Simple Pharma/PBM "Fee" Scheme Math

Mechanics of the Pharma/Health Insurer “Fee” Scheme

• National “percent of sticker price” “pharma fee” contracts.
• For U.S. brand drugs.
• Paid by pharma to dominant health insurer/PBMs.
  • United Health, CVS/Aetna, Cigna/Express Scripts, Humana
• Highly secretive and centralized.

Execution of the Scheme

1. Pharma massively raises U.S. brand drug price 5-to-10-fold, often while use of the drug is sharply declining.
   

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2. Pharma secretly pays"fees" to the health insurer/PBM by contract as a “percent” of each and every "sticker" price increase.
   • The typical health insurer/PBM "fee" rate is 5-10% of the "sticker" price.
     

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3. The health insurer/PBM typically keeps ALL "pharma fees", with minimal disclosure.
   

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4. Small or modest "manufacturer rebates/discounts" are largely passed on to health insurer/PBM clients and patients.
   

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5. Pharma gets most of the greatly increasing profits driven by massive 5-to10-fold price increases for selling FAR LESS prescriptions.
   

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6. The health insurer/PBM gets A LOT MORE "fee" revenues/profits for supporting far fewer prescriptions and patients. For most of the Whistleblower case brand drugs, the PBM is commonly getting about five-fold more "pharma fees" now compared to a decade ago for supporting half or less as many patients.
   

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7. The increased drug costs from the massive price increases are paid by patients, families, businesses and taxpayers.

Since Medicare Part D:

• “Pharma fees” tied to "'sticker" prices now secretly account for MOST AND OFTEN ALL health insurer/PBM brand drug profits.
• "Pharma rebates" now account for little health insurer/PBM profits. 

Examples: High Cost “Specialty” Drugs 

• Novartis’ Gleevec (Leukemia/Cancer)
  

                                                      2005                        2015
Reported U.S. Sales:            $524 million           $2.5 billion
U.S. “List” Price/Pt/Yr.            $30,000                  $150,000
PBM “Pharma Fees”/Pt (8%)  $2,400                     $12,000

FIVE-FOLD increase in PBM “pharma fees”/patient, driven only by price increases

Gleevec U.S. prescriptions DOWN about -6% between 2005 and 2015 due to increased competition

• Biogen’s Avonex (Multiple Sclerosis) 

                                                      2005                        2017
Reported U.S. Sales:           $939 million          $1.9 billion
“List” Price/Pt/Yr.                 $15,000                   $100,000

PBM “Pharma Fees”/Pt (8%)  $1,200                   $8,000

SEVEN-FOLD increase in PBM “pharma fees”/patient

• U.S. prescriptions for Avonex DOWN about -70% between 2005 to 2017 due to severe competition