According to Peter Pitts, former associate FDA Commissioner and president and co-founder of the Center for Medicine in the Public Interest, with politicians and the media focusing on the predatory practices of Martin Shkreli for the past 18 months, the true problem has been masked. “If a drug is raised 40 percent in price over the next three years, that is true, but it’s not the whole picture, because there are significant variables that come into play,” Pitts says.
Renick and Pitts both point to the complexity of the supply chain and the role PBMs have played in shaping drug pricing practices.
“The supply chain has become way too complex in the past 10 to 15 years,” Renick says. “We end up with a net negative value because of the participation of so many parties, ranging from wholesalers to PBMs to even pharmacies in that mix. I think everyone is in favor of much more transparency with respect to the supply chain. I think it’s very telling when the CFOs of wholesalers come out in quarterly earnings reports and declare that they’re going to have depressed earnings as a result of a less price increase. So you’ve got a significant player who is saying very publicly that they depend on drugs going up in price in order for their business model to be viable. That shouldn’t be the case. Then the public feels that there’s a coordinated effort to have price increases because it satisfies a lot of participants in the supply chain.”
Pitts asserts no one really pays the list price for any medication. “Before a tablet or a vial of a medicine leaves the manufacturing plant, it goes to a PBM or tertiary wholesaler and it’s already been cut 40 or 50 percent because of negotiations,” he told Med Ad News. “There are always going to be anecdotal examples. But basically for all intents and purposes, no patient pays the list price. Most people either pay their co-pay or they patient assistance. When people say ‘My drugs are too expensive,’ what they generally mean is, ‘My co-pay is too expensive.’ And that is a legitimate concern. And any type of assessment has to take into consideration is that this is a whole ecosystem. If you’re only talking about the price of the medicine that’s listed by the company in its press release, it’s true but meaningless. Nobody pays it.”
PBMs “are a big problem because they do not have fiduciary responsibility to their clients,” Pitts says. “When you don’t have fiduciary responsibility, and these are public companies, and the No. 1 job of any CEO at a public company is to increase their stock value. So why would you pass savings along to the consumer when you can pocket them and raise your stock price? You have the dichotomy of what is best for my stock price and what is best for healthcare in America. And those two things are right now in direct conflict with each other.”
Some of the more hotly criticized price increases have been those for insulin, and manufacturers blame PBMs. “Lilly was talking a few years ago about the price increases for their insulin, and this again came up during Alex Azar’s confirmation hearing [for HHS Secretary] too,” Pitts says. “The reason why Lilly raised its price was because they were forced to give steeper discounts to the PBMs. So Lilly raises the price and actually makes less money on the product.”
The solution, at least initially, is far greater transparency in how the pricing system works, Pitts told Med Ad News. “Now the problem with that is companies complain about PBMs, PBMs complain about pharmaceutical companies, but they are locked in this death grip and they can’t exist without each other. Pharmaceutical companies will call me and complain about that they’re losing money, but when a reporter calls me and says can you give the name of someone at a pharmaceutical company to talk with, no one is going to talk. It’s pricing omerta. If you break the silence, you’re going to wind up worse than Jimmy Hoffa underneath Giants Stadium.”
Renick and Pitts both point to the complexity of the supply chain and the role PBMs have played in shaping drug pricing practices.
“The supply chain has become way too complex in the past 10 to 15 years,” Renick says. “We end up with a net negative value because of the participation of so many parties, ranging from wholesalers to PBMs to even pharmacies in that mix. I think everyone is in favor of much more transparency with respect to the supply chain. I think it’s very telling when the CFOs of wholesalers come out in quarterly earnings reports and declare that they’re going to have depressed earnings as a result of a less price increase. So you’ve got a significant player who is saying very publicly that they depend on drugs going up in price in order for their business model to be viable. That shouldn’t be the case. Then the public feels that there’s a coordinated effort to have price increases because it satisfies a lot of participants in the supply chain.”
Pitts asserts no one really pays the list price for any medication. “Before a tablet or a vial of a medicine leaves the manufacturing plant, it goes to a PBM or tertiary wholesaler and it’s already been cut 40 or 50 percent because of negotiations,” he told Med Ad News. “There are always going to be anecdotal examples. But basically for all intents and purposes, no patient pays the list price. Most people either pay their co-pay or they patient assistance. When people say ‘My drugs are too expensive,’ what they generally mean is, ‘My co-pay is too expensive.’ And that is a legitimate concern. And any type of assessment has to take into consideration is that this is a whole ecosystem. If you’re only talking about the price of the medicine that’s listed by the company in its press release, it’s true but meaningless. Nobody pays it.”
PBMs “are a big problem because they do not have fiduciary responsibility to their clients,” Pitts says. “When you don’t have fiduciary responsibility, and these are public companies, and the No. 1 job of any CEO at a public company is to increase their stock value. So why would you pass savings along to the consumer when you can pocket them and raise your stock price? You have the dichotomy of what is best for my stock price and what is best for healthcare in America. And those two things are right now in direct conflict with each other.”
Some of the more hotly criticized price increases have been those for insulin, and manufacturers blame PBMs. “Lilly was talking a few years ago about the price increases for their insulin, and this again came up during Alex Azar’s confirmation hearing [for HHS Secretary] too,” Pitts says. “The reason why Lilly raised its price was because they were forced to give steeper discounts to the PBMs. So Lilly raises the price and actually makes less money on the product.”
The solution, at least initially, is far greater transparency in how the pricing system works, Pitts told Med Ad News. “Now the problem with that is companies complain about PBMs, PBMs complain about pharmaceutical companies, but they are locked in this death grip and they can’t exist without each other. Pharmaceutical companies will call me and complain about that they’re losing money, but when a reporter calls me and says can you give the name of someone at a pharmaceutical company to talk with, no one is going to talk. It’s pricing omerta. If you break the silence, you’re going to wind up worse than Jimmy Hoffa underneath Giants Stadium.”
