescription drug costs for small businesses, consumers, and government programs,” said Pharmaceutical Care Management Association (PCMA) President and CEO Mark Merritt.

Click here to read the NCPA report which highlights a number of regulations and laws that could increase prescription drug costs, including:

Barriers to Competition: State Boards of Pharmacy Conflict of Interest Background: The report highlights how some states are seeking to transfer regulatory authority of drug plans from the state’s insurance commissioner to the state’s Board of Pharmacy.

NCPA: “Because state pharmacy boards are controlled by pharmacists, giving them authority over drug plans creates conflicts of interest that could undermine drug plans’ ability to negotiate lower prices with pharmacy networks.”

Barriers to Lower Cost Mail-Service Pharmacies Background: Employers and payers use a variety of incentives to encourage patients to use efficient mail-service pharmacies to address chronic illnesses, such as diabetes. Mail-service pharmacies will save Medicare seniors, employers, unions, government employee plans, consumers, and other commercial-sector payers $46.6 billion in prescription drug costs over the next ten years.

NCPA: “Unfortunately, some states are enacting laws that interfere with the ability of drug plans to reward enrollees that use the plan’s mail order option by barring drug plans from offering lower prices for mail-order dispensing. This unnecessarily raises costs for consumers, insurers and employers. Obviously, these laws mostly aim to benefit local community pharmacies rather than consumers.”

Barriers to Competitive Pharmacy Networks Background: A new study finds that the extraordinary number of pharmacies in the United States offers an opportunity to save $115 billion over the next decade through the greater use of preferred and limited pharmacy networks. However, some states have in place so-called “any willing pharmacy” laws and regulations that force plans to contract with pharmacies that don’t meet their quality standards or geographic access needs.

NCPA: “These any-willing-pharmacy laws are costly to taxpayers, employers and patients alike. The Federal Trade Commission notes that these laws reduce the drug plans’ bargaining power, leading to higher drug prices and higher premiums for consumers.”

Barriers to Efforts to Combat Fraud Background: Health care fraud is a problem that increases overall health costs and is especially burdensome in Medicare and Medicaid. Billions of claims are submitted to millions of providers, making fraudulent claims easy to disguise. PBMs and companies processing electronic payments are effective at discovering irregularities that lead to fraud.

NCPA: “Regulations requiring Medicare drug plan administrators to pay claims within 14 days make it difficult to detect fraud before a claim has been paid. At the very least, drug plans need the authority to delay paying questionable claims to providers suspected of fraud. Plans also need greater authority to exclude or suspend suspected fraudulent providers from networks and conduct routine audits of participating pharmacies.

“Congress and state legislatures should avoid well-meaning, but ill-conceived, regulations intended to protect consumers, which often have the opposite result. A better way to ensure desirable outcomes is to promote a competitive environment free of market distortions that favor one party over another.”

Barriers to Lower Cost Dispensing Fees Background: Dispensing fees paid to drugstores and pharmacists that are mandated and set by states are much higher than in commercial drugs plans. The average Medicaid dispensing fees range from $1.75 in New Hampshire to $10.64 in Alabama, averaging about $4.81 per prescription across the country. By contrast, privately managed Medicare Part D plans negotiate fees with pharmacies of about $2 per prescription.

NCPA: “Dispensing fees in state-managed, conventional Medicaid plans are set by the state. State officials and state legislatures often yield to political pressure and set dispensing fees that are much higher than what private drugs plans could negotiate if allowed to do so. When the fees are set too high, taxpayers pay pharmacies more than they would in a competitive market.”

PCMA represents the nation’s pharmacy benefit managers (PBMs), which improve affordability and quality of care through the use of electronic prescribing (e-prescribing), generic alternatives, mail-service pharmacies, and other innovative tools for 215 million Americans.

SOURCE: Pharmaceutical Care Management Association

Small Pharmacies Getting Squeeze from Goliath PBMs

A bipartisan bill introduced by Rep. Jules Bailey and Rep. Greg Smith would regulate pharmacy benefit managers, which local pharmacists say are driving them out of business.


March 27, 2013 — Central Drugs Pharmacy has been open for 110 years in downtown Portland, and it specializes in dispensing drugs for those who suffer from HIV.
But owner Shelley Bailey told two legislative committees that if abusive business practices by pharmacy benefit managers are not curtailed, she may have to close its doors. She said that pharmacists have been struggling with reimbursements that are completely unpredictable and punitive audits that are often unfounded.
While insurers pay a pharmacy benefit manager through a global payment for all the drugs purchased, pharmacists are left buying generics off a commodities market that is wildly volatile, and they are compensated by the pharmacy benefit manager according to a secret formula that pharmacists say by its very design can compensate them below the actual cost.
“You sign the contract and hope, you hope you’re going to get paid enough to stay open,” said Chris Brown of PayLess Drugs, a West Coast long-term care pharmacy chain with locations in Portland and Eugene..
Bailey said she was paid $8.60 by a PBM in December to dispense a generic prescription, but in January, she got less than one-fifth that price from a different PBM.
“For that same prescription, for that same patient, for that same insurer, we were paid $1.60 by the new PBM that the insurer chose to partner with,” Bailey said.
A pharmacy benefit manager, or PBM, is an intermediary company that stands between insurers and pharmacies and manages prescription drug plans.
Just two companies — Express Scripts and CVS Caremark — control three-quarters of the prescription drug market, towering over little pharmacies like Central Drugs and even large chains like Walgreens that have no choice but to accept their terms with little protection under current law.
Express Scripts, the largest of the pharmacy benefit managers, has 30,000 employees and reported $46 billion in revenue in 2011, with $1.3 billion in profit, and those dollars represent earnings before the PBM merged last year with Medco Health Solutions — an even larger company, with $79 billion in revenue in 2011 and $1.5 billion in profit. Express Scripts’ chief executive officer, George Paz, was the sixth-highest paid CEO in the country last year, with a salary of $51.5 million, according to Forbes.
“I don’t believe in businesses putting their thumb on the scale,” Brown said. “Last year, Walgreens dropped out of Express Scripts. They lasted six months. They came back…If Walgreens, the nation’s largest pharmacy chain, can’t negotiate effectively with a PBM like Express Scripts how can you realistically expect community pharmacists and pharmacies? All we want is disclosure.”
Generic drugs account for 75 to 80 percent of all drugs that are dispensed in Oregon. Bailey purchases generic prescription drugs off a commodities market that varies wildly, and said PBMs decide how much they will reimburse pharmacies according to a secret averaging formula known as a Maximum Allowable Cost.
The PBMs use an averaging formula because generic drugs have multiple vendors, each with its own price. But pharmacists don’t know the formula and their reimbursement rate might lag well behind the commodity price of the drugs.
When generic prices go down, Bailey said PBMs lower their reimbursement rates immediately so as not to overpay the pharmacies, but when prices go up, it may be weeks before they’ll update their reimbursement rates, pocketing the extra money that they would otherwise be paying pharmacists.
Unlike other states, neither the insurers nor the pharmacists have knowledge of the pricing formula in Oregon, and pharmacists do not know what they’ll be paid until after the drugs are dispensed.
“We only know after we’ve dispensed the prescriptions how much we have lost,” said Anne Murray of Murray Drugs in Heppner, the only pharmacy in 5,000 square miles of Eastern Oregon.
Legislature Responds
A house health task force headed by Rep. Jules Bailey, D-Portland, and Rep. Greg Smith, R-Heppner, produced House Bill 2123, which would help local pharmacies by bringing PBMs under the regulation of the Oregon Board of Pharmacy, rein in frivolous audits and offer transparency in generic prescription drug prices. Ground rules would be stipulated before audits could be conducted, the number of claims would be capped at 200, and PBMs could not recoup their costs for clerical errors.
“PBM companies are an important entity in our healthcare system … [but] they’ve really come down hard and abused pharmacies,” said Rep. Bailey, who is not related to Shelley Bailey.
The PBMs, along with some insurers, are fighting the legislation, saying it will lead to higher prices for consumers and potential anti-trust implications.
Realizing their concerns, Rep. Bailey said he had invited PBMs to be part of the legislation, but “PBM companies chose to walk away from the table.”
He said the legislation offers some consistency in how pharmacy benefit managers can operate and brings their regulation more in line with what dozens of other states are already doing. It is nearly identical to a bill that recently passed in North Dakota.
“Oregon is really the outlier. They like to say that Oregon likes to be first or last,” Rep. Bailey said. “We’re bringing up the rear.”
“I live in remote and frontier Oregon,” Smith said. “We need good, viable access to healthcare. It’s so important to step up and support our rural pharmacies. I feel that the PBMs are squeezing out our small pharmacies.”
At a Senate Health Committee earlier this month, representatives from Express Scripts and CVS Caremark said they each have about 100 million customers. Since 49 million of the 316 million Americans have no health insurance — those two companies alone have a market share that controls 75 percent of the prescription drug plans for the remaining 267 million.
With that kind of leverage, Shelley Bailey and other pharmacists told legislators that PBMs have been able to act aggressively against local pharmacies, not only paying them unpredictably but hitting them with frivolous audits over clerical errors that did not affect finances.
“We were audited for $48,000 by one of the PBMs in this room because they claimed one of our pharmacists had not signed the prescriptions,” she told the House Health Committee. “We won that audit, but it took me over 200 hours to fight the PBM just to keep the money we had been paid for the drugs we sold.”
PBMs Resist Regulation
Lobbyists from the PBMs argued against every aspect of HB 2132. Peter Harty of CVS Caremark told legislators that pharmacy board regulation invited anti-trust concerns since they’d be regulated by the pharmacists they do business with, charges that drew disdain from Rep. Jason Conger of Bend:
“Do you find it ironic that other pharmacies are already regulated by the Board of Pharmacy?” asked Conger. “I just don’t find it a compelling argument seeing that our other Oregon pharmacies are already regulated by the Board of Pharmacy. They might share your concerns, but they haven’t raised it.”
Harty’s compatriot at CVS Caremark, Eric Douglas, told the Senate Health Committee that publishing a printed list of all the prescription drug prices would require reams of paper, which Amy Bricker of Express Scripts said would be outdated as soon as it was printed.
Bricker argued that the maximum-allowable cost pricing mechanism allows Express Scripts to pass along savings in prescription drugs to consumers, but customers do not see lower co-pays. The global payment that Express Scripts accepts from insurers also does not line-item individual drugs.
“MAC transparency will not lead to elevated charges for insurers or payers,” Shelley Bailey said.
On the auditing issues, Cindy Laubacher of Express Scripts told the House Health Committee that restricting their freedom to administer audits similar to what occurred against Central Drugs was a way of inviting fraud.
“The bill is filled with impediments to even determining if fraud exists,” said Laubacher. “Audits are about recouping overpayments.”
Conger was similarly skeptical of Laubacher’s testimony:
“With 30,000 employees, that’s a lot of resources to conduct audits,” he said. “But we just heard testimony from a small business owner who spent 200 hours dealing with an audit that produced nothing. I understand the need to conduct audits, but I have to admit that sounds pretty abusive.”
Mail Restrictions in Limbo
A fourth measure in the bill would have required PBMs to give the same discounts that customers receive from mail-order pharmacies for long-term prescriptions, many of which are owned by the PBMs who have a financial incentive to use them.
Rep. Bailey’s office said that section of the bill was removed from HB 2123 since it’s already included in Senate Bill 363.
“The Senate bill basically is meant to preserve the choice of the patient to select their pharmacy,” said Michael Millard of the Oregon State Pharmacy Coalition. This requirement is a part of PBM laws in New York and Pennsylvania, but not the North Dakota bill that served as the blueprint for HB 2123.
Laubacher told the Senate committee that mail-order services are not only less expensive than brick-and-mortar pharmacies, but they’re a better alternative for people with chronic care needs – many of whom have limited transportation.
“Requiring that there be no incentive to choose mail order will have our clients end up paying more,” said Lisa Trussell of HealthNet Health Plan.
The Fate of The Legislation
Sen. Alan Bates, D-Medford, the sponsor of SB 363 told The Lund Report he was unsure if the bill would actually leave the Health Committee, but he wanted it to have a hearing.
Bates, a doctor in Medford, said he was concerned about PBMs automatically enrolling patients in mail-order pharmacies and continuing to ship them medications long after they stop using the drugs.
“There’s nobody between the patient and pharmacy to look out for errors, and my local pharmacist does that,” Bates said. “I don’t see a huge savings for mail-order pharmacies.”
Bates had a second measure, Senate Bill 402, that will likely die as it is redundant with HB 2123.
HB 2123 is expected to pass the House Health Committee but Bailey’s legislative aide, Megan Beyer, said the final version is still being amended and will likely reappear before the committee in April for a vote.

Insurance Commissioner Refuses to Enforce Obamacare

The Oklahoma Insurance Department will not be participating in a collaborative effort with the Center for Consumer Information and Insurance Oversight (CCIIO) to enforce the Affordable Care Act (ACA), according to a letter released by Oklahoma Insurance Commissioner John D. Doak .

“It is unfortunate that health insurers are being forced into a system of dual regulation by the overreaching Obama administration,” Doak said. “My position on this has never wavered and I welcome every opportunity to try to overturn Obamacare.”

The letter was sent to CCIIO Deputy Administrator and Director Gary Cohen indicating that the Oklahoma Insurance Department does not have the authority to enforce federal law. In the letter, Doak wrote, “I execute my duties collaboratively with the governor and legislature of Oklahoma to meet the needs of the citizens we represent and the requirements of the Insurance Code of the Oklahoma Statutes.”

“The Oklahoma Insurance Department regulates the health insurance policies sold in the state and responds to consumer questions and complaints. Our consumer assistance team receives over 30,000 phone calls and our website receives over 1,000,000 visits each year. We will continue to serve these consumers by adhering to our duties under the State Constitution and Statutes. The consumers are the ones who are going to bear the costs of these unnecessary federal regulatory burdens,” stated Doak.

In addition to adding new fees to health insurance products increasing prices both inside and outside the exchange, the ACA requires plans to add expensive and often unnecessary coverage benefits. These costs will impact young adults most severely due to the law’s requirement that older Americans pay no more than three times the premium of young adults. A survey of insurers by the American Action Forum found that average premiums for young, healthy adults may triple going into 2014.

The Oklahoma Insurance Department consumer assistance team is available to help consumers with issues regarding their current health insurance at 405-521-2828 and toll-free statewide at 800-522-0071.

About the Oklahoma Insurance Department

The Oklahoma Insurance Department, an agency of the State of Oklahoma, is responsible for the education and protection of the insurance-buying public and for oversight of the insurance industry in the state.

For more information contact:

Kelly Collins

(405) 522-0683

kelly.collins@oid.ok.gov

SOURCE Oklahoma Insurance Department

How to Control Specialty Pharmacy Costs?

Click to Learn More

While the aforementioned tactics do assist in controlling costs, they’re standard practice and are not the aggressive measures necessary to help reduce or control spending.  A Fiduciary PBM is one which truly puts its clients and their members first; before shareholders and profitability.  Hire the right PBM, one willing to follow through on these 7 steps, and you’ll surely rein in rising specialty drug costs.
  1. Hire a PBM willing to sign on as a fiduciary; transparent speak isn’t enough.
  2. Promote member use of manufacturer coupons for brand and specialty drugs. PBMs should communicate availability of all coupons to members. 
  3. Pay only Cost Plus (no spreads or mark-ups) for all prescription drugs.
  4. Include a semi-annual market check in the contract language. 
  5. Attain and exercise full auditing rights. 
  6. Require the PBM to identify and pass along all sources of attributable revenue from manufacturers.  Limiting agreements to ‘rebates’ leaves money on the table.
  7. Use Reference Pricing — different and much more effective (when applied) than an AWP reporting service.

*Cost Plus = [Acquisition Cost + dispensing fee + admin fee] minus Co-pay

 


Due in large part to specialty drugs, we are clearly entering a time of higher costs. Payers whom act now are in the best position to assure continued access to quality care for their members while effectively managing rising drug costs.

Click here to register for: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.”

PBMs | All about the Benjamins

Thank goodness for all the dumb money littered around corporate offices.  If it weren’t for the clueless spending it the likes of CVS Caremark and Express Scripts wouldn’t be $50,000,000,000 and $100,000,000,000 cash cows, respectively, on the backs of some really good businesses.  

Contemplate this the next time you see some PBM product clearly aimed at the financially naive, like a disease management or mail-order program without any or very little audit privileges.

Sure the product in question takes care of the company’s overhead, but it’s also doing something else. It pays for the PBMs Gulfstream G650 so it is able to offer the “basic” services, such as claims adjudication, you need at a bargain price (i.e. low admin fees).  

This phenomenon applies to other vendors as well; banks, auto repair shops, and lawyers just to name a few. All it takes is a little discipline – do the best thing for your company or the one which employs you.  

Anyone with a major role in the PBM selection process should be the type of person who shops at Ross or TJ Maxx for designer clothing and not Neiman Marcus!

Mail-order.  The PBM mail-order industry is a strange blend of good and evil. With usurious spreads it victimizes clients who haven’t secured a fiduciary agreement or at the very least binding transparency. It gives the rest of its clients a deal — convenience plus a savings compared to the less fortunate or should I say least knowledgeable.

                                                          AIS quarterly survey of PBMs

Consider the price for Ranitidine 75 mg, the generic form of the popular anti-ulcer medication Zantac. One of our clients paid Express Scripts $36.22 for 90 pills mailed to a worker, who pays an additional $5 co-pay, bringing the total cost to $41.22, according to a re-pricing we completed.  

 
If this same employee had simply walked into their local pharmacy and bought the same Ranitidine prescription it would’ve cost as little as $10.00 for the same 90 pills. This is a 400% difference in cost!
Some, if not most, of this difference in cost is attributed to a PBMs repackaging operation.  Through the course of their mail-order operations, some PBMs obtain ‘repackager’ licensing from the Food and Drug Administration.  
 
These licenses allow a traditional PBM to purchase 10,000 tablets from a manufacturer, for example, then redistribute the order among 60 tablet bottles at a higher AWP.  If a PBM artificially inflates an AWP through its repackaging and pricing practices, it can then increase its market share by offering artificially large discounts to suckers.
Retail Pharmacy Networks.  Not all PBM retail pharmacy networks offer its clients the same level of pricing transparency.  There aren’t just drug spreads to worry about; network spreads are as ubiquitous.  
 
For instance, your company’s contract price with the PBM requires AWP minus 12% for brand drugs. However, the PBM could have a contract, with a pharmacy network in your geographical area, which stipulates pharmacy reimbursement at AWP minus 15%.
 
The smart buyer unveils this hidden cash flow in the negotiation process thus keeping the 3% difference for their organization.  It may not sound like a big difference, but trust me it is substantial particularly for companies with over a million dollar drug spend annually! 
 
Formulary Management.  Drug manufacturers seek to secure favorable placements on the PBMs’ formularies, for a favorable placement can determine a product’s commercial success.  Control over formularies endows PBMs with considerable influence over pharmaceutical companies.   
 
Manufacturers compete with each other through a combination of rebates and administrative fee structures (I’ve personally sat in on these meetings). Rebates and fees the payor is 100% entitled to receive, but often never realize because it wasn’t addressed in the contract language.  
 
Another problem, some decision-makers put their personal needs ahead of what is best for the corporation (payor). Consultants want to earn the big fees, sometimes directly from the PBM and employees want to pay as little out-of-pocket as the plan allows.  
 
Without doing any real due diligence, HR or the CFO simply complies with both parties unaware that these decisions help purchase yachts and do nothing to improve patient outcomes or lower costs. For the record, real due diligence does not include a 50 page RFP followed by a services agreement with more holes in it than a municipal golf course.  
 
I can’t stress this point enough. No self-insured organization, in an era when some PBMs are willing to agree to a fiduciary role, should be paying a single penny more than a fair admin fee ($6.00 – $12.00 per Rx) for its PBM services. Unfortunately, fully-insured entities are at the mercy of their insurer. Good luck with that.

State-by-State Health Insurance Exchange Decisions

Obamacare calls for the creation of state administered health insurance exchanges, where Americans without employer-provided coverage can shop for insurance policies.  Enrollment is scheduled to begin October 1, 2013 and coverage too take effect in 2014.
Those with incomes between 133% and 400% of the federal poverty level – up to $92,200 for a family of four – will qualify for federal subsidies.  Running an exchange could therefore get pricey.
States were given the choice of creating their own exchanges, partnering with the federal government, or permitting the federal government to completely run the state exchange.  Deductibles for all plans will be capped at $5,950 for individuals and $11,900 for families, with the limits adjusted over time for inflation.
Note:  under Obamacare prescription drugs are an essential health benefit, but with the high deductibles most patients will be paying out-of-pocket for prescription medications.  Depending upon the employer, this can be a good or bad thing.
The Department of Health and Human Services (HHS) dictates that all policies sold on the exchanges must meet one of four classifications:  platinum, gold, silver and bronze.  These categories indicate plan coverage for the average person as 90%, 80%, 70% and 60%, respectively.
The auditing firm KPMG recently found that Ohio can expect to spend $63 million to set up its exchange and another $43 million each year to run it.  States will also need to provide call centers, navigators (sales personnel) and coordinate computer systems brokers involved in selling coverage.
The federal law indicates that states with their own exchanges must devise a source of revenue for running the exchanges, independently, beginning in 2015.   Where will this revenue come from?

Why are Prescription Drugs so Darn Expensive?

Given that U.S. prescription drug sales continue to rise, I thought it a good idea to provide an explanation for this perpetual increase despite increasing generic dispensing rates.  There are two types of prescription drugs (outside the obvious brand and generic versions).  They are called single source and multi-source prescription drugs.

Multi-source prescription drugs are those which are manufactured by multiple companies; upon expiration of a marketing exclusivity period.  FDA approval of these companies is required, obviously. These approved companies generally manufacture only generic pharmaceuticals.  Some examples include Dr. Reddy’s, Watson, Actavis, Teva Pharmaceuticals, and others.

Since there are multiple companies competing against one another, prices are much lower for multi-source prescription drugs compared to single source prescription drugs.  This is not the case for single source prescription drugs.

Single source prescription drugs are those for which there is only one manufacturer.  In other words, there is not a generic medication available in the market thus the brand drug is the only option for physicians, patients and payors.  One exception to the single source methodology does exist.

An 180-day marketing exclusivity is offered by the Food and Drug Administration to the first company which successfully submits an application to manufacture a replica (a copy of the exact chemical ingredients] of a brand prescription drug after the initial patent has expired.  For all intent and purposes, the medication manufactured by a company granted a 180-day marketing exclusivity is considered single source.

The application process for the 180-day marketing exclusivity is very complicated.  If you like, read more about it here:  180-Day Generic Drug Exclusivity Under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act.  Prescription drug patents, for innovator drugs, typically expire after 17 years.

Generic Dispensing Rates continue to rise yet it defies logic that prescription drug sales revenue also continues to increase year after year.  This begs the question, “why do prescription drug sales continue to increase?”  The state of personal health and healthcare in our country notwithstanding there are two primary reasons:  brand and specialty pharmaceuticals.

Let me explain.  Drug manufacturers have an obligation first to their stakeholders and rightfully so. They’re keenly aware of the stiff competition from generic equivalents and the government’s (largest payor) desire to lower overall costs.  In turn, they find ways to plug revenue gaps.

To protect brand product revenue streams manufacturers go to great lengths.  They will fight to extend the patent expiration date, seek additional indications (often marketed under a different name), and even partner with competitors.

If you had a monopoly on a prescription drug or an entire disease state for 17 years what would you do to protect it?  More importantly, how much would you charge for the right to use the medication? Keep in mind you’re operating as a for profit business.  It’s not uncommon for a brand drug manufacturer to generate EBITDA margins of 70% or greater.

Almost every original manufacturer now has at least one specialty and/or biotech drug in its portfolio. It’s part of an overall strategy to help patients.  Coincidentally specialty drugs are more difficult, from a financial and scientific standpoint, to duplicate.  Nonetheless, biosimilars will play an increasingly important role in the near future.

Employers and other payors have a role, albeit small, in how the drug spend trend will play out.  Here is one thing all individuals and organizations can do to slow the trend:  don’t pay for any brand prescription drug when there is a generic equivalent in the pharmacies unless it is the last option.