It’s no secret that medical drug prices have been out of control for most Americans.
However, one hospital group has a novel idea to control drug spending.
Blue Shield of California is bypassing PBMs by negotiating directly with the manufacturer of a biosimilar for Humira.
Is this a one-off experiment or the start of a bigger trend that can drive industry-wide impact?
In this episode of CareTalk, David E. Williams and John Driscoll discuss these price negotiation tactics and what they see as the long-term results of Blue Shield of California’s attempt to lower pharmaceutical prices.
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Episode Transcript:
David Williams: Blue Shield of California is trying a novel approach to control drug spending. It's bypassing PBMs by negotiating directly with the manufacturer of a biosimilar for Humira, a blockbuster drug that costs the insurer at least 100 million per year. Will this be a breakthrough for containing drug prices, or is it really just a gimmick?
What are the implications for other drugs? And for the PBMs that distribute them.
Welcome to Care Talk, America's home for incisive debate about healthcare business and policy. I'm David Williams, president of Health Business Group. And I'm John Driscoll, senior advisor at Walgreens. Well, you know, October is known for costumes and masks, but for some of us, it feels like we're wearing a mask every day, at work, in social situations.
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John Driscoll: David, it is the season of Halloween, so Most people, most, a lot of health plans think that they, their deals with PBMs are kind of trick or treat.
Yes, I get some sort of a deal somewhere, but I'm not quite sure whether I'm getting tricked or whether it's a treat. And I think this Blue Shield sort of throwing up their hands and negotiating directly with, you know, for biosimilars, for with Mark Cuban saying the heck with PBMs, this is, is sort of an interesting sign, if not of lowering drug prices, because it's unclear that The whole kit and caboodle is going to be saving a ton of money But it is sort of a signature moment for a health plan to throw out a PBM And in fact say no i'm gonna i'm gonna do without them
David Williams: Well, you know Humira is a big cost item exactly hard to say exactly how big it is But it's a a major
John Driscoll: Big big big. It's big big big
David Williams: It's a major anti-inflammatory drug used for autoimmune conditions. It's a, it's a biotech drug. So for a long time, they haven't faced any competition. Now there's a number of biosimilars that are on the market and these are not directly substitutable, but you know, pretty close match for Humira.
So most patients can, can take it fine. And it gives a new opportunity to do something a little bit different. And it looks like what Blue Shield was doing was, was negotiating, as you're saying, directly with the manufacturer of a biosimilar and they're trying to offer that. Now, I don't know whether you think this, John, this is just kind of a one off, you, you know, you mentioned taking PBMs.
Is this just like a demonstration project or is it the start of something new, you know, for Blue Shield that's significant for them?
John Driscoll: Well, I think it's two things. One is I think the CEO of Blue Shield, Paul Markovich, is very creative and entrepreneurial. But in, you know, my conversations with him, I think the reason we're, the reason he got here building, it builds, is a reflection of the frustration.
That most CEOs of companies health insurers who don't have PBMs feel and that employers feel that the, the PBM industry is really a, the lack of transparency means they don't know whether they're actually getting a fair deal or a raw deal. And so he decided to, he charged his team to actually go out and, and, and try to have a workaround.
To negotiate directly, not just by the way on Humira, which is a monstrously serious anti-inflammatory drug, which is to say it's very expensive, it's very common, and it is one of those occasions when you've got a biological drug for which there is a stable supply chain to create a biosimilar just to remind folks, you know, there are there are 2 classes of drugs or types of drugs that people typically take stable chemical compounds like pills and capsules.
The prices for those have dropped pretty dramatically as patents have expired and generics have taken over, though there's still some branded drugs in that category. The real burden of increase in inflationary costs or much of the burden is not just in those pills and capsules, but also in the biologics, the drugs that, you know, typically are, are transfused.
The biologics are, are, are novel. They're incredibly effective and they've been protected by patents. So what a biosimilar is, is a, is a, is a biological equivalent that creates competition in the category. So this, this I think is a big shot across the bow. Not, not necessarily for pharma, but certainly for PBMs that health plans can just.
Avoid the middleman and negotiate directly for a you know, pretty a pretty large drug pretty large meaning expensive and common drug
David Williams: So John a lot of this, you know Kind of back and forth between the PBMs and the health plans isn't well understood even within the industry and maybe even by The health plans that are doing the negotiation.
There's you know, there's different rebates, formularies, different things that make it much more, more difficult to understand. But at the end of the day, is this just kind of inside baseball or will it make a difference for the patient? I mean, if, if Blue Shield negotiates differently, does that matter?
John Driscoll: Oh, oh no. I mean, I, I just to, just to remind people, Blue Shield of California is a, not-for-profit. I mean, they're very mission-oriented. They are very focused on getting a better deal. For the consumers and. You know, that, that means that the CEO, Paul Markovich, and that management team is working very hard to, to try to, to lower the rate of inflation and the total cost of, of, of insurance and increasingly drugs are a much higher percentage of the total cost of health care.
And that's a driving up costs. I mean, I mean, I don't know whether it still is, but it was the, it was the, the, the biggest drug in the world a few years ago. So, and there is a, there is a biosimilar, there are other ways to build these biosimilars. In fact, CVS has their own biosimilar. Manufacturing entity that's part of Caremark, but it's I thought it was pretty meaningful that the shield as it's often known throughout Caremark and it's biosimilar and just decided to go direct.
I know. I think I think this is a pretty significant move. Having said that. Not a lot of other health plans followed behind him. So it'll be this is really your test case.
David Williams: Now, one of the things they are saying for the patient is that they will make it you know, zero out of pocket for a member that's that's using this.
Now, maybe they do that for biosimilars in general. I don't know if it's really a big part of the portfolio and Blue Shield is saying. That through this plan, they may save up to 500 million so that that can't all be on Chimera since they only spend 100 million on that. But if that happens, I mean, do you, does it actually, is it significant enough that it translates potentially into lower premiums and actually changes the equation a little bit here overall?
John Driscoll: I think that's exactly what Blue Shield is looking to do, is to reduce at least the rate of inflation for healthcare premiums. And certainly the rate of inflation for drugs. I mean, at the end of the day, Blue Shield, like most consumers, is sort of baffled by why we put, we spend more and more money on drugs every year and particularly in, on drugs where, There is some competition where there's biosimilars, but I think that, that, that the reason why Blue Shield is trying to basically blow up the middle, the, the, the market for middlemen or pharmacy benefit managers is because they just did not feel they were getting a clear and fair deal.
This is a complicated supply chain problem they're trying to solve. It's not just about, you know the drug, it's, it's really an approach by Blue Shield to establish. Because I think they're going to still leverage care marks, retail networks, they're going to encourage and, and provide access to Mark Cuban's cost plus pharmacy, and they're going to negotiate directly for Humira.
So this is a, this is going to be a complex patchwork, but the goal. Is to lower the rate of increase and at least get to a point where they can understand what the patient should pay, whether they actually achieve that half-a-billion-dollar target. Just to be clear, they announced that they could save half a billion dollars, but that's over many multiple years and without much detail.
It's really unclear whether that was. A real number or sort of an optimistic projection. Yeah. But I believe that they wouldn't have done this deal if they didn't think that next year, Blue Shields consumers aren't going to be paying less for drugs than they would have otherwise through a Caremark or another PBM.
David Williams: Let's talk a little bit about what the PBMs are doing. Cause certainly this isn't the first time actually the PBMs have been bashed or, you know, people said they're going to have a transparent PBM or whatever, or even the government's. way or another. And to thrive and do well with models, either as independent or more recently as part of You mentioned that care m to make into market biosimilars.
I mean, what, how does that fit into the equation?
John Driscoll: It works very well for Caremark and CVS because they can effectively shift a lot of their covered members to their own biosimilar and very quickly capture the margin that otherwise the manufacturer would make. It really begs the question as to whether these vertically integrated enterprises, vertically meaning you, you're, you've got Aetna insurance.
You are working with Caremark, who Aetna owns their pharmacy benefit manager, and you're often going to CVS, which is also owned by the corporate entities stores, whether they actually, they're supposed to get that vertical integration is supposed to make sure that the consumer gets a lower cost deal.
It's unclear whether that's true, and they've certainly had a lot of interest. And there's a, more recently, there's a federal trade commission in inquiry into PBM pharmacy benefit managers, trade practices. And it was so popular with the PBMs that Cigna just sued them to because they, they, they feel like they've been defamed.
David Williams: Yeah. I'm not talking nicely about me. It's like Sarah Palin or something coming after the New York Times. I, I,
John Driscoll: I guess the question Dave is, you know, you're, you're in the market with looking, talking to people in in the healthcare world. Do you, what do you think of the PBM, how PBM brand is doing in these days?
David Williams: Well, now that there are, you know, parts of other companies, they get, I think a little bit less attention from the average you know, consumer. And I think people are just confused about what they're paying for drugs and they just know that it's expensive and they know that they have Medicare, maybe the donut hole is closed.
I don't think there's that much understanding of it. I think one place to look at is actually in the investor community. You were referring before to you know, CVS, which has a care mark as the PBM, they've got, and then they've got the drug stores and so on. And there's some interest, not just from the regulators, but even from the investor to say, does this actually make sense and should there, should there be a sort of a breakup you know, of that entity now that may not be so easy to do, and it may not actually Produce that much, but there's at least this concern that something that may look good on paper that it's a one-stop shop may not actually, you know, completely add up.
I mean, it's great that the price of Humira is going to drop in a way, but I see that one of the things that, you know, Caremark is doing, and maybe others, is they're actually taking Humira off of the most formularies. So if I've been using it, you say, you know,
John Driscoll: just, just to be clear that they would be taking the branded version of Humira off the, off of there.
And they would, they would require you to use their generic, probably pretty high-margin alternative.
David Williams: Again, I mean, it's not, I don't know for sure if people are going to have it, you know, but if someone is, if someone has, by definition if you're, if you're taking the drug, and I'm not going to pronounce it since I see we're saying it differently, but if you're going to take this drug, that's expensive, and it's going to be for something that's fairly profound in your life, and the idea that you're being switched to something else, Because that's better for something that Blue Shield is doing, or PBM didn't want to do something, or they're going to make money by selling it themselves.
I think that by itself is, is not a positive. Yeah, the drug may be the same, but it, you know, it's not going to be exactly the same. It's not exactly the same as doing a traditional pill generic.
John Driscoll: Just like I agree with you that they being forced to get on someone's formulary may be a challenge, but let's just put this in context.
Abbavie, the pharmacy manufacturer of Humira, which is again created, it was so effective, it was the largest drug by dollar volume in the world. But the reason it got there is they raised the price. More than 30 times over 20 years. And you'll notice over 20 years because it extended the patent life through a wall of phony litigation and intellectual property, balderdash.
Do you know how to spell that Dave? You know what that means? That one is that balderdash is actually phonetic. And so only in the last couple of years has the FDA figured out a way to allow biosimilars to, to, to come to earth, but this is an exceedingly overcharged, expensive drug. Abovee started, went from charging 50, 000 a year for this drug to 80, 000 a year.
So it was an urgent need to bring biosimilars to bear. CVS Caremark and others came in. So I do think that the alternative competitors are actually playing a positive role. They brought down, I think the, the, the, the, the, the, the, the, the in the year after the biosimilars came into the market, but. I think that humerus revenues dropped by about 40%, but they've been overcharging patients and kind of gaming the system for years.
And so it's a, it's a funny balance. You've got the pharma manufacturers jacking up the price for vulnerable patients. You know, I think there's an estimates that, you know, that, that, that I don't know whether it's up to 100 billion, but certainly 20 or 30 billion Medicare may have paid more because there was no competition of biosimilars.
The biosimilar manufacturers get in here and it may just be the perspective of SHIELD that Caremark might be charging a little bit too much too, but as a force for good, the biosimilars are sort of necessary.
David Williams: Yeah. I mean, there is an alternative, which is rather than switching people from one drug to another you could actually just regulate negotiate or regulate the price of Humira and and, and not have to have that disruption.
And I've actually proposed that instead of having biosimilars.
John Driscoll: I think that that's. David, that, that's the kind of thing that gets people outside of the People's Republic of Massachusetts accused of being socialists. I know. Note that every other country in the world negotiates drug pricing of the industrialized world, and all of them have lower prices for these drugs.
David Williams: Yeah. Yeah. All right. Well, they do. So in any case let's talk a little bit about what others are doing besides this direct negotiation and the Mark Cuban drug Mark Cuban cost plus pharmacy is a great, not just example, but they're really kind of leading the way now they have traditionally been working with products that are available on a generic basis and not dealing with biologics, but they're moving into that area too.
And it, and it sounds like that they, they have a biosim or another one for. Kimura for 584 versus the 525 that Blue Shield of California says they're getting. So maybe this kind of direct negotiation isn't necessary. And Mark Cuban, who's probably got more purchasing power overall than Blue Shield. You and me, for sure.
Well, yeah, is going to be able to, I mean, he's a maverick, right? But you know, he has, he, he may be able to drive things.
John Driscoll: I'm not sure that I, I think that that may be true over time, and I'm a huge admirer of what he's trying to do because it's trying to create a little bit more of a rational market because he's still making money in his, in his drug, in his drug money.
But I think that the volume of blue shield, blue shield is still the dominant player in California, 1 of the largest states. In the country. So I, I don't know that his purchasing power is up there yet, but it is, it honestly, it impressed me that it was within 20 percent of the price that the shield could negotiate itself.
I think the most interesting thing here, there are 3 themes here that I think are interesting. Dave one is that this is this is the first time i've seen an insurer really blow up and say we're not going to play the PBM game anymore. Yeah, that's going to be a lot more complicated. I think than they realize there's a complex administration of network distribution negotiation that the PBMs actually do pretty well.
That if Blue Shield can figure out how to put together this pickup game, pickup team of their own independent negotiations with biosimilars cost plus somebody else's network, that's going to be really, I think, an important, important. important point. The second is this notion that that a biosimilars, even though you're skeptical of them, I think that they're actually the FDA took its time to approve them.
They've been approved and in the market much for a much longer period of time, very effectively in the European community. If people start negotiating directly, I think that's going to be another thorn in the side of Big Pharma and sort of force them to really rethink of their overcharge now to, to, to try to survive later strategy in terms of drug pricing.
And the 3rd thing is, I think that the long-term cost. Of sort of not a lack of public justification for the PBMs. All of this, I think, spells bad news for at least the PBM brand. What do you think of those of those three components?
David Williams: Well, I was going to say, John, well put, you know, I think that's that's right.
It's not so easy to make a shift. It reminds me a little bit of Comcast, you know, my cable supplier, and they were charging me for Yeah. A modem, monthly rental. And so I get my own modem. And so I got my own modem, which is a better modem and less expensive. And now instead of charging me for a modem, there's, they have another fee for those that aren't renting a modem pay a fee for that.
So it's kind of like that is how I look at the monopolies are bad things. It's a PBM may, yeah, may do that. There may be some other upcharges for a network access or something like that, that that may come in there. So I think their PBMs are not dead yet. But it's good to have some sort of forces, John, that if not to bring the prices down at least to put some sort of a lid on inflation so we don't have to just keep throwing our hands in the air and saying, like, what could we possibly do about it?
And I do think the drugs is a good way to start. And these very expensive ones where there's biosimilars available makes a lot more sense than just sort of jawboning which is Yeah, and
John Driscoll: I just wanted to correct one of the things I said earlier. I think it's Do you think that the Medicare estimate they overpaid during the period that Humira would have lost patent protection?
I think it's close to 2 billion, not 20 billion, but the drug was enormously expensive to consumers. But I, I, I think this, this, this, the role of PBMs is something we're going to have to keep watching. It's evolving.
David Williams: Let's, let's do it, John. So that's it for yet another episode of CareTalk.
We've been talking about drug price negotiations with one very big example from a very big state. I'm David Williams, President of Health Business Group.
John Driscoll: And I'm John Driscoll, Senior Advisor at Walgreens. If you liked what you heard or you didn't, please subscribe on your favorite service.
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CareTalk is the only healthcare podcast that tells it like it is. Join hosts John Driscoll (Senior Advisor, Walgreens Health) and David Williams (President, Health Business Group) as they provide an incisive, no B.S. view of the US healthcare industry.
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