(Bloomberg) — Gilead Sciences Inc.’s hepatitis C cure set off a firestorm of criticism over high drug prices in 2014 that hasn’t let up since. Now an executive says the company can’t cut the product’s price because middlemen who manage drug benefits would refuse to cover it.
“If we just lowered the cost of Sovaldi from $85,000 to $50,000, every payer would rip up our contract,” said Jim Meyers, executive vice president of worldwide commercial operations, in an interview with Bloomberg News.
Pharmacy benefit managers such as Express Scripts Holding Co. and CVS Health Corp. negotiate drug reimbursement, often in secrecy, for employers and health plans. While PBMs say they deliver lower prices for customers and patients, drugmakers have begun aggressively implicating the middlemen in high medication costs that have become a frequent target of Washington lawmakers and President Donald Trump.
One of the functions of PBMs is to help insurers decide which drugs to cover for their customers, and how much to reimburse manufacturers. Manufacturers use rebates to ensure they get on PBMs’ lists of covered drugs, called formularies, and the middlemen often take a cut of those rebates, often about 10 percent, for themselves before passing the rest of the savings to the insurers. Now, pharmaceutical companies are charging that PBMs prefer higher list prices, because the middlemen want to sustain their own revenues.
“I have never met, in this entire experience, a PBM or a payer outside of the Medicaid segment that preferred a price of $50,000 over $75,000 and a rebate back to them,” Meyers said in the interview.
Express Scripts spokesman Brian Henry said PBMs are needed “because employers and health plans want to have some way to push back against drugmakers who continually raise their prices.”
Drugmakers sponsored a study released in January finding manufacturers of branded drugs are getting a declining share of total U.S. spending on their products, in part because of an increase in secret rebates paid to middlemen including PBMs.
Gilead’s Sovaldi shocked the health care system after it was approved in December 2013. Priced at $84,000 for a three-month regimen, or $1,000 a pill, it was slammed by payers, politicians and the public. At the time, the Foster City, California-based company hunkered down and tried to deflect the scrutiny.
Now it’s time for the PBMs to get their turn in the spotlight, Meyers said.
“We have a system that’s incentivized upon rebate revenue,” he said, adding that Merck & Co.’s experience with its Zepatier, a rival drug to Sovaldi and Gilead’s successor drug Harvoni, that entered the market in 2016 at a lower list price, highlights the PBMs’ economic incentives.
“You would have predicted there would be tremendous uptake, but their share has been capped” because PBMs were not satisfied with the amount of rebate they received, he said.
What raises prices?
Robert McMahon, Merck’s president of the U.S. market, said the list price of Zepatier “affords Merck the opportunity to compete across all patient segments and potentially broadens access for underserved patient populations” and that the company was pleased with the drug’s progress.
Hepatitis C drug prices came down because of Express Scripts’ efforts, Henry said. Gilead offered minimal rebates on Sovaldi when it first came out and had little competition, he said. Its discounts only increased markedly after Express Scripts refused to cover its Harvoni drug at one point in favor of a competitor. Merck’s lower traction was more likely because it was the third to market, Henry said.
“Rebates don’t raise drug prices, drugmakers raise drug prices,” he said in an email. CVS spokeswoman Christine Cramer echoed his statement, saying, “Pharmaceutical companies alone are responsible for the high prices they set in the marketplace, which have increased many multiples above inflation in recent years.”
—With assistance from Jared S. Hopkins.
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