The bizarre ways generic drug makers and PBMs may push up costs.

By Clifton Leaf and Sy Mukherjee
June 30, 2017

Having now decamped to their home sanctuaries for the Fourth of July weekend, Senate Republicans may get a momentary break from the pressure to have to vote on a Trumpcare bill their leadership wants, the President sort-of seems to want—and four-fifths of Americans appear to detest.

Good.

After the fireworks and festivals, the barbecues and backyard banquets, maybe they’ll get to curl up on their senatorial Barcaloungers in their well-appointed senatorial dens, and read.

They can start with a pair of articles that were published by Bloomberg this morning and yesterday.

This morning’s piece, by Robert Langreth, explores why the prices for many generic drugs—including essential cancer-fighting medicines—have risen, in some cases to an “extraordinary” degree, according to the Government Accountability Office. Prices for roughly 300 generic drugs at least doubled from 2010 to 2015.

In yesterday’s article, Langreth and Paul Barrett point to what some plaintiffs allege is a more scandalous behind-the-scenes arrangement that’s helping to drive drug costs ever higher: that drug makers raise their prices in part to allow middlemen known as pharmacy benefit managers, or PBMs, to demand fatter rebates on those drugs, which they then share with their clients (who are the companies ultimately paying the coverage bills and who hire the PBMs to lower their costs).

Got that?

“One of the main functions of PBMs,” explain Barrett and Langreth, “is to elicit rebates from drug manufacturers on behalf of health plans. The incentive—or threat—is that if drug companies fail to pay rebates, they might not win spots on a list of preferred medications that the PBMs maintain. Absence from the list, known as a formulary, means that health plans won’t cover the drugs in question, which would cut into the manufacturers’ sales.”

The drug at the heart of four lawsuits in New Jersey is insulin—“a century-old medicine that for most of its history cost $15 or less,” write Barrett and Langreth, but “whose list price has risen more than 270 percent over the past decade.”

Federal prosecutors, report the Bloomberg writers, “are also investigating relationships between PBMs and large drug companies” and the U.S. Attorney’s Office in Manhattan has ordered three makers of insulin to turn over documents regarding those relationships.

(“The three drug companies say they’re cooperating with the government’s document demands,” Bloomberg reports. “The same companies and the three PBMs say the private suits are meritless”—with one PBM CEO declaring: “It is a complete falsehood that we would prefer prices to go up.”)

The PBM clients, in any case, benefit from the rebates—though it’s hard to know how much because, as the Bloomberg writers point out, the after-rebate “net price” they ultimately pay is confidential. But others—notably the uninsured—are left to pay the higher list prices. And, as Barrett and Langreth write, drug makers often raise those list prices “to make up some of the lost revenue” from rebating.

FORTUNE contributor Katherine Eban dove into the murky PBM-client-drugmaker nexus back in 2013, in a classic feature entitled, “Painful Prescriptions.” And it would seem that little has changed since then.

Maybe the senators will, in their quiet time at home, absorb this thoughtful reporting—then come up with some good ideas to combat the outrageous surge in the price of medicines, and of healthcare in general. Maybe that’s a way for them to deliver on their promises to their constituents—who really just want some way to afford the medications their families need, not have their insurance taken away or their premiums surge.

Then, maybe next Independence Day, when they’re at their hometown fireworks display, some good soul might come over to hand them a cold beer—which is what big-hearted Americans do on the Fourth of July.

Have a great long weekend, all. I’m off for vacation and we’re shutting the lights out for a couple of days. But Sy will be back to mind the store on Wednesday.

Clifton Leaf, Editor in Chief, FORTUNE
@CliftonLeaf
clifton.leaf@fortune.com

DIGITAL HEALTH

How do you solve a problem like NotPetya? The bout of ransomware attacks that struck organizations ranging from shipping giants to U.S. drug maker Merck is now being dubbed “NotPetya,” as a series of twists and turns have indicated that the source of the hits were different from what was originally suspected. But IT security firm Kapersky and others raise a troubling notion: this was never really ransomware at all, but rather a deliberate attempt to sow chaos and confusion. (Put another way: Some people just want to watch the world burn.) Seeing as health care firms are a regular target for attacks, this latest example just underscores the industry’s need to ramp up protection against would-be criminals—or simple digital anarchists.

The era of cyberbullying and its effects on mental health. Cyberbullying has become increasingly entrenched in global life. And that makes it a public health issue considering its widespread consequences, including depression, anxiety, anger, and even suicidal thoughts. Here’s what the medical literature says about the effects of cyberbullying on adolescent and adult mental health alike. (Fortune)


INDICATIONS

Sarepta gets (another) new CEO. Rare disease drug maker Sarepta has appointed its latest CEO, who will be taking the reins from current chief Ed Kaye. The latest head honcho will be Doug Ingram, a former exec over at drug giant Allergan. He certainly has his work cut out for him—Sarepta’s milestone approval for a Duchenne muscular dystrophy drug has been facing backlash from insurers but has plenty of support from patient advocates. Whether or not it sells may depend on Ingram’s ability to woo skeptical insurers and doctors since the product’s label explicitly states that it doesn’t have substantial proven efficacy.


THE BIG PICTURE

The CBO released one more report card on the Senate’s health care bill. After a fairly brutal assessment of what the Senate GOP’s health care bill to repeal Obamacare would do to the insurance market, the Congressional Budget Office delivered another surprising analysis of the legislation on Thursday. This time, CBO gamed out how the bill would affect Medicaid over a longer timeframe (specifically, up to 2036). The findings are striking: a 35% cut to the safety net program for the poor compared to current law. (Fortune)

Be careful over the 4th of July holiday. Just a friendly reminder that this is one of the most dangerous weekends for drunk driving fatalities, fireworks-related injuries, and other unfortunate (and potentially tragic) partying-related mishaps. Stay safe out there. We’ll be back to you on Wednesday.


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