Thursday, June 27, 2019

Drug Channels News Roundup, June 2019: PBM Spread Pricing, Rebate Walls, Reforming Part D, and Not-So-Smart Bulbs

Happy 243rd birthday, America! Before you launch your July 4 festivities, Drug Channels offers some fireworks of its own:
  • Surprising PBM spread pricing profits in Massachusetts plans
  • Eli Lilly explains rebate walls for specialty drugs
  • MedPAC suggests Part D changes—and endorses a well-known Drug Channels term!
Plus, the funniest video that I have ever seen.

P.S. @DrugChannels on Twitter now has more than 7,700 followers. See why by following my daily musings and cool links.

HPC DataPoints, Issue 12: Cracking Open the Black Box of Pharmacy Benefit Managers, Massachusetts Health Policy Commission

The Massachusetts Health Policy Commission (HPC) examined PBM pricing for generic drugs in the managed Medicaid and commercial markets. The report provides a good overview of the mechanics behind spread pricing. Spread pricing is a way for a plan sponsor to compensate its PBM by permitting the PBM to retain differences, or spreads, between (a) the amount that a PBM charges to a plan sponsor and (b) the amount that the PBM pays to the pharmacy that dispenses the drug to a consumer.

As you can see in the chart below, HPC found massive spreads for generic prescriptions in both commercial health plans and managed Medicaid. One important implication: PBMs—not manufacturers—were setting the prescription’s price to the plan.

[Click to Enlarge]

Despite what you may have heard, spread pricing is not necessarily bad. It's no secret that spread pricing is one way for a plan sponsor to compensate its PBMs. The fact that PBMs are earning a spread does not necessarily mean that they are earning too much.

The open question is whether government and commercial plan sponsors fully understand the level of compensation that spread pricing provides to a PBM. Pharmacy owners have long waged war on spread pricing, because they believe that plan sponsors do not understand the magnitude of the spreads and that sponsors are therefore underpaying pharmacies.

As you may recall, I expect that payer and government pressure will shrink PBMs’ ability to capture network spreads. See CVS, Express Scripts, and the Evolution of the PBM Business Model.

How the Rebate Wall Limits Competition, Access, LillyPad

In this intriguing article, drugmaker Eli Lilly explains the concept of rebate walls:
“Rebate walls are a contracting practice some manufacturers use to prevent competition, block new therapies from entering the market, and keep prices for existing therapies high.

Rebate walls block competition by coupling volume-based discounts across multiple indications with retaliatory measures, such as the clawback of rebates by a market leader.”
Rebate walls are a consequence of the gross-to-net bubble and affects certain specialty therapeutic classes.

In A World Without Rebates: Predictions for How the Channel Will Evolve and Why Drug Prices Will Go Down, I explain how and why rebate walls will crumble if the U.S. drug channel ever moves to a world without rebates.

Restructuring Medicare Part D for the era of specialty drugs, MedPAC

The Medicare Payment Advisory Commission (MedPAC), the independent agency that advises Congress on the Medicare program, recently released its latest annual report. Chapter 2 outlines MedPAC’s recommendations for restructuring the Medicare Part D benefit design. MedPAC argues that its proposed changes will improve plan sponsors’ financial incentives to manage drug spending and restrain manufacturers’ incentives to increase prices. It’s a dense, wonky, but highly worthwhile read.

My favorite section of the chapter is titled “Cost sharing and the ‘gross-to-net bubble’.” That’s right. The term we coined makes another appearance in the official government lexicon. Here’s the proof:

[Click to Enlarge]

SpongeBob SquarePants is very proud of me!

UPDATED: How to: Reset C by GE Light Bulbs, GE Lighting

This video for GE has been making the rounds over the past week. It outlined the hilarious procedure for managing your GE light bulbs. Believe it or not, it is not a parody.

I haven’t laughed this hard in a long time. Perhaps there’s a lesson here for our overly complex and opaque U.S. drug pricing and reimbursement system?

P.S. Gizmodo has an amusing take on the video.

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