Wednesday, June 03, 2009

Medco CFO Sees Generic Insulin By 2013, Generic Analogues By 2015

This isn't meant to be a primer on the role of the Pharmacy Benefits Managers (or PBMs), but few people realize just how massive the role of the PBM really is in today's healthcare reform debate. These companies know the score when it comes to the drug costs, prescription and usage patterns and the outlook on where things are likely to be going.

The Role of the PBM in the U.S. Healthcare "System"

PBMs are probably one of the biggest players in the U.S. healthcare field that most people have at best, only a hazy idea of their role in managing the cost of healthcare. For people with chronic medical conditions, they may know these companies as the mail-order companies they're forced to order 90-day supplies from. Increasingly, however, many healthcare plans are placing caps on prescriptions filled at retail pharmacies, which effectively forces virtually all drugs purchased to be filled via mail order. But PBMs are more than just mail-order pharmacies.

Aside from drug wholesalers like McKesson (another part of the complex medical industry that few people have much understanding of -- I won't even get into that today), PBMs play a direct role in deciding which drugs people will use, how much they pay for them, and they play a bigger role in negotiating prices with pharmaceutical, biotech and medical device companies. Today, roughly 95% of all patients with prescription drug coverage receive their benefits through a PBM. In addition, PBMs manage about 70% of the more than 3 billion prescriptions dispensed in the U.S. each year, and these firms pay for about 60% of the claims at chain drug stores as measured by number of Rx claims processed each year (the other 40% is either co-pays or the few that still pay for their prescriptions out-of-pocket). However, when PBM market share is measured by drug expenditures, only about 40-45% of prescription drug expenditures are paid for by PBMs. This means that PBMs are paying significantly less per prescription than are other payers! Pity the poor, uninsured individual ... they're really getting a raw deal from so many angles.

Although insurance companies (errr, healthcare providers, not all are for-profit entities, although most are, including many of the Blue Cross/Blue Shield [BC/BS] firms people once thought were cooperatives. Wellpoint, a for-profit company, owns many of the larger BC/BS units today). Because of their massive role as drug payment facilitators, a less-appreciated role of the PBMs is that they are able to negotiate prices on drugs that insurance companies will pay for, but the PBM skims a margin off the top. The PBM's margins are very low to non-existent on brand-name drugs, but they make a fortune off generics, which they effectively push patients towards with tiered pricing arrangements and varied co-payments. Today, there are about 50 or so PBMs: 3 massive, publicly-traded companies (these are Medco Health Solutions, Express Scripts and CVS/Caremark) who control much of the industry; as well as dozens of smaller firms and/or in-house operations. In 2007, CVS purchased Caremark for about $26.5 billion. More recently (in March 2009 the deal was announced), a large, in-house PBM operation was sold, Wellpoint NextRx was sold to Express Scripts, but there are others that remain, such as Kaiser Permanente's, which is a big healthcare provider based on the West Coast, and a Canadian PBM known as Catamaran Corp. which has been gaining market share in recent years.

As noted beforehand, PBMs know the score when it comes to the costs and where things are likely to be going, and they occasionally publish studies, reports, interviews and/or give public statements to investors and/or the press that give a better picture about what is going on about this component of our healthcare costs. One annual report is Medco's annual Drug Trend Drug Trend Report, which kind of chronicles the previous year and identifies issues in the coming year. Express Scripts also publishes periodic reports. Taken in isolation, these reports don't say nearly as much as when they're viewed as a chronicle of where things are going.

PBM Diabetes Drug Trends: More Expensive Drugs, Not New Users Is Driving the Growth

Last year, the headline from Medco's 2008 Drug Trend Report was that diabetes medicines had become a leading driver of prescription drug spending growth. This is hardly news given the number of new diabetes diagnoses.

The Medco Drug Trend Reports are archived here. Rival Express Scripts archives it's own Drug Trend reports here. Rival CVS/Caremark's 2009 Drug Trend report has been moved to the files section of the combined company, while historical reports are found on the old Caremark website. The link to the 2009 report is here, while the 2008 report is here. Not surprisingly, the CVS/Caremark findings are very similar to the findings in Medco and ExpressScripts' Annual Drug Trend reports, although this company also pubishes a quarterly version of the report as well.

In it's 2009 report, Express Scripts also noted that 2008 was the first year that diabetic supplies (meters, test strips and syringes), which typically do not require a prescription although they are covered under many prescription-drug plans, were included in the diabetes category. However, it notes that prescription drugs represented 85% of spend.

For both Express Scripts and Medco (CVS/Caremark uses a slightly different methodology), Specialty Drugs were the main driver of drug spending, and diabetes drugs is a big (although hardly the only) component. However, anticoagulant and antiplatelet, respiratory disease, and rheumatological drugs are also big components of specialty drug spending. It wasn't so much the number of new patients with diabetes that was driving the big increase in drug spending, it was newer, more expensive medicines. In fact, Medco's report indicates that spending for specialty drugs continued grew at a double-digit rate, but on a per patient basis, there was only a marginal increase (1-2% increases in utilization). Spending on Merck's type 2 medicine Januvia at both Express Scripts and Medco was also a major driver of diabetes drug spending. More costly insulin analogues also played a big role. It was really the lack of follow-ons and the fact that doctors have no "generics" for these drugs was perhaps the biggest factor in Specialty Drug Spending.

Medco CFO Sees Generic Insulin By 2013, Generic Analogues By 2015

For several years, I have chronicled the lack of guidance from the FDA and from Congressional leadership on generic biotech medicines, including my ground-breaking article on this subject from early 2007. The lack of guidance, or Congressional legislation mandating the FDA to move, even for those biopharmaceuticals like insulin, which are grandfathered as "drugs" according to the law, has caused costly, unnecessary delays. As a result, we are tied up in this mess whether we deserve to be or not.

In terms of outlook, last month, Investor's Business Daily interviewed Richard Rubino, who is Medco's Chief Financial Officer (CFO). Rubino spoke about his views on how the U.S. could get the most for the health buck from the products, procedures, protocols and practices that yield the best results. Although I am generally skeptical when we ask a company that profiteers from the existing system, when he spoke on follow-on biopharmaceuticals, I took notice.

He said "... now there's the promise of biosimilars, which some call biogenerics. There's huge potential for less expensive versions of costly biotech drugs used to treat severe diseases.

These drugs are usually injected and can cost patients tens of thousands of dollars a year."

When the magazine asked about his view (as the CFO of a company directly impacted) about how soon we might see follow-on biologics, he responded:

"We assume that legislation could be completed by the end of this year or early 2010.

Recognizing that these drugs would be more complicated to manufacture and that there could be clinical trials required, we assume they may reach the market by 2013."

Rubino believes we'll see generic insulin soon.

He said he expects to see follow-on versions of Humulin (and Novolin) insulin on the market no later than 2013.

"Patents have expired on a significant number of these drugs, so in 2013, we assume we'll have the release of generics of Neupogen, another Amgen product; Humulin from Eli Lilly (LLY); and Betaseron from Bayer" he said.

Humalog and Novolog won't be too long afterwards, as Congress has taken so long to move on this issue that those formerly-new products have patents that are due to expire very soon.

Rubino added "Then in 2015, some of the big (patent expirations) include Aranesp and Avonex from Biogen Idec (BIIB), Humalog from Lilly and Novolog from Novo Nordisk (NVO)."

But he admitted that these wouldn't necessarily be the gravy train PBMs saw with prescriptions for Prozac, Zocor and other small-molecule drugs. He said that follow-on biopharmaceuticals are not likely to be exact duplicates, as is the case with small-molecule drugs, which are considered interchangable without patient or doctor permission unless specifically designated "Dispense As Written" by the doctor on the prescription itself.

Rubino said "You won't see the mass switching of a [as we observed with generic] Zocor. That's because the disease states are hypersensitive. They're matters of life and death.

The molecules will not necessarily be identical. They'll be similar but not necessarily identical. So if you are diagnosed with a disease, you will start on the biosimilar. If that works then you'll stay on it.

Generic pills or capsules are easier to produce than biologics."

Of course, Congress still needs to act.

Although California Rep. Henry Waxman is pushing the issue again, he introduced legislation on this issue in 2006, 2007 and 2008, but the legislation never made it out of committee thanks to House and Senate leadership's failure to act on the issue. Congressional leadership has been slow in bringing this issue to a vote. But with pressure growing to reign in healthcare costs, perhaps we'll finally see generic versions of older insulin varieties by 2013, followed by Humalog and Novolog in 2015.

And we have that prediction from someone who ought to know!


Nirav Patel said...

I have talked to many patients for whom generic insulin would be great. This is a real socioeconomic issue because the cost is just out of reach for the poor . It is lifesaving and can be obtained only if the person is part of a government program. This keeps illegal immigrants with insulin dependent diabetes from having a chance here. Interesting to see what happens....

Lee Ann Thill said...

As always, thanks for such an informative post. I came looking for info about the generics, but got quite a lesson on PBM's too, which exacerbates my overall discouragement with health insurance and prescription benefits, but that's another topic. I do hope to see generic insulins become available so it's good to hear they might actually be on the horizon.