Reducing prescription drug costs continues to be a principal objective and elusive goal of most prescription drug benefit plan sponsors and payers. Elusive because it’s almost impossible to know what drugs actually cost. As the old adage goes, “you can’t manage what you can’t measure.” Wholesale-WilkinsonBenefitConsultants All that most plan sponsors see when it comes to drug pricing are invoices from their PBMs for drugs that are going up exponentially and evaluating PBMs are more difficult than ever!

The publicity this week regarding the market conduct of Turing Pharmaceuticals and their CEO Martin Shkreli didn’t help ease anyone’s frustration. Shkreli is tarred & feathered with the guilt of buying the rights to a decades-old drug called Daraprim, used to treat AIDS and cancer patients, and then, overnight, jacking the price up from $13.50 a pill to $750 (in NYC, the price was actually $900 per pill!)

Generic drugs, long-thought to be an oasis of relief for drug cost reduction, have also seen extraordinary price inflation over the last 3 years. While most prescription drug plans have enjoyed high generic substitution rates, the underlying price escalation erodes some of the cost savings that had been whittled out of their drug spend over the last decade. A tube of generic allergy cream that used to cost $5 is now $205;  fentanyl citrate, the generic version of Actiq and used for pain management, was priced at  $0.50 cents per dose. Now, it’s at $37.50 per dose. Over the last 3 years, the cost of the generic blood pressure medication captopril  has jumped more than 2,700 percent, and albuterol sulfate, used to treat asthma, has gone up more than 3,400 percent.

The questions remain: why and what can a plan sponsor do about it?

The “why” question is answered more easily. Increased demand and supply shortages, as a result of market consolidation between generic manufacturers, and withdrawal from production due to increased FDA quality concerns are the underlying causes. Profit-taking through price-gouging can be the result whenever a limited number of suppliers are available. Congress responds when they see an easy target that will garner popular support.  Enter Senator Bernie Sanders (D-VT) and Representative Elijah Cummings (D-MD) who have introduced a bill to limit generic drug price increases. PHARMA lobbyists will be putting in overtime on this one!

Plan sponsors are left somewhat out in the cold. They are often times at the mercy of out-of-their control market forces and less-than-transparent pricing arrangements with their PBM, particularly when addressing the maximum allowable cost (“MAC”) list utilized by PBMs to manage generic drug costs and AWP pricing benchmarks.

At Wilkinson Benefit Consultants (“WBC”), we make sure our clients have the most complete and unbiased access to pricing information necessary to monitor and evaluate the performance of their pharmacy benefit manager. This includes a thorough review of financial pricing models (traditional and pass-through). While many sponsors prefer pass-through, they need to be aware that they can be penalized when pricing escalates and huge pricing swings occur. They also need to be aware of what wholesale pricing, acquisition cost and cost-plus pricing really means and how it may impact their overall drug spend. We apply a proprietary pricing model that shows our clients what generics should actually cost, how to evaluate the effectiveness of a PBM’s MAC list, and how to structure a contract with upside protection against unusual pricing spikes. Additionally, our software enables a client to monitor and evaluate their PBMs performance in near real-time, so that unusual pricing changes, non-adherence to contract terms, fraud, waste or abuse can be identified and corrected, without the need to wait  15-18 months for a plan audit.

Stay tuned. The prescription drug pricing wars are in full swing with much more to come!