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.

  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.

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

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

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

  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.

  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




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