IN THE NEWS
Amazon PillPack Acquisition
As a top headline in the pharmacy industry news the last several months we want to share a quick summary of their announcement. Specifically, why this likely occurred and what this means for the industry both short and long term.
On June 28, 2018, Amazon announced its acquisition of the online mail-order pharmacy PillPack. Reports of this shook the stock market as shares of major drug retailers Rite Aid, Walgreens Boots Alliance and CVS Health came tumbling down. The three companies collectively lost approximately $11 billion in market value in one day. Prescription drug spending tops $450 billion annually, with 5.8 billion prescriptions filled across 64,500 retail pharmacies nationwide.* Now it looks like Amazon’s acquisition of PillPack threatens to undermine the business model of brick-and-mortar retail pharmacies.
For Amazon, PillPack was appealing in part because it’s already licensed to sell prescriptions in 49 states. The company also offers drugs through major pharmacy benefit managers (PBMs), including CVS Caremark, Express Scripts and Optum Rx. This deal sets the stage for the internet retailer to make it more convenient to fill a prescription but not alter how purchasers pay for high-priced drugs.
PillPack, which was founded in 2013, distributes pills in easy-to-use packages designed for consumers with chronic conditions and multiple prescriptions. The company sorts prescriptions by the dose and includes a label with a picture of each pill and directions on how it should be taken. Much of the power over drug costs is in the hands of middlemen like PBMs that negotiate discounts for employers and insurers. PillPack is dependent on PBMs to get paid by patients’ insurers. Even if PBMs exclude Amazon/PillPack from their networks, members could opt to pay for their lower-cost generics out of pocket.
Analysts have speculated that Amazon could be interested in taking over the work of PBMs, but for now the company has chosen to focus on dispensing for its venture into pharmaceuticals.
*Jonathan D. Rockoff and Joseph Walker. “Amazon’s Pharmacy Deal Threatens Retail Drugstores.” The Wall Street Journal, 2018.
How Trump Plans to Reduce Prescription Drug Prices
Earlier this year the Trump administration made an announcement that could potentially disrupt the industry. The impact will likely play out over a long period of time and it may be a while before we see the effects across all the relevant players. We’ll let you know of any specific announcements made regarding this strategy.
In his State of the Union address in January 2018 and again in New Hampshire in March 2018, President Trump made a bold promise that the American people would soon see drug prices drop substantially. The Trump administration released a 44-page blueprint for executive action on drug pricing, entitled “American Patients First.” The blueprint attempts to address the problem of high prescription drug prices. Some highlights include:
- Promoting the use of biosimilars and reducing barriers to their take-up
- Preventing branded drug manufacturers from gaming FDA risk management strategies and 180-day generic launch rules to forestall generic competition
- Requiring drug rebates negotiated by PBMs to be passed directly on to the patients
- Requiring drug companies to disclose list prices for their drugs in television ads, just as they do for side effects and other drug risks
The Trump administration is asking Congress to revisit two laws that have driven up the cost of prescription drugs: The Orphan Drug Act of 1983, which allows companies with no intellectual property to charge exorbitant prices for drugs meant to treat rare diseases; and the Biologics Price, Competition, and Innovation Act of 2009, which hasn’t done enough to encourage competition for off-patent biotech drugs.
One of the cornerstones of the Trump administration’s approach to lowering drug prices in the US is encouraging greater use of biosimilars. We’re waiting for details from the FDA’s expected Biosimilar Action Plan, which has a clearly stated goal of facilitating the development and approval of biosimilars. We believe the FDA will also lay out a path towards interchangeability for biosimilars, and we expect an initial interchangeable biosimilar to enter the US market in 2019 or 2020.
Recently the FDA approved the first biosimilar for Neulasta called Fulphila (PEGFILGRASTIM-JMDB). Neulasta is used to help patients with low white blood cell counts. The manufacturer (Mylan) showed no clinically meaningful differences to Neulasta in terms of safety, purity or potency.
Biosimilars must meet additional requirements to be “interchangeable”* which means substituting the reference product without the prescriber. This would be very similar to how we think about traditional generic drugs. The pharmacist can substitute the generic automatically without contacting the prescriber. For many reasons, no interchangeable biosimilars currently exist, but they will be important in the future.
Another key factor of biosimilars hitting the market is litigation by the reference product’s manufacturer, sometimes called the “patent dance.” This can prevent or delay a biosimilar’s launch for years. Even after launch, successful biosimilars have had very limited competition (unlike a traditional generic, which often has many manufacturers at once) so the price has not decreased as much as expected. Over time, as more manufacturers of biosimilars for the same reference drug are launced and achieve “interchangeability,” the competition should drive down the price of these expensive medications. However, this has not been seen in the short term.
*U.S Food and Drug Administration. “Biosimilar and Interchangeable Products.” U.S. Food & Drug Administration, 2017.
Recent FDA Approvals
- Retacrit (epoetin alfa-epbx) — New biosimilar approval. Used to treat low red blood cell count (anemia).
- Aimovig (erenumab-aooe) — New drug approval for preventive treatment of migraine in adults.
- Onpattro (patisiran) — New drug approval. The first agent to treat adults with polyneuropathy of hereditary transthyretin-mediated amyloidosis (hATTR; formerly known as familial amyloid polyneuropathy), a rare, and often fatal, genetic disorder.
- Orilissa (elagolix) — New drug approval used for management of moderate to severe pain associated with endometriosis.
A very common blood pressure medication called valsartan (generic for Diovan) was recalled just a few months ago. This is one of the most impactful recalls this year due to its large utilization. The entire recall process takes months to fully settle due to pharmacies pulling affected products off the shelves, manufacturers making up for short term drug shortages, and patients who were affected determining an action plan with their healthcare team.
On July 13, 2018, the FDA announced a voluntary recall of several medications containing the ingredient valsartan,* a common high blood pressure and heart failure medication from particular manufacturers. It was discovered to contain an impurity, N-nitrosodimethylamine (NDMA), which is a substance that could potentially cause cancer. The FDA recommends that patients should continue taking the recalled product until they have a replacement. The dispensing pharmacy should be able to assist in deciding if a patient received the recalled product. Our PBM partners are reaching out to both providers and members directly. They’re also posting notifications on the member and provider portals to notify them of this recall. Impacted members should talk to their pharmacy or physician about obtaining replacement product or possible alternatives.
*U.S Food and Drug Administration. “FDA announces voluntary recall of several medicines containing valsartan following detection of an impurity.” U.S. Food & Drug Administration, 2018.
Quick Tips When Traveling Abroad
Traveler’s diarrhea affects up to 70 percent of travelers — especially in developing areas within Africa, Asia, Mexico and South America.
Here are a few tips to stay healthy while traveling abroad:
- Avoid raw foods and tap water or ice. Brush your teeth with bottled water.
- Stay hydrated and use loperamide to treat mild diarrhea. Antibiotics such as ciprofloxacin or azithromycin may be necessary for more severe diarrhea.
- Vaccines for hepatitis A and B, typhoid fever and other illnesses are often recommended. Some vaccines, such as for yellow fever, may be required.
PHARMACY BENEFIT TIPS
Challenges with PBM Contracting: Four Keys to Choose the Best PBM
Cover the last several years, the phenomenal cost increases in prescription costs for both plan sponsors and plan members have been well documented. Our plan sponsors are not only challenged by these rising costs, they’re also looking for solutions. The quickest way to make a difference is by putting in place the right contracts with the right partner.
The following are some things to look for when evaluating your PBM partner.
Transparent vs. Traditional Contracts
The first thing to do when choosing a PBM is to understand the structure of your contract. You have two options: traditional or transparent contracts.
Traditional contracts are standard industry contracts in which PBMs make money through spread — the delta in money collected from their customers versus what they owe back to the pharmacies in their network for the prescriptions dispensed.
Under a transparent or pass-through PBM arrangement, the plan sponsor pays exactly what the PBM paid to the retail pharmacy network. The PBM will make money through an administrative fee.
PBMs have varying degrees of buying power based on the structure of their negotiations with the retail pharmacies. Often, transparent contracts or transparent PBMs have significantly less buying power, so their overall costs of purchasing the same medications are greater than in a traditional contract.
Devils in the Definitions
PBM contracts are known to be the most difficult and complicated contracts to both negotiate and understand for payors within the health care industry. The reason is that PBMs are lightly regulated and keep their profit centers hidden from public scrutiny. Common questions asked are:
- What actually constitutes a brand drug?
- What’s a specialty medication?
- What’s this “proprietary algorithm”?
If you employ a PBM, make sure you also have a legal team built to restructure these definitions to their benefit. Requesting standard definitions and building your cost models based on the definitions in the contract is extremely important.
Don’t “Chase Rebates,” But Don’t Give Them Away
The PBM industry has said for years not to chase rebates, but much has changed. Generic utilization has been maximized by many employers, with fewer common drugs coming off patent every year. Specialty medications are becoming more prevalent with much higher rebates.
Five years ago, the industry commonly quoted rebates to represent 4 percent of total drug costs. Today, some of our plans are showing almost 40 percent of their prescription cost being offset by the rebates they’re receiving.
Plans are saving 10 to 30 percent of their plan costs by selecting the right rebate contract for them.
Access to Information
What does “real-time benefits” mean to a payor? Payors have a duty to access information about their pharmacy benefit programs immediately to design profitable programs, predict outcomes and manage interactions with their members.
Making accurate decisions can only be correctly analyzed with access to the right information. If your providers aren’t allowing you access to the information you need today, they’re hiding their own profit centers at your detriment.
Having access to information in real time allows for more convenient and cost-effective decisions for both plan member and sponsor.
Keys to a Successful PBM Implementation
Pharmacy benefit programs remain among the most rapidly changing and highly scrutinized segments within the health care industry. Is it time for an overhaul? Should you conduct an RFP? Carving in or carving out? VPS believes carving out is the only way to control costs, while increasing flexibility and member/plan satisfaction.
Milliman’s recent white paper* not only gives extensive information on how to mitigate disruption during a new plan implementation but points out how the advantages of a new PBM can be reduced or even lost if care is not taken to make sure the new terms are effective and the transition is smooth.
VPS will establish a roadmap for you and help you through every step.
*Brian N. Anderson and Angela Reed. “Mitigating disruption and reducing plan costs: Keys to a successful PBM implementation.” Milliman, 2017.