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Latest Executive Roundtables

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As new litigation looms in the debate over use of copay accumulator programs, a look at potential next moves for payers—and steps drug manufacturers should take to ward off cost-driven non-adherence.

Copay Adjustment Chess Match: What Will Payers Do Next?

The importance of pre-approval information exchange (PIE) with payers and other strategic considerations to help navigate today’s market access challenges and regulatory requirements in bringing promising cell and gene therapies to the market. 

From Potential to Value: Carving a Slice of the CGT ‘PIE'

One, tackle by price; the other, tackle with data.


Price Elasticity and Inelasticity of Restriction

Now more than two years into launching his alternative and transparent drug payment model, the longtime entrepreneur, in an interview with Pharm Exec, discusses the prescription drug cost landscape and shares his recipe for true disruption to the pharma pricing machine. 

Pharm Exec Exclusive: Mark Cuban Talks Drug Pricing 

With competition for follow-on-biologics on the upswing—and a potential market boom perhaps around the corner—continued education and course-setting for all stakeholders in charting the access landscape is paramount.

A Biosimilars Roadmap: Understanding Payer Perceptions 

Ron Lanton on PBMs and Mark Cuban's Drug Plus

Pharm Exec: Recently, CVS and Express Scripts have announced plans to set up pricing models that follow Mark Cuban’s Cost Plus Drugs model. What do you think the overall implications will be for the pharmaceutical industry?

There's definitely going to be changes. I know we'll probably get into what other pair of eyes are looking at pricing when it comes to the drug industry. I think what Mark Cuban did transformed a lot of things. I still think we have to see where his vision is going because the last time I spoke about this, he had just launched, and he had a plan, but it seemed to go towards vertical integration. He was originally going to start with low cost drugs, and that's actually moved a lot of people. We've seen retail pharmacies that are doing cost plus models and it shows that he's really changed a lot of things for the industry. It's always been this struggle to try to get to the true cost of the drug. When you look at what he's done here with this cost plus company, he has 1000 generics, with 10 brand name medications in about 38 states. It's not a small operation by any means, but he's not a typical businessperson we would normally see. When you look at his interviews, and you see his philosophy of "Hey, I've made my money and I just want to make a change," he's definitely done that. 

Pharm Exec: Specifically focusing on CVS, what were the potential motivations for large PBMs to take action on drug pricing?

From an outsider looking in and seeing all the changes that are happening, it's purely monetary. With more and more retail pharmacies looking at this model and more policy maker scrutiny on what this model is and trying to get to the true cost of a drug, the out-the-door cost is usually what the industry calls it. With them being the largest pharmacy benefit manager, it's almost as if they had no choice but to start changing with the times. 

Like many, I was very surprised when they announced their plan, the cost vantage plan, which entails customers paying drug manufacturers the list price plus a markup and a dispensing fee. They're saying that it most cases, it's going to result in lower drug prices. But, I think that many of us are skeptical. Personally, I'm skeptical, because I've dealt with CVS where we were on the other side of legislation trying to get some fairness put in as far as pharmacy reimbursement. To hear what some of those arguments have been in the past, about how things have been justified or should be justified a certain way didn't hold a lot with me. I'm encouraged that they're trying to make things right, but I think that we need some additional details to understand how this is going to work. I haven't seen it yet but maybe others have. 

Pharm Exec: At this time, can you give us an update on the current state of PBM legislation in Congress? Is there anything on the horizon that you expect?

There's quite a few things. I've done my research and there were multiple bills on point. I'll give you a few that have kind of caught momentum. 

The first that made a lot of news was the Lower Cost More Transparency Act. That bill had a lot of things such as a spread pricing ban. Under their PBM transparency section, they stated that plans offered by large employers would require PBMs would have to report transparency twice a year. Some of those actions include drug selection and acquisition costs, rebates and fees, any out of pocket spending, and rationale behind formulary placement. So, these are things to really get at. 

There were also some privacy issues with that regarding HIPPA, and they also have the gag clause ban. It's currently at the senate. I think things might happen with the senate this year. Hopefully, they won't change any of the language because if they do, it has to go back to the house and they have to work that out. So, I think they want to make as little waves as possible. But, over in congress they have a lot of issues to deal with right now that we've seen in the news, so I don't know if this is going to clear before election time. 

Two more that I'm watching are the Pharmacy Benefit Manager Transparency Act, which prohibits PBMs from engaging in certain activities when managing drug benefits, and the Pharmacy Benefit Reform Act, which basically states what a PBM has to report regarding the amount of prescription drug copay assistance plans that are funded by drug manufacturers and a list of covered drugs under the plan during a certain report period. It's transparency, but it doesn't go to the same level as the other two bills that I had mentioned. 

I think if I had to look at what were my three strongest bills right now, it would be those. 

Pharm Exec: What do you think influenced Congress to take action on PBM transparency?

I think just the business climate as a whole. It's no secret that many independents are closing for these very reasons we've been talking about. That's been an open secret for a long time. We even had a supreme court case about it where in 2020 in state legislatures, PBMs were saying "You can't pass state transparency laws." That argument was shot down. Now, it's just the aftermath of how far can a state take these things and what is their oversight when they pass a law. 

This issue has been around for awhile. I think that congress has also been watching the FTC. They've been very active in what they've been trying to figure out. I know that in 2022, the FTC launched what is called a section 6B study, and that's basically a study where they were trying to investigate PBM business practices. They were asking for some additional information from the other large PBMs specifically about what some of these contracts have. Recently, we've had a couple of senators say that something now needs to be done. 

Pharm Exec: What could be the long-term implications of the Cuban model on drug pricing?

I think it's too early to say. I think right now it moves us towards that true cost of a drug, and I think it puts more pressure on a PBM to stop putting all these other things in the pot to try and sweeten it for them. I also think that this is going to push what has long been missing from PBM oversight, which is CMS. We've had many conversations with CMS over the years about whether or not they are the actual regulator of PBM, is there a federal regulator? We think there is, but every time you ask them about PBM oversight, they point to the non-interference clause. Personally, I think with the passing of the Inflation Reduction Act, that argument is significantly weakened. But, I think over time, that's going to erode. I think that outside forces such as Mr. Cuban's cost plus model is going to help accelerate that. I don't know what the future holds, but I do know that it's working. This didn't happen overnight where PBMs just got control of everything, and it's not going to happen overnight where we kind of unwind what has happened over the last 15 to 20 years. 

Pharm Exec: Is there any other pending legislation that could impact the pharmaceutical landscape?

I think many of our changes that we're going to see will come from the state legislatures. It just seems that they're able to pass things easier. I think we should just take a look at what some of these major market states are doing, and then keep an eye on the FTC. They've finally come out with something that is decisive enough to force PBMs to move faster. 

Videos

In an interview with Pharm Exec Associate Editor Don Tracy, Ron Lanton, Partner, Lanton Law PLLC, discusses recent moves by CVS and Express Scripts to follow Mark Cuban's Cost Plus Drugs model. 

Ron Lanton, Partner, Lanton Law PLLC, Discusses New Drugs Plus Pricing Models

Bill Roth Discusses the Changing PBM Landscape

Bill Roth PBM

Nicholas Saraceno: What may be the potential driving force behind recent moves by PBMs like CVS and Express Scripts to overhaul their drug pricing structures?

There's a lot of speculation on the real drivers behind what these plans really mean. We'll unpack them in two main ways. One is the rise of the cash pay model. What they're proposing is to have an offering similar to Mark Cuban's Cost Plus and Amazon's cash pay portion of their pharmacy model. In that world, those pharmacies have realized how dramatically overpriced the out of pocket is on generics. The whole insurance based genetics works on the idea that if a brand is at $1000, and if I charge $600 for the generic, it's a massive savings from the brand. But, the reality is those products may be purchased by the pharmacy for $20. That would be what you consider an egregious margin. That's where the cash pay pharmacy is coming in and saying "I'll price it out at $40." If you look at specialty products in the oncology area, the list prices of the brand are roughly $120,000 a year. If you use insurance, the generic versions are probably $60,000 a year. Both products are available on a cash pay for somewhere between $15-$30 a month. I just think that's an example of how much things have inflated. That's the value in the cash pay market for generics. It's a pin that's going to pop the profitability on the generic side. It's a big risk to the overall retail pharmacy model. 

Second, is the repayment of the products to the payers. What they're trying to do from what we can understand is try to work in a world where they don't lose money on brands. That is a fundamental shift of how pharmacy has been reimbursed for the last two decades by PBMs. It has worked on a bundled model for a long time. The idea is that you lose a little money on the brands but you make make it back on the generics. Up until the end of the patent cliff in 2016, that was the road and nobody had any problem with it. I get the question a lot from manufacturing clients on why now has the pharmacy come out and they're losing money. There's two main reasons than any other. The new generics aren't coming out the way they were from 2012-2016. Second is the slow degrade of that generic business over to cash pay. Basically, the generic margins aren't offsetting the massive losses on the brands. In our interpretation, it's no different than what medicaid did by moving to a NADAC or an AAC perspective. It's basically to compensate the pharmacy close to where their acquisition price is. I think a piece that's exacerbating it for the larger pharmacies is a big difference between how national pharmacies buys generics and brands as opposed to how an independent buys. An independent buys at an aggressive cost, sometimes even better. But, they pay more for generics than a chain would. A chain goes very aggressive with their generics. Therefore, they're paying higher. They're seeing an exacerbated loss on brands that retailers aren't seeing. The reality though is that if you move to a NADAC or an AAC pricing model, that could be as much as maybe a 3% price increase to plan sponsors. I don't think the plan sponsors have the ability to stomach that type of an increase. I think that's where the skepticism of the reality is. Not to say that it won't happen, but we're pretty skeptical that it will. There is another event that's happening this year. From what we can see, the WAC reductions have already started and we knew this was happening for insulin. If brands were to continue with the thread of lowering WACS, It does at least soften the losses. Your percentages are still losing at the same level, but the dollars that you're losing are offset by it. 

When it comes to these new pharmacy and reimbursement models, the cash pay makes a lot of sense to me, but it's playing with fire as it could burn the insurance aspect of the business. The move to a NADAC model doesn't solve the problem, it just lessens the losses. It still doesn't do anything to offset my earlier point, that the bottom 2% of brands are still looking at losses within the pharmacy. Maybe the losses just aren't as extreme. It's better than nothing. The pharmacies have to try something. It's something to watch to see how it plays out. We're being a little cautious when it comes to saying whether it's good or bad or whether it has legs or not. We understand the drivers behind it and we'll just have to see how it plays out. 

Saraceno: With PBMs under fire from legislators in DC, have we begun to see a tectonic shift in the pharma landscape that will remove some of the power PBMs have?

I view the PBMs as being incredibly strong and powerful entities that are highly needed in the market. Until we have another alternative to them. There's a great report by Eric Percher from Nephron Research where he profiles the way PBMs have been compensated for the last 10 years relative to where they're getting money from. They've really shifted a lot of their focus into specialty. There's about a third of their dollars that are coming from specialty pharmacies, we've seen massive rises there. They've been very successful in moving their rebate dollars to their admin fee layers. Basically, they've found great ways to protect all of those margins. I don't know why people have a tendency to lose the importance of this. It's not an obvious piece of the business, but it's a check that comes into these companies through another angle. So, they'll overpay for healthcare and then use that money for other angles of running their business. I don't necessarily agree with it, but I understand it. Until the plan sponsors are willing to let go of those rebate dollars, I don't see any difference. There were a number of good folks that kind of taught me that plan sponsors are looking for performance. The PBMs perform. As much as I think the industry likes to dislike the PBM, they have a very entrenched position in the market. What's your next alternative? You can carve out things like generics, but it doesn't do anything to impact specialty. 

Saraceno: In light of Eli Lilly’s new DTC program for the above drugs, how might this impact PBMs in the long-term if more manufacturers follow in Lilly’s path? 

I think part of it may be tied up in what success looks like for a program like Lilly Direct. Will they actually do better in that model than working through the traditional PBM to retail, or PBM to specialty pharmacy model. I think there's still challenges with reaching frequency. One of our consultants was actually talking about seeing where it goes. Even if you try a search right now to find Lilly Direct, it's not optimized for SEO yet. That's not the way that I think we recommended it be built. We would have recommended a full therapeutic area approach. Why just have your products? Why not create a better draw? If you're competing with a lifestyle pharmacy, have everything that they have. Present yourself as another lifestyle pharmacy, and just amplify it. 

In an interview with Nicholas Saraceno, Bill Roth, General Manager, Managing Partner, Blue Fin Group, discusses the changing role of PBMs and recent price structure overhauls. 

Pricing

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