Click here to see the original post and comments from November 2021.
An ironic postcript: Less than two months after my article was published, Cigna CEO David Cordani bragged about the cost savings from "aggressive adoption" of biosimilars. Anyone want to tell him about the Express Scripts formulary for insulin biosimilars?
Alas, I’m sad to report that the warped incentives baked into the U.S. drug channel will limit the impact of this impressive breakthrough.
Viatris is being forced to launch both a high-priced and a low-priced version of the biosimilar. However, only the high-list/high-rebate, branded version will be available on Express Scripts’ largest commercial formulary. Express Scripts will block both the branded reference product and the lower-priced, unbranded—but also interchangeable—version. Meanwhile, Prime Therapeutics will place both versions on its formularies, leaving the choice up to its plan sponsor clients.
Consequently, many commercial payers will adopt the more expensive product instead of the identical—but cheaper—version. As usual, patients will be the ultimate victims of our current drug pricing system.
Below, I explain the weird economics behind this decision, highlight the negative impact on patients, and speculate on what this all could mean for biosimilars’ future. Until plan sponsors break their addiction to rebates, today’s U.S. drug channel problems will remain.
TWIN BIOSIMS
Here’s some background.
Viatris, the company formed by the merger between Mylan and Upjohn, will simultaneously launch two identical versions of its interchangeable biosimilar:
- Semglee (insulin glargine-yfgn) injection, a branded interchangeable product
- Insulin Glargine (insulin glargine-yfgn) injection, an authorized interchangeable biosimilar
There’s just one, teensy difference: The two versions have different Wholesale Acquisition Cost (WAC) list prices.
Viatris first launched Semglee in 2020 as a non-interchangeable product. At the time, its WAC amounted to a 65% discount when compared with the Lantus reference product. Following the interchangeable designation, Viatris will relaunch Semglee with a WAC that will be only 5% below that of Lantus.
The unbranded insulin glargine, which also is interchangeable with Lantus, will have a WAC that’s 65% lower than that of the reference product.
Of course, these list prices do not meaningfully reflect the net cost to a payer, because insulin rebates can be substantial. In fact, I suspect that the net, post-rebate prices of these drugs may be fairly comparable. (See comments from Prime Therapeutics below.)
In addition to Lantus and the two biosimilars, the category includes Lilly’s Basaglar, a follow-on biologic that was launched in December 2016. Basaglar’s WAC list price is 15% below that of Lantus. Substitution rates for Basaglar vary depending on the third-party payer. For 2020, Basaglar accounted for about 60% of the units paid for by fee-for-service Medicaid programs. However, it accounted for only 30% of units in commercial plans and 4% of units in Medicare Part D plans. (source)
One more fun fact: Viatris is eligible for 12 months of exclusivity before the FDA can approve another biosimilar interchangeable to Lantus.
MURKY MATH
Those unfamiliar with the U.S. drug channel might assume that a PBM would choose the product with the lowest prices.
For example, the branded and authorized interchangeable biosimilar versions are identical products. So, you might think that PBMs and plans would prefer the lower-priced version, because the patient is getting the exact same product.
Alas, that’s not how the U.S. drug channel works.
A few weeks ago, Viatris proudly announced that Semglee will be the “first-ever interchangeable insulin biosimilar preferred on Express Scripts' largest formulary.”
For 2022, the branded Semglee product will be on Express Scripts’ National Preferred Formulary (NPF). The NPF is Express Scripts’ largest commercial formulary, with more than 28 million lives. Express Scripts also highlighted the exclusion of the Lantus reference product from its NPF.
Put another way: Viatris had to nearly triple the list price of Semglee before Express Scripts would add the product to its formulary.
The press release touts “$20 million in savings.” That may seem like a small figure for a product category with billions in potential savings. That’s because the savings reflect the small difference in WAC list prices and (per Express Scripts) “discounts offered by Viatris.” Lantus is already offering PBMs deep discounts off the list price, so perhaps the net cost savings are legitimately modest.
One crucial fact omitted from the Viatris and Express Scripts press releases: The unbranded authorized interchangeable biosimilar will be excluded from the NPF.
Instead, the unbranded version will be stuck on Express Scripts’ National Preferred Flex Formulary, which favors drugs with lower list prices over the high-list/high-rebate versions of these products.
As far as I know, very few plans have adopted the Flex formulary. That shouldn’t be a surprise if you recall my 2018 article about this formulary and its challenges: Express Scripts Launches a New Formulary for a World Without Rebates. Will Plan Sponsors and Drug Makers Play Along?.
For Prime Therapeutics’ 33 million members, both the branded and unbranded versions will have comparable formulary placement. (Lantus will be excluded.) Prime’s press release states: “we are not beholden to rebates, as we're able to also prefer the lowest net cost therapy." I interpret that statement to mean that the net costs are comparable for the two versions.
FOLLOW THE INFLATED DOLLAR
Here’s how the drug channel will profit from this counterintuitive formulary decision:
- PBMs, pharmacies, and wholesalers will benefit from adopting the high-list price products. As I have noted many times on Drug Channels, prescription products with high list prices can generate high dollar payments for distribution, payment, and dispensing activities. Express Scripts—and/or its Switzerland-based purchasing group Ascent Health Services—will earn administrative and other fees computed as a percentage of the list price. Therefore, a higher-list price product is better than a lower-list product.
BTW, this situation has long been the story of insulin. Check out this fantastic new USC Schaeffer Center study: Estimation of the Share of Net Expenditures on Insulin Captured by US Manufacturers, Wholesalers, Pharmacy Benefit Managers, Pharmacies, and Health Plans From 2014 to 2018. It found that insulin list prices have risen, while net prices received by manufacturers dropped. Meanwhile, the channel—PBMs, wholesalers, and pharmacies—received an ever-growing share of the gross-to-net difference.
- Many payers will choose the high-rebate version. PBMs work for plan sponsors. And Express Scripts’ plan sponsor clients apparently want the PBM to choose the higher-priced version of the interchangeable biosimilar over the lower-priced version.
That’s because plan sponsors receive most of the rebates provided by manufacturers. Employers generally use these rebates to offset non-drug healthcare costs and reduce premiums for all beneficiaries, not just the subset of patients whose prescriptions generated the rebate funds. (That’s why they use point-of-sale rebates so infrequently.) Health plans want the rebate dollars so they can compete for business through lower premiums.
Prime Therapeutics is leaving the choice up to its plan sponsors. A Prime spokesperson told me:“We feel that listing both high and low WAC options provides value to both the ASO and fully insured markets and the flexibility to offer what works best in each of our plans’ markets.”
- Some patients will pay more for their prescriptions. Patients with commercial insurance—and Express Scripts as their plan’s PBM—will be prevented from getting the biosimilar version with the low list price. They will instead be pushed toward the high-list/high-rebate version. For Prime, at least some of its plans could choose the low-list price version.
This decision will generate more rebates for plans, while raising patients’ costs. Many people now pay a coinsurance percentage of the price negotiated between the pharmacy and the plan or PBM—or even the entire list price when they are within a deductible. These patients will end up paying a greater share of the net price than might be apparent from the coinsurance percentage. See my follow-the-dollar prescription math in How Health Plans Profit—and Patients Lose—From Highly-Rebated Brand-Name Drugs.
At least some patients will be protected from this formulary decision. That’s because Express Scripts will add Semglee to its Patient Assurance Program (PAP), which will cap patients’ out-of-pocket spending at $25 for up to a 34-day supply. If copayments were not capped, then patients could have faced much higher costs under commercial benefit designs that link patients’ out-of-pocket expenses to list prices via coinsurance and deductibles. Thus, patients in plans that have adopted this program will be partially shielded from the impact of the formulary decision. However, Express Scripts confirmed to me that not all of the 28 million people under the NPF are enrolled in this program.
Prime would only tell me that a patient’s out-of-pocket expense “depends on plan design and varies by client.” It added: “We expect member share to be neutral at worst and most likely members will pay less.” But there’s no guarantee that will happen.
My translation: Some of our clients are addicted to rebates. ¯\_(ツ)_/¯
It's also why legislation that caps out-of-pocket insulin costs is essentially a mandatory POS rebate program for patients who do not get the benefit of having these rebates reflected in their pharmacy costs.
PREPARING FOR 2023
Pharmaceuticals are the only part of the U.S. healthcare system in which the difference between list and net prices is monetized as rebates and redistributed by PBMs to payers. The distortions associated with this industry structure have been well reported. (For example, see Section 9.3. of our 2021 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.)
For now, I’m keeping my eye on 2023. That’s when Humira, the best-selling drug in the U.S., will face at least six biosimilar competitors. The launch of the Humira biosimilars will be a market-changing event for pharmacy benefit management and specialty pharmacy. Some—but likely not all—of these products will have interchangeability with Humira.
Will these biosimilars launch with list prices that are comparable to or slightly lower than Humira’s list price? Or should they launch with deep list price discounts—or even with higher list prices (so as to maximize rebate dollars)? How will the sequence of launches—and the pricing of the early entrants—determine pricing strategies for subsequent entrants? Will early launches have higher or lower list prices than the later entrants?
Competition will surely drive down the net pricing for Humira and it biosimilars. But the Semglee story shows just how weird 2023 might become.
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