Tuesday, November 28, 2023

Drug Channels News Roundup, November 2023: My $0.02 on Express Scripts’ Cost-Based Pricing, Mark Cuban vs. PBMs, Dual-WAC Strategies, Pharmacy Shakeout, and Adam vs. Rocky

I hope everyone enjoyed the Thanksgiving holiday. Now that you’ve stretched your stomach, it's time to stretch your mind with some food for thought. In this issue:
  • A reality check on Express Scripts’ purported “cost-based” pharmacy network
  • Mark Cuban explains how and why the PBM market will change
  • Why two drug prices are better than one
  • Pharmacists sing the retail pharmacy shakeout blues
Plus, two Philly legends meet at a cardiology conference!

P.S. Join my more nearly 49,000 LinkedIn followers for daily links to neat stuff. You can also find my daily posts at @DrugChannels on Twitter/X, where I have more than 17,000 followers. (I recommend that you follow me on LinkedIn, because the quality of comments and engagement is much higher than they are on Twitter. I’m not posting to Threads yet.)

Do you want to know even more about key healthcare trends? Then join me for my upcoming live video webinar, Drug Channels Outlook 2024, on December 15, 2023, from 12:00 p.m. to 1:30 p.m. ET. Click here to learn more and sign up.

Express Scripts Introduces New Option To Give Clients Maximum Simplicity in Drug Pricing, PR Newswire

Hmm. Cigna’s Express Scripts recently announced ClearNetwork, which purports to provide “cost-based pricing for prescription drugs and pharmacy services.” As usual, there‘s less than meets the eye, although this move does signal how the large PBMs are being forced to react to generic pricing dynamics.

Some journalists inaccurately claimed that Express Scripts is following the Mark Cuban Cost Plus Drug Company (MCCPDC), but that’s not accurate.

MCCPDC sells drugs through about 4,000 retail pharmacies at MCCPDC’s acquisition cost plus a flat 15% margin and a pharmacist fee. Pharmacies in the MCCPDC network can buy from the company or from another source at a different price. However, the prescription price paid by the patient is ultimately computed based on the MCCPDC cost.

Instead, Express Scripts will rely on the lowest of the following three published benchmarks, none of which reflect a pharmacy’s actual acquisition cost:
  • The National Average Drug Acquisition Cost (NADAC), which is based on a voluntary monthly mail survey of pharmacies’ invoices. However, NADAC typically exceeds a pharmacy’s actual net acquisition costs, because it excludes off-invoice discounts, rebates, and other price concessions. (See Sections 8.1. and 11.2.5. of DCI’s Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.)
It is possible that this new approach will be more profitable for network pharmacies. Pharmacies will receive a flat dispensing fee along with an unspecified portion of a fee that will be "up to 15%" of one of the above three benchmarks. What's more, prescriptions dispensed by pharmacies in the ClearNetwork will *not* be subject to maximum allowable cost (MAC) reimbursement limits.

However, there are some crucial unknowns. How much of that 15% mark up will go to the network pharmacy vs. Express Scripts? Will plan sponsors want to pay more to pharmacies? If a generic does not have a NADAC or a PAC, will Express Scripts really pay based on the WAC or the pharmacy's usual and customary (U&C)? (Both WAC and U&C far exceed pharmacy acquisition costs for generic drugs.)

Plan sponsors should also be wary of the fact that the mail and specialty pharmacies owned by Express Scripts/Cigna will participate in the Express Scripts. Consequently, Cigna could simultaneously play the roles of (1) the generic manufacturer establishing the WAC for a product (via its Cayman Islands-based Quallent Pharmaceuticals), (2) the ClearNetwork pharmacy receiving cost-based reimbursement, and (3) the PBM determining how much of the add-on fee gets shared with the pharmacy. The magic of vertical integration strikes again?

P.S. Thanks to Cigna’s communications team for answering my clarifying questions.

Mark Cuban is taking on Big Pharma, in a quest to help employers lower drug costs, Benefits Pro

While not a true cost-plus model, Express Scripts’ ClearNetwork may signal the coming collapse in PBMs’ generic prescription margins. In our crazy drug pricing system, relatively inexpensive generic drugs are sold at widely varying prices throughout the channel. That’s why patient-paid prescriptions that bypass insurance—either at cash-pay pharmacies or via discount cards—are booming. This growth is starting to expose plan sponsors to some previously-hidden sources of PBM profits, per Do Plan Sponsors Understand How Their PBMs Make Money?

So, what will it take for the dominance of the Big Three PBMs—the Caremark business of CVS Health, the Express Scripts business of Cigna, and the OptumRx business of UnitedHealth Group—to crumble? Mark Cuban nails it with this quote:
If these companies just act in their own best financial and employee interest, they can simplify this very quickly, because if the big three PBMs, which also own the insurance companies, lose five of the top 15 non-PBM Fortune 50 companies, their business practices are going to change.
Consider this Wall Street Journal profile of three self-insured employers that switched PBMs. The companies moved from CVS Health to Capital Rx, from OptumRx to Navitus Health Solutions, and from Prime Therapeutics to MedOne Pharmacy Benefit Solutions.

This is how things are supposed to work. Market forces can generate positive outcomes without the visible hand of government regulation in commercial markets.

BTW, the Benefit Pro article’s headline is highly misleading, because PBMs ≠ “Big Pharma.” Alas, journalists today often prioritize narrative over accuracy. This type of nonsense is a key reason that I write Drug Channels.

Same Drug, Two Prices: Why the Higher Price Prevails, The Wall Street Journal

Breaking news? According to this article: “[S]ome drugmakers are setting two prices for the same drug—and many health plans are choosing to cover the more expensive version.” Who would've thunk it?

Over the years, I have been closely tracking the emergence of these pricing strategies. Here are some highlights from the archives:
Why Your Neighborhood Pharmacy Isn’t So Friendly Anymore, The Wall Street Journal

The Wall Street Journal examines the many problems facing chain pharmacies of—and the pharmacists working at—CVS Pharmacy and Walgreens stores.

Retail pharmacies are experiencing a period of intense competition that has led many regional chains and smaller pharmacies to exit the industry. But there’s a crucial financial reality that the WSJ omitted: It’s very hard to make money when more than 90% of prescription activity comes from low-price generic prescriptions. For our analysis of pharmacy shakeout and consolidation trends, see Section 12.3.6. in DCI’s pharmacy/PBM report.

ICYMI, the USA Today also published a sobering story on retail pharmacy: Prescription for disaster: America's broken pharmacy system in revolt over burnout and errors.

Forecasting Patient Access & Innovation, American Society for Preventive Cardiology / Partnership To Advance Cardiovascular Health

Yo, Adrian! I recently had the pleasure of speaking at an event co-sponsored by two cardiovascular health organizations.

Since we were in my hometown of Philadelphia, heavyweight champion Rocky Balboa made a surprise appearance. As you can see below, the meeting didn’t end well for your friendly neighborhood blogger.

[Click to Enlarge]

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