A new Biden administration rule is making life-saving medicines for kids unaffordable. Incredibly, under the Inflation Reduction Act, companies that introduce lower-cost generic versions of their medicines are less likely to be covered. That’s what happened when Glaxo Smith Kline replaced Flovent's branded asthma medication with a cheaper "authorized generic." Health insurers promptly stopped paying for Flovent in favor of similar medicines with higher list prices.
You might wonder how that is possible. The short answer is health plans – and the federal government – make more money from higher-priced drugs. Pharmacy benefit managers, companies that negotiate with pharmaceutical companies on behalf of insurers, have one overarching goal: Generate as much revenue as they can in the form of cash rebates off of the list price of medicines. Therapies that pony up the biggest rebates are more likely to be covered by the PBM.
Under the IRA, starting in January 2024, pharmaceutical companies are obligated to refund money to the Medicaid program if the price of their medications rises faster than inflation. These rebates might exceed the actual cost of the drug.
Proponents of this provision argued that regardless of whether companies paid more rebates or went generic, consumers would benefit. In fact, the IRA does not direct that any savings Uncle Sam’s strong-arm negotiations might deliver be used to lower out-of-pocket costs for seniors. You can, as Casey Stengel used to say, look it up. Rebates under the IRA go to fund tax credits for electric vehicles and other climate change-related policies.
If a company does comply with the rebate rules, it generates billions of dollars for the government, but little of that money will reduce the out-of-pocket cost of medicines.
This fact has now been reinforced by a recent Government Accounting Office (GAO) report. It turns out Medicare beneficiaries paid four times more for Medicare Part D drugs prescription drugs than insurers and PBMs did in 2021.
According to the report, of 79 of the 100 Part D drugs with the most rebates, Medicare beneficiaries paid $21 billion for prescription drugs in 2021, while insurance companies and Pharmacy Benefit Managers (PBMs) only paid about $5.3 billion. Per the GAO report, insurance companies and PBMs received $48.6 billion in rebates from manufacturers in 2021.
If a medicine is not covered by a plan, patients must pay for all or up to 50 percent of the price. That’s what happened to Flovent. Once it went generic, it simply became less profitable for the PBMs and they have stopped covering it across the board.
This is not the first time a lifesaving therapy for kids was used by PBMs to send a message to drug companies. In 2017, Mylan Pharmaceuticals, the maker of the EpiPen, “controlled about 95% of the epinephrine auto-injector market. But that figure dwindled to just over 71% as more doctors opted for rival products, according to a new report from Athenahealth.”
EpiPens are considered essential tools for individuals who have known severe allergies and are at risk of experiencing anaphylaxis. They must always be carried by those at risk of suffocating or choking to death.
While there are other brands and generic versions of epinephrine auto-injectors available to treat anaphylaxis. They are often not covered because they don’t generate enough rebates. In many cases, companies will reduce the out-of-pocket cost of a drug that isn't covered by a PBM to a few dollars a month through coupons.
Cash-paying customers don’t generate rebate revenue. So as Mylan’s market share dropped from monopolistic to dominant, PBMs re-established a monopoly for EpiPens on their formularies, excluding all other competitors from their national drug lists.
And that kind of monopoly is a stable revenue source for PBMs.
In November 2015, Sanofi pulled its epinephrine injector — the main competitor for EpiPen- -from the market. Thereafter CVS and Express Scripts removed another competitor, Andrena-click, from its formularies. Andrena -click retailed at $141, while EpiPen retailed at around $600.
The PBMs helped sustain the EpiPen monopoly because they could generate more rebate dollars. But later in the year, PBMs demanded higher rebates for the privilege of being the only drug that it covered. They were getting about $400 rebates per EpiPen pack.
Mylan balked. So, CVS and Express Scripts moved EpiPen from the lowest cost-sharing tier to the highest cost-sharing right before schools opened that fall, causing patients and parents to panic.
The same scenario is playing out with the generic form of Flovent. The rebate cash goes to the bottom line and not to the patient who needs and is purchasing the medicine. For parents seeking to keep their kids healthy and out of danger, a lower-cost version of a drug they depend on makes sense. But PBMs have never let the health of patients get in the way of a kickback. And now that the government is in on the scam don’t bet on competition reducing the cost of care or improving the well-being of children.