Drug Price Wars, Episode II: Attack of the Gilead Clones

Drug Price Wars logo-Episode II

On Monday January 5, 2014, a spokesman for CVS Health Corp. (CVS) declared that Harvoni® and Sovaldi®, which are both made by Gilead Sciences (GILD), will become the preferred treatments on four CVS formularies (which would include Medicare & Medicaid benefit plans).[1],[2] Very interesting announcement considering that just two weeks ago, Express Scripts (ESRX) announced its deal with AbbVie (ABBV) to make Viekira Pak® its exclusive option over the Gilead products.[3] When I wrote my original Drug Price Wars piece, Episode I: The High Price Hep C Menace, I had a feeling the battle would quickly ensue but I had no idea it would be this fast! CVS & GILD wasted no time in striking a deal and making it public (which seemed to have helped stock prices today after the announcement).

In the words of Ron Burgandy:

boy that escalated quickly

Ok, shots were fired by big companies in December and the competition retaliated today. So what? What does this mean for the American consumer? What does this mean for the Centers for Medicare & Medicaid Services (CMS) and our state and federal tax dollars?

Questions the General Public Should Ask:

What does this mean for patients & providers?

  • Usually, this means the prescriber & patient will be removed from the decision as to which drug therapy to use (unless of course there is an exception, in which they can appeal or submit a prior authorization).
  • In this case, a Genotype 1 Hep C infected individual with Express Scripts insurance will receive Viekira Pak® in the mail from Accredo Specialty Pharmacy and an equivalent patient with CVS Health insurance will receive Harvoni® (most likely from CVS Specialty via mail order but I can’t confirm that just yet).

What does it cost to be an “exclusive” drug on a major Pharmacy Benefits Manager (PBM) formulary?

  • A drug company negotiated a deal with a PBM to become the primary therapy, so what did the drug company have to “give up” in the deal?
  • If the drug company chose not to negotiate, what was its BATNA (Best Alternative to a Negotiated Agreement)?[4] In other words, without the deal what did the company project for its revenue and profit on the drug?

What does the PBM get in the deal?

  • The insurance company serves its customers by striking deals to lower healthcare costs.
  • A lower price for a drug or medical procedure, in theory, would be passed along to the employers and individuals who are enrolled in the insurance plan. So for example (hypothetically speaking), if CVS struck a deal for a rebate that reduces the overall price of Harvoni® by 25%, then the drug would cost $70,875 for 12 weeks of treatment (or $23,625 less than the listed $94,500 sticker price). How much of that reduced price is passed along to the employer and what “vig” is the house taking for negotiating the deal? What does the insurance company stand to make in striking a deal?
  • Does the PBM force patients to use “in-network” pharmacies to get this same deal? This question opens up a separate can of worms as there may be an inherent conflict of interest for a PBM to strike a deal that adds business to a subsidiary. In both cases, CVS & Express Scripts own specialty mail order pharmacies that they could restrict patients to use (as long as “Any Willing Provider” laws don’t apply).  So when they negotiate, who exactly are they representing?

Stay tuned for more episodes of Drug Wars as this amazing example of pharmacoeconomics unfolds…

[1] Walker J. CVS Gives Preferred Status to Gilead Hepatitis C Drugs Harvoni, Sovaldi: Will Require Medical Exception or Prior Authorization for AbbVie’s Viekira Pak. The Wall Street Journal. January 5, 2015. Available at: http://www.wsj.com/articles/cvs-gives-preferred-status-to-gilead-hepatitis-c-drugs-1420478490, accessed on January 5, 2015.

[2] Tirrell M. Gilead fights back: CVS to cover its hepatitis C drugs exclusively. CNBC. January 5, 2015. Available at: http://www.cnbc.com/id/102310444, accessed on January 5, 2015.

[3] Express Scripts and AbbVie Make Hepatitis C Cure Available to Millions of Patients in Need. Press Releases. Express Scripts Investor Information; December 22, 2014.

[4] Fisher R, Ury W, Patton B. Getting to yes: negotiating agreement without giving in. 2nd Ed. New York, NY: Penguin;1991.

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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

2 Responses to “Drug Price Wars, Episode II: Attack of the Gilead Clones

  • Any other instances of drug price wars between PBMs and drug manufacturers that you’ve seen in the last 15 years?

  • Mike – Thanks for the question. The battle over price has waged on since the beginning of the industry that has become Pharmacy Benefits Management. This is one of the core value propositions PBM’s argue they provide to health plans. However, these individual drug price battles typically happen “behind closed doors” and rarely reach the New York Times or Wall Street Journal.

    The PBM provides its members with “Formulary management” services. A “closed formulary” means that manufacturers must submit a request to be included, an “open formulary” would mean that everything by default is included unless the member actively excludes it. The closed formulary option allows the PBM to be the “gatekeeper” and requests that the manufacturer submit a dossier (which includes clinical and economic analysis) for the proposed drug. This negotiation may lead to price concessions or rebates to the PBM/health plan in exchange for inclusion into the formulary (and most likely a preferred tier in a multi-tiered formulary).

    I hope this answers your question. If not, don’t hesitate to contact me at jmattingly@rx.umaryland.edu.


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