Endless U.S. Brand Drug Price Increases: More Money For Pharma And Health Insurers/PBMs, With The Costs Passed On To Us

Dear DPT readers:

No surprise. The relentless and nearly uniform increase in U.S. brand drug prices continues. As 2020 began, the prices for hundreds of U.S. brand drugs increased an average of 6%. The U.S. brand drug price increases were the about the same last year, after many years of far greater increases. I have provided a link to just one of many recent articles about the price increases.

https://www.marketwatch.com/story/drug-prices-rise-58-on-average-in-2020-2020-01-02

With the simple but secretive “fee” scheme as the driver, the U.S. price increases typically means a lot more money for the pharma company and a nice increase in “fees” for the health insurer/PBM (for doing no additional work), with most of the costs passed on all of us, but especially patients treated with very expensive drugs.

You might think that a 6-7% price increase to start 2020 is not that much, but then think about the impact across the nation when these increases occurs on virtually all major U.S. brand drugs, especially for high-cost drugs that already cost a lot of money after many years of far greater price increases; so-called “specialty” drugs.

The top-selling drug in the world and in the U.S., Abbvie’s Humira provides a good example of how the simple math of the “fee” scheme between pharma and health insurer/PBMs works. In 2019, AbbVie is expected to report U.S. 2019 Humira sales of about $14.7 billion, with most of the $1.0 billion 2019 increase in sales driven by a 6.2% price increases at the start of 2019. Abbvie plans for more of the same this year, with its just announced 7% increase.

Keep in mind, the recent, more moderate 6-7% price increases for AbbVie’s Humira have come after many years of massive uniform U.S increases for Humira and its very similar competitor, Amgen’s Enbrel. The average U.S. “list” or “sticker” price for both these drugs was in the $70,000 range at the end of 2018, up from the $15,000 range in 2005 when this “fee” scheme (tied to “sticker” prices) began with Medicare Part D.

Back specifically to the Humira example. So where does most of the additional $10,000 “sticker” price cost increase per patient for Humira in 2019 and 2020 actually end up? Another $5,000 per patient just in 2020. That is easy – mostly with AbbVie, with a nice cut to the PBM for passing the costs along. The math is really simple – just about percentages. Using rough numbers, Abbvie will routinely keep about 80+% of the price increases and give an 8-10% fee to the large PBMs. Over the past two years, that is about another $8,000/patient/year to AbbVie and another $800-900 to the PBM in “fees” (for doing no additional patient support work).

Remember, just as with your co-pays and deductibles, pharma/PBM “fee” contracts are uniformly based on the “sticker” prices in real time, before any discounts the PBMs may claim. Meaning, as soon as pharma raises the “sticker” price, the PBMs immediately get more fees directly tied as a “percentage” of the new price (for no more work), while the costs are also immediately passed on to us. More PBM “fee” money, with us bearing all the risk and cost. A nice gig if you can get it. No wonder United Healthcare just reported its 24th quarterly earnings report in row in which it beat expectations. That is six years in a row while the U.S. drug price crisis has wreaked havoc across this country.

And what about the supposed large rebates that the PBMs are “secretly” negotiating and passing on to us from pharma companies. Not true for most brands, but particularly for high-cost specialty drugs like Humira. In fact, the PBMs have admitted that rebates for Humira and similar drugs were only in the 10% range in recent years, despite massive price increases. For most extreme cost cancer drugs, the PBMs have admitted rebates are zero. The government just put out a report saying that only one-third of Part D brand drugs have virtually any rebates. So the PBM public claims about widespread big rebates are simply bogus. Details in the website.

When rebates are really small and often non-existent, of course the PBMs will be glad to routinely pass on ALL these “savings” on to their clients and patients, while keeping the “pharma fees” for themselves. The PBMs talk endless in the public about passing on these rebates, while remaining silent about the big price-driven “fees” from pharma that now account for almost all their profits from brand drugs.

In reality, brand rebates from manufacturers have not mattered much for PBM profits for a very long time now, more than a decade-plus. It is all about the “fees” from pharma. The PBMs are just not telling anyone and not reporting it in their financial statements with the SEC. However, both CVS and Express Scripts finally admitted it for the first time in August 2018, more than six years after I discovered the truth. In August 2018, both CVS and Express Scripts publicly announced for the first time that rebates now only account for 3-10% of their profits. Before Part D, their share of rebates accounted for ALL PBM profits. Now almost nothing. Bottom line, the secret “pharma fees” are the ONLY other way for the PBMs to be making big money. Pharma and the PBMs made this secret shift to “fees” from pharma without telling anyone and not reporting the true source of PBM profits to the SEC, investors, clients and everyone else in their financial statements. Imagine being a major public company and not disclosing how you are making most of your money? Should be a problem, right? Well, as per the legal documents, I also filed an SEC whistleblower case in the spring of 2018. I have not been contacted by the SEC for any potential investigation.

Closing out the rebate discussion. Of course, the small amounts of added rebates the PBMs “share” with us with each relentless price increase are a farce. Over the past two years, the Humira drug costs passed on for each patient from the price increases ($8,000 or so) are four times the amount of additional “secret” rebates the PBMs are giving us back. All smoke and mirrors, enabled by pharma and the health insurer/PBMs closely guarded secrecy of how things really work.

Now think about how well this secret scheme has worked for AbbVie and the health insurer/PBMs over the past decade-plus, and how bad it has been for the rest of us. Since Part D began, about two-thirds of AbbVie’s U.S. Humira growth (more than $33 billion!! through 2018, with more since) has come from price increases. And not surprisingly, almost all Humira sales growth has been in the U.S. while ex-U.S. prices/revenues have changed little.

Since 2010, U.S. sales of Humira have more than quadrupled (nearly $15 billion for 2019), while international sales have increased very little ($6.3 billion in 2018 and now in decline). For reference, there are 50% more rheumatoid arthritis and other patients for Humira/Enbrel in Europe compared to the U.S., but the U.S. now accounts for more than 70% of Humira’s $21+ billion in annual sales.

So in 2019 and 2020, it is really just more of the same “fee” scheme that has been going on for a very long time now. For both 2019 and 2020, the vast majority of AbbVie’s approximate $1 billion increase in U.S. annual sales has/will be driven by price increases. And the PBMs just get more “fees” while both partners coyly “blame” each other in public. For Humira specifically, now more than a decade and running, the PBMs have gone from getting virtually no secret “pharma fees” to about $6,000 to $8,000 per year for every U.S patient treated with the drug, largely driven by massive price increases, not legitimate work to help their clients and patients. Very sad really. Extreme harm that did not have to happen; could have been prevented or stopped long ago.

And why would pharma and their health insurer/PBM partners change from this simple, but secretive “fee” formula now? It is an open secret among the leadership of the pharma and PBM industries. No reason to – it has been working well for them for so long and no one is stopping them. I am hopeful that, over time, broader public awareness of the extreme harm being caused can change that. We will see. Please share this post and the website.

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