Mar 22, 2023
On March 16, The Capitol Forum hosted a conference call with Antonio Ciaccia, CEO and Cofounder of 46brooklyn and Ben Link, President and Treasurer of 46brooklyn’s Board of Directors about spotting anticompetitive practices in the pharmaceutical supply chain. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Thanks to everyone for joining us today on this call to discuss anti-competitive practices in the pharmaceutical supply chain. I’m Teddy Downey, Executive Editor here at The Capitol Forum.
This call is part of a broader series that The Capitol Forum is doing and we’re calling it exclusive drug dealing. We put out our first article yesterday on Copaxone which was majorly inspired by the work of a group called 46brooklyn. I’m very, very pleased to have Antonio Ciaccia, CEO and Cofounder of 46brooklyn and Ben Link, President and Treasurer of 46brooklyn’s Board of Directors here today to talk about this topic. I’m also joined by my colleague Laura Wadsten. Thanks to all of you for joining us today.
ANTONIO CIACCIA: Good to be here.
TEDDY DOWNEY: Yes, thank you. A quick note. I just want to go over one quick housekeeping thing. If you want to ask a question, instead of emailing us, you can actually go into the app here on the questions tab and type in a question in the question pane of the control panel. Send your questions at any time and we’ll collect them and address them during the Q&A at the end of the interview.
Let’s jump right in. Your website, www.46brooklyn.com has some amazing resources breaking down the pharmaceutical industry, particularly when it comes to showing the most reliable pricing data that we can have on drug prices and also shining a light on some of the aspects of the supply chain that most people aren’t necessarily familiar with or that are hard to track down.
Again, we really borrowed a lot from “The flawed design of Medicare Part D” on Copaxone, a case study that you produced. I would love to just hear how you tell the story about Copaxone, what stood out to you about the drug and what attracted you to write about it. I’d love to hear your take on it.
ANTONIO CIACCIA: Let’s start with a zoom out before we zoom in. Look everybody complains about drug pricing. Regardless of whether we think prices are too high, too low, somewhere in the middle, one of the things that has always fascinated us as researchers is that there is an incredible lack of nuance and understanding of how prices are set and furthermore, the diversity of what price even is.
One of the things that we aim to do at 46brooklyn is taking publicly available drug pricing data and using it in such a way to help folks better understand some of the nuances that live within the drug distribution channel.
In that drug distribution channel there is an underlying philosophy that is supposed to govern how we are exposed to the prices of medicines over time. In the United States we grant patents and we have patent exclusivity for brand drug manufacturers. That often allows brand drug makers to set whatever prices the market will bear for new medicines that enter the marketplace. Whether we think that that system is working or not, there is an understanding that at some point, that exclusivity runs out. At that point, the recipe for the drug is gifted to the marketplace.
Now we could certainly argue whether patents undermine it but conceptually we have brand manufacturer receives patent. That exclusivity allows them to charge whatever they want for that medicine or whatever the market will allow them to get away with and then there is an understanding that eventually the generics and biosimilars will come to market and will eat all of the price away.
As soon as more manufacturers can start making that drug, there is an understanding that the value is going to be cannibalized by competition and if I’m a brand drug manufacturer, I now need to bring a new innovative product or many new innovative products to market in order to keep the [inaudible] full.
Regardless, we could say whether or not that’s working well, but again, philosophically, that’s the churn. You get a drug, you charge what you want, you make a lot of money and eventually, that ability goes away.
As we look at drugs that have been maligned for high prices for a number of years, we as industry folks are extremely interested in when that moment comes and all of a sudden, all that value will be sucked out because we are so focused on the rising prices, we say, hey, what about when they go down? That’s a really good thing. We should be celebrating that.
We track the prices of generic drugs on a month by month basis on our site. You’ll see that, ‘Wow there were drugs that were thousands of dollars that all of a sudden are $100’ within one year. Then we go and look at what people are being charged. We go and look at what’s being covered, what patients are still taking and that generic value, the value of generic competition is often being undermined and it’s being undermined because of a perverse system that lives below those list prices that allows for drug manufacturers to pay PBMs and government programs in 340b covered entities as an enticement to keep the brand alive.
In the Copaxone story, what we refer to it as is a zombie brand. This thing should have been dead by now and here it is still walking among us and thriving and having plans actually prefer that medicine and disqualify a generic from coverage altogether. That has an impact on commercial employers who don’t get the full value of those rebates and discounts. It has impacts on government programs that also may not be getting the full value of those discounts. More importantly, it has an impact on patients who are stuck paying the overinflated amount of a very expensive legacy brand drug that has much cheaper alternatives in the marketplace that are sitting there collecting dust on the pharmacy’s shelves and that patient is being forced to pay thousands of dollars when something else could be afforded for pennies on the dollar.
As we started to learn about that dynamic, we said okay, what are some drugs that we might be able to look at on an individualized basis that are the canaries in the coalmine. By no means is this a problem across the board with every brand drug. One of the things we’ve learned over time is that they prescription drug supply chain cherry picks where it makes its money.
We did a study in Oregon not too long ago where we looked at pharmacy profits. Five percent of claims generated 62% of pharmacy profits. That same phenomenon exists across the board from manufacturer to wholesaler to pharmacy to PBM and to health plan and everywhere in between.
We look at this as an exercise in seeing where the system is failing and Copaxone was front and center. Ben Link, my colleague looked at these drugs from a clinical perspective, him being a pharmacist, and thought wow what a great opportunity to dig into something that isn’t the way that most people think it should be.
TEDDY DOWNEY: Great. I’ll let Laura take the next question here.
LAURA WADSTEN: In terms of Copaxone, the manufacturer of brand name Copaxone is Teva which is kind of interesting because a big portion of their business is in generic medications. On their website they even call themselves “The world’s leading manufacturer of generic medications,” but with Copaxone, they’ve gone to great lengths to discourage competition from generic competitors based on our own investigation and others including a 2020 report by the House Oversight Committee.
Is it odd that Teva has done so much to deter generic competition – from patent infringement lawsuits, the FDA citizen’s petitions, suing the FDA and then this exclusionary dealing – given their general emphasis on manufacturing generics or did that generic expertise mean they knew exactly how to foil the competition? They had the playbook?
ANTONIO CIACCIA: Well, they better have the playbook. Certainly, if they don’t have the playbook, my question would be why would they still be in existence today? Of course, they know the playbook. Everybody in the drug industry knows the playbook.
While it’s tough for me to speak to what Teva was intentionally doing, let’s just talk about incentives. Brand drugs, if you still have exclusivity, you own the market. If you can rebate your way into keeping that marketplace even after exclusivity lapses, you basically stave off all of those competitors that you have to deal with on the generic side of the ledger.
The way this works is you have very popular medicines that go generic and there is a feeding frenzy. There is a very, very healthy amount of competition in the generic drug space, at least relative to the other layers of the drug supply chain. Again, they could take a drug that’s thousands of dollars and beat it down over time to just making it hundreds of dollars which means that evaporates the value of that product.
If Teva was sitting there saying, “As a for-profit company, we can either make money on this as a brand or generic.” The profitability opportunities are far more significant by retaining market share on the brand side and undermining the ability for a more vibrant generic marketplace to be able to develop because that’s where the value gets sucked out of the system.
TEDDY DOWNEY: I want to stay on this for a second, on Copaxone in terms of all the different anti-competitive practices that they engaged in as they were facing generic competition. How unusual is that? Is that atypical, the lengths that they went to?
What I thought was interesting about Copaxone in part was there is so much investigative material. PBMs are a bit of a black box, it’s just so hard to figure out information about them. There is actually a lot of information about this.
We got to see Teva fight the generics before the generics entered. Then they had a strategy once the generics entered. Then they had multiple ways of dealing with the PBMs. One was keeping the generic off the formulary. The other was this fraudulent sounding thing where they said, “Actually, just fill it at the specialty pharmacy as the generic and just put Copaxone in there.” Then they had “prescribe as written.” I forget what that is.
Just so many in this playbook. You mentioned everyone knows the playbook. Is Copaxone the playbook? I’m wondering how widespread that is as well.
ANTONIO CIACCIA: You have differentiating incentives with different categories and classes of drugs. We looked at this issue years ago with Prilosec and Nexium which were proton pump inhibitors made by AstraZeneca and they deployed a well-documented strategy called The Shark Fin Project where AstraZeneca was at risk of losing its golden goose, the famous purple pill Prilosec.
They did a number of things to ensure that they didn’t lose all that market share to a vibrant generic marketplace and instead deployed a number of strategies to bounce essentially over the generic marketplace and pivot everybody into Nexium.
Now that is a multifaceted campaign that requires a lot of different things to occur, but I would argue that one of the basic fundamentals of the “how” is what is the relationship that exists between the seller and the buyer. At the end of the day, we assume that PBMs and health plans work to try and take advantage of competition to the betterment of the patient and the plan sponsor, doing what they can to pass the lowest cost back to patient. This is not true. They’re not built that way. They’re fiduciaries to shareholders like every other layer of the drug channel.
This is where incentives align between that buyer and seller. PBM has an interest in keeping prices inflated and negotiating off of those inflated prices. The higher they go, the more opportunity there is to negotiate down a bigger delta that they can retain a share of, but also pass through to lower premiums which helps them on the business development side.
There are a number of things that go into it and certainly not anything that is exclusive to Teva, but one that is only enabled by the dysfunctional relationship that exists between manufacturer and PBM.
I’d be curious if Ben has thoughts on that as well.
BEN LINK: I would add that I have never served on a drug company, but from my understanding of the industry, often times there are executives for product launches. You’re overseeing this product that is your baby. You nurture it, grow its market share, bring value to the company.
When you ask the questions, “Is this atypical?” “Is the playbook known?” I think it reflects this idea that your job is this product. You might have had prior experience like the Nexium example to Esomeprazole or you might hire a consultant that helps you gameplan strategies to do this. Then you start to see the same strategy creep up in other areas.
Again, there have been lawsuits in this region of anti-competitive practices and consumer-driven harm due to the delay for generic, whether that’s pay-for-delay outright or other sorts of product hopping or kinds of things I think your question was asking about. To pass judgement on whether something is typical or not is a little bit difficult because there are certainly examples of it occurring pretty much everywhere. It’s a scale, degrees of difference.
When you take a step back and you understand that at the end of the day, there are probably humans whose jobs are more or less on the line, if they’re within the House of Teva and ultimately Copaxone goes away.
Is there a product to hop on and try to manage? For Teva executives, they don’t really have those brand products to hop on and do these kinds of things as typical, so you might really be looking at losing your job if your strategies start to not work or start failing. You might take more aggressive actions just because of what your realities are.
It’s a complicated question that is tied not only to what the rules of the road are and what is “fair play,” but also just to the individual incentives of the people making those decisions. That’s always going to be far harder to get at than anything else.
TEDDY DOWNEY: I’ll let Laura ask the next question.
You make a really good point, if these people at the pharmaceutical companies where once the end of the road was met for their drug and they didn’t have all these options to try to frustrate the transition to generic, they would then necessarily need to go focus on developing a new drug, which I think would be at least in the spirit of the law and an incentive that might actually make sense if you’re a pharmaceutical company. These are not simple plans by the way. These are complicated plans that require a tremendous amount of creativity and effort. If that were actually channeled into developing new drugs, that might be more helpful to the system and society.
ANTONIO CIACCIA: Teddy, real quick, that’s how we want the system to go. We want that pressure of losing the breadwinner of the family, you want that pressure to goose them to try to bring something incredibly new, innovative and valuable in the marketplace.
That’s not to say that some of these follow-on products don’t have value, but we could certainly make an argument they’re not necessarily all that innovative when we look at examples like the Prilosec and Nexium switch, but let’s look at this objectively.
When AstraZeneca was about to lose Prilosec, it was an existential threat to the entire company AstraZeneca. They were sitting there saying, “We may not actually exist without some sort of solution and fast.” They looked at the options available to them and said, “Look, this is where we’re going to concentrate our efforts.” We might sit there and say, “No, that’s not valuable. We don’t want that. Shame on you AstraZeneca.” But I go back to they would not have spent that time and energy bringing Nexium to market unless there was patient demand, doctor demand, PBM demand and health plan demand.
Yes, they put their thumb on the scale in different ways to make all of those things happen, but again, we have to understand that the seller was responding to the allowances and the incentives that were created by the buyers.
TEDDY DOWNEY: Yes, but the PBM one is the one we really are focused on. It’s also like if that were illegal, if that incentive that you’re talking about, the payments coming from the PBM ostensibly the buyer or seller or whatever we’re calling it is not allowed, that would change your incentives pretty quickly.
Laura, do you want to take the next question here?
LAURA WADSTEN: Yeah, so something that’s come up a lot I know in our work and you mentioned it in your report a couple times is the lack of transparency or how difficult it can be to try to identify and find data and then actually understanding these practices. I know PBM contracts, those aren’t available for us to review.
When you look at the pharmaceutical supply chain, where do you see some of the most severe issues with lack of transparency or accountability? How do you try to get around those in the work that you do?
BEN LINK: I think that when it comes to drug pricing research in general, I think that history is often the best teacher informing us about what we’ve tried and what has worked. I think that when it comes to drug pricing, and this goes back to some of the learnings about what is AWP, what is WAC, why do we have this thing called [inaudible], why are there a dozen different ways to talk about drug prices?
That reflects this involvement of a third-party payer, this idea that these drugs are going to get expensive because in some way shape or form of the value that they’re bringing. In order to afford them, we can’t afford them by ourselves. This isn’t eggs or milk that we’re buying, this is innovation that is more so than even a car at an annualized basis often times.
We spend a lot of time trying to quantify drug pricing at the manufacturing level. We had a lot of different pricing benchmarks that tells us what manufacturers are doing with their prices at various levels in the supply chain. We spent a good amount of time trying to quantify prices at the provider level. What is the pharmacy going to charge me to get this medication?
But the black box is the middle. We know that it’s not a direct manufacturer to pharmacy and unfortunately, we’ve allowed that middle to extract a great deal of value from the system because of arguably the lack of transparency. If you’re familiar with our work, we try to be as detailed in our methods as possible and say, “We did this because this piece of federal code says this definition means this.”
Also, we’re going to have to make some assumptions about what we think and a lot of that comes down to our past experience running pharmacies or administering benefits or past works and whatnot. We put our assumptions on paper. We say, “We’re assuming this.” The goal is that if someone is going to challenge the work, they’re going to have to provide the transparency to say, “No, you got this assumption wrong. The real answer is this.” Often times the supply chain is unwilling to do that because it’s probably worse than what we assumed, is the short answer.
It’s not easy. It takes a lot of built-up familiarity in the system, knowing where to go and look. Where are resources that are available in the public domain that can inform what the incentives might be?
ANTONIO CIACCIA: Every drug pricing dataset has limitations and flaws. The value that we hope to provide is giving people a complete understanding of the positives and negatives and limitations of every dataset that we can get our hands on.
Thankfully, even though they are imperfect, there are a number of publicly available drug databases of datafiles that we can use to help tell partial stories and when combined with other imperfect data, it starts to tell you a more complete story.
We always talk about drug pricing as if it is a black box and it absolutely is. We view our role in this is to take as many flashlights as we can to shine them around the black box, understanding that eventually you start to at least shape out and size what that black box looks like and spend enough time obsessing over it to be able to say, “We may not know exactly what’s inside of there, but we’ve seen enough to know that that would fit in there” if that makes sense.
We try to do what we can to take data from CMS, which we would not be anywhere close to where we are today if not for some of the data availability as limited as it is from CMS. That’s how we were able to diagnose the spread pricing problem in the Ohio Medicaid program four years ago just with very imperfect data. We were able to set them off on a crumb trail.
You referenced some of the work of the Columbus Dispatch in your report from this week. We were able to use that in such a way to provide that crumb trail that led state investigators to find $244 million in hidden funds that were being sucked out of our Medicaid Managed Care Program.
There will always be imperfect data, the value is what can you do with it to squeeze learnings that you otherwise might not be able to just by downloading a simple Excel file and looking at it standalone.
LAURA WADSTEN: Yes.
TEDDY DOWNEY: I know we looked at your approach and thought okay, if we can take the pricing data and then look at the NADAC data that you all present and then look at the market share data and then look at which drugs are excluded on the formularies, the formulary data, you have a fair story. It’s not a complete story, but it’s a compelling story.
Just staying on that, where we came out on it was look, this is enough for the FDC to certainly investigate if not bring a case just based on there is a story to tell. They can access more information through 6b investigation and through subpoena power and things like that.
What about Copaxone do you think was so compelling about that data? What was indicia of what was going on that would make it a good FTC case? Antonio, your quote was ground zero, dead center of what the FTC would want to do to really change incentives, enforce against this type of thing. I’d love to get your take on that.
ANTONIO CIACCIA: Ben will be smarter on this than I.
Just from a simplicity perspective as I framed up at the beginning of this, we have an understanding that once generic and biosimilar competition hits a particular drugs’ market, we’re going to see a massive amount of deflation of the cost of that drug. I look at it as how wide is the alligator mouth, between the list price of a brand drug and what the generic drug marketplace is yielding.
To me, the larger the delta, the more interesting it becomes. When you look at those drugs that have that massive delta and then you look in Medicare’s utilization files, you start to see there are thousands of dollars difference that impact patients paying at the pharmacy counter. There is no way that anybody is covering this brand drug over a generic, right? There’s just no way. But absolutely there is. The fact that over 20% of plans are forcing the patient to buy the brand is unfathomable to me. It is the exact opposite of what we think the drug marketplace as designed under Hatch-Waxman is supposed to yield.
BEN LINK: I would add that if you are familiar with our report, it’s very tongue in cheek. As Antonio was saying, the overarching structure of the system seems to favor generic drugs when you get the chance and yet we are well aware of many instances where the system fails to achieve that result.
Medicare is always a very interesting case study because in the grand scheme of things, we as consumers will all hopefully get to retirement age and get to enjoy the benefits of Medicare at some point, right?
We are not positioned for success in Medicare. If you follow studies like from the Kaiser Family Foundation, the facts tell us that the majority of us access insurance through a third-party staked to our employer. Most employers are giving us very limited options. The most common one is, you sign up with your employer and they say, “Here is your health plan. Enjoy it or don’t. It’s your choice.” That’s the extent of your selection of plans.
When you get to the age of 65, hopefully you get to retire and get your Medicare benefits and oh by the way, here are potentially dozens if not hundreds if not thousands of plans in your area to select from with different benefit designs. All that competition is supposedly desirable, but we have no experience as to how to shop for and choose the best plan for us. Often times we might make the assumption that those plans are going to act in our best interest, but at the end of the day, they’re not really beholden to do that for us as consumers as these things demonstrate.
The crazy thing about Copaxone as a story in particular is that all else being equal, if I had someone who was in Medicare at the time and had multiple sclerosis and needed to access Copaxone, the math tells us that the band is the better option for the patient at the end of the year, all else being equal, depending on actual prices the system is conveying upon you because it’s not necessarily always in relation to what the list price of the product is. That’s nuts! That’s crazy!
The story that gets lost in utilization data is what doesn’t happen because people can’t afford it. A drug like Copaxone, even its generic, is going to push you through your deductible and your initial coverage limit incredibly quickly. Then it is how do I get back to a place where my insurance has value? How do I get back to a place where what I’m paying premiums for is going to offer me some price protection through coverage gap, donut hole or whatever you want to call it.
The answer is jump on that superhighway that we talk about. Jump on and let the brand help subsidize the cost for you to get there. At that point it becomes, “Is it any wonder that this is the way that the system is acting?”
Our biases always lean towards trying to study the incentives because they are often more informative of why this is occurring even if it is shall we say against our better judgement.
LAURA WADSTEN: Yes, something really interesting I remember in the House report was they cited one of Teva’s own employees being unable to afford their Copaxone and so they just gave it to them free. It is ridiculously unaffordable.
BEN LINK: Yes, and again, the premise is the value of your insurance. What are you paying for? There are ways by which the system can extract more than its fair share. As designed, the standard plan design for Medicare, even though no one really uses it, so why do we call it standard, is supposed to have this concept that you’ll pay 25% and somebody else will pay 75% along the way. You can see the incentives of the system and say, actually, if I DIR and get price concessions on the backend, I can make my reality not equal my fair share. I don’t have to pay 75% if I get these costs offset retrospectively. I can actually shift costs more so onto you the consumer which again is an argument that the system isn’t designed to necessarily protect the consumer and oh by the way, you never have a good experience shopping for this product that you’re about to buy.
ANTONIO CIACCIA: One thing to remember about all of this is that we’re focused here on one drug, but it’s a drug that ultimately goes to help treat multiple sclerosis. Those patients are not just taking this one drug. One of my good friends, Bari Talente who works at the National Multiple Sclerosis Society. One of the first things that we talked about when we started looking into this was how many medications the patient that suffers from multiple sclerosis will be on. This Copaxone is essentially the starting point. It’s the foundation of their cost experience let alone all the other medicines that they will have to take to manage their chronic disease over time.
TEDDY DOWNEY: One thing that was shocking to me was the foreclosure against the generics, the generics being excluded from the formulary is going up. That is just shocking, just the durability of the brand to maintain share and successfully exclude the generic.
We had a quote in our piece from Phillip Longman from Open Markets [Institute] that a lot of people describe this as legal bribery, but if you enforce the antitrust laws, it’s just bribery. I’m curious, there is one thing if the FTC actually starts enforcing the law and they go after the Copaxone’s and similar situations, that’s one possible solution.
I’d like to take a step back and just look at the perverse incentives that you have talked about a lot and if you could just wave your magic wand, what would need to happen to get those incentives to be realigned with the outcome of what is envisioned by Hatch-Waxman and also state laws prohibiting exclusion of generics or mandating I should say generic substitution and the philosophy of how the market should work as originally intended? If you could wave your magic wand, what would you do?
Maybe we can get into some of these other regulators after that.
ANTONIO CIACCIA: I would trust that if you have made it as far down the rabbit hole at 46 Brooklyn Research that you would be familiar with the Drug Channels Institute. I think Copaxone represents one small data point that lives within Adam Fein’s overall gross to net bubble.
What is the gross to net bubble? The gross to net bubble is the difference between the list prices of drugs and the net prices after all the rebates and discounts are tabulated.
What are rebates and discounts? They are retrospective concessions that are made by manufacturers in exchange to gain market share. Why are they able to do that? Because back in the 1980s, Ronald Reagan signed the Federal Antikickback Statute saying that kickbacks are expressly adverse to more functional marketplaces and can allow for the engagement of anticompetitive behavior that undermines efficient marketplaces for consumers.
It was until the ‘90s that drug makers and PBMs and health plans got exemptions from that Federal Antikickback Statute that allowed for this exchange of compensation from drug makers to PBMs in exchange for favorable degrees of coverage.
The more that a drug maker can cough up to a PBM, the more benefit that they can get from a market share and utilization perspective. PBMs will point to that and say, “That’s us using our competitive muscles to force the costs of medicines down,” but the list prices stay inflated, in fact become increasingly inflated, as the demand for more rebates and discounts grow. Since drug makers can set whatever prices they want, you have this increasing distortion among brand products that have competitive dynamics.
Now then we have other marketplaces, and Ben alluded to this earlier where you have milk, eggs where all of these things are bought with our wallets and our purses, right? Those that supply those products that we buy with our wallets and purses from the manufacturer making the good to the wholesaler distributing it to a grocery to the grocery store itself, every single one of those layers of the supply chain are responsive to our incentives. There is only so much money that we’ll be willing to pay. As such, that impact that we have as consumers pushes the entire distribution channel of products that we don’t need but are available in a retail environment to be price sensitive to our wishes. Manufacturers and suppliers in traditional marketplaces have to factor in and balance their desire for profits with the reasonableness of price to attract more purchases.
The exemptions to the federal Antikickback Statute changed all of that. All of a sudden, our wallets and our purses have no meaning because now 95% of all medicines are purchased through third-party insurance and benefits. Now the prices are calibrated to meet the demands of who that purchaser is and that purchaser demands higher list prices and higher discounts that can be used for arbitrage or for subsidizing other things.
But we have to go back to what is that rebate. How was the rebate created? It was created by somebody overpaying for a medicine at the pharmacy counter whether that be the employer, the patient, a government program or some combination of all three. Those rebates are money from sick people and so until we change that dynamic and have a marketplace that’s better aligned to be sensitive to our wallets and purses, we expect that this problem will get worse over time and the ability for manufacturers to buy market share that may conflict with the interests of our doctors or our pharmacists or the patients themselves, that dynamic will get worse over time.
BEN LINK: Medicare again is an interesting case study in all of this because often times the measure of success of the Medicare Program at least as it’s commonly reported is where premiums kept unchanged. It’s an interesting performance measure when you consider that most things are going to get more expensive year over year. How can you have a premium product for something where the underlying costs are going up be constant? It’s because of this gamesmanship on the backend of this extracting more and more retrospective discounts, Medicare in particular.
It’s the whole rush to reinsurance. You know that if things get super expensive it becomes effectively not your problem anymore. It becomes some other party’s liability, i.e. the government to act as a backstop through reinsurance.
Again, the incentive structure at-large is not predicated off of, shall we say, the standard operating procedure of most other markets where in some way shape or form, the underlying cost to produce will be a guidepost towards what the cost of the product is to the consumer.
Antonio’s example of brands and this rebate game and the call to the gross to net bubble, well what are the consequences of that to the generic market? Generics are most often going to set their prices to the market in reference to the brands that they replace. If these products ratchet up their prices over time, effectively that becomes a problem that the generics inherit and hopefully over time, yes, they will work to shrink that and that’s part of why you see this huge collapse in generics too.
Why is there such a gap between the innovative and noninnovative product? Again, to make an unreasonable comparison out of knowledge, you go to the grocery store, you can get Frosted Flakes or store brand corn flakes with sugar. The gap between prices of those two products is generally speaking not that great. If you are someone like myself who believes in the advertising of Kellogg’s that I should have the name brand Frosted Flakes, I can make my choice and pay a little bit more for that premium.
The United States is pretty unique in that when patents and exclusivity periods lapse for brands, the brands don’t stick around to compete with the generics often times. If you look at other countries like Australia or whatnot, often times when they lose exclusivity, they’ll bring their prices more or less in-line with the generics with a little bit of a premium akin to my cereal example.
Why are they divesting in the infrastructure that went into producing this product for a decade or more? Why is that the expectation of value for them? Again, yes, I think that we want the capital of the system to largely be directed towards the next innovation, the next best thing, but it seems interesting that we abandoned the thing that got us here, the horse that brought us here. It would be like if Amazon stopped selling books just because they make all their money in the cloud now. We don’t expect Amazon to stop selling books anytime soon, but that’s our expectation every single time a product loses exclusivity.
LAURA WADSTEN: Would it be fair then to say that in summary part of the problem is how insulated consumers, the actual final buyer of the product is from the price?
BEN LINK: It’s hard because today the products that come to market that get the headlines are million dollar therapies. Hemgenix just came to market as a $3.5 million therapy. You or I could not afford that. I don’t even need to know your salary to know that we cannot afford that. I would wager that no one on this call could afford that. There are very few that could ever want to afford that product, but that product certainly has pretty good value for what it is, just objectively speaking, even by standards.
There is only so far that we can go in exposing consumers to price that is reasonable. I think the underlying question is more that measure of premiums. I’m more familiar with Zolgensma, the first million-dollar therapy. In the grand scheme of things, the number of people with spinal muscular atrophy in this country is somewhere less than 10,000. Some subset of that is going to be eligible for Zolgensma treatment even at $1 million plus. The system should be able to handle that if we are all putting money into a collective pot for premiums. It’s no different than insuring a house for a tornado, a catastrophic loss, a catastrophic claim should be able to be insured.
Part of the problem is the disparate way we access drugs. If you’re a mom and pop self-insured employer, that million dollar claim could double, triple, quadruple your drug spend overnight by just having one instance.
Our collective ability to manage risk in this environment is semi-limited and so it’s this constant yin and yang of what do we want the drug supply chain to really do. What do we want? And so, I think personally we do want innovation. We want there to be incentives to cure cancer, to cure diabetes, to do whatever these look like and so the question is does our current model align to award that? Is asking patients to bear increasing costs the best way to reward that?
TEDDY DOWNEY: Given the unaffordability for most people of these drugs, it seems like price, especially since most of the prices are not reliable we’ve been talking about. Your whole podcast series just makes it clear that these prices are completely unreliable all over the place. You just have to do your best just to find a reliable, useful dataset.
Price seems like a weird thing to focus on I would say if you’re trying to change the incentives given that there are so many different players and customers. But the law, as Antonio was talking about, the Antikickback Statute, whether or not there are exemptions, enforcement by the FTC seems to be a very clear way that we can discuss the incentives changing in the near term.
We obviously focus our article primarily, almost exclusively on the FTCs authority, their statement suggesting that they are going to ramp up enforcement.
I wanted to ask you both, we also heard that look there are these other authorities out there. We saw DOJ has an Antikickback Statute case against Copaxone. There is a whistleblower case against CVS, so there are private plaintiffs lawsuits. Obviously, we mentioned HHS’s authority. I don’t even think it’s a clearcut exemption in many respects that these companies think they enjoy. We’ve got state AGs. I even heard that state pharmacy board administrators actually have some authority over what’s going on with these state mandates for generic substitutions being violated. That was another allegation in one of the lawsuits against Copaxone.
Based on the work that you’ve done and what you’ve seen, is there any sense that any of these other groups are digging in on this issue? Do you get feedback from your work? Do you get interest? President Biden has this all-of-government antimonopoly strategy. Do you get a sense that any of these other entities might be interested in doing something here?
BEN LINK: Before Antonio answers, I just want to say I appreciate that the message of the podcast came through. That’s good to hear.
ANTONIO CIACCIA: I think in general, my experience from a public policy perspective, obviously public policy overlaps with politics. Often, I see politics undermine the intestinal fortitude necessary to make wholesale changes to realign this marketplace. A lot of people talk a big game, but then push comes to shove and there are other things to take priority, whatever those may be.
Catch me tomorrow, I might sound more optimistic than I do right now. I can admit that my feelings will change from time to time, but in general I feel a little bit pessimistic just because of past history, but I could easily undermine that attitude by saying five years ago people couldn’t spell PBM, right. This is why we do what we do. The degree of sophistication is growing considerably and so when you look at it from that standpoint, maybe the more that they understand it the more equipped they are to do something. Again, not anything in particular, but we have a drug affordability problem. It’s going to take changes to the incentives and alignment of the system in order to solve that drug affordability problem regardless of what policies it takes.
To me, that success will be largely dependent upon how much policymakers or state attorney generals or state pharmacy boards whatever they are, they understand the size and scope of that problem. I’ve seen a lot of polices that are great at scratching the surface, but I think that the more that people can saturate themselves in nuance, the more steam they will have to carry things that are meaningful across the goal line.
BEN LINK: One thing I want to add is that we should have reasonable expectations related to give the legal systems remedies to our problems. We focus on incentives because better aligned incentives are more likely to have wholistic changes. We’ve seen plenty of litigation related to individual products and bad actions and there has been some financial remedy, and yet they continue.
The concern with any of the legal action is the time it takes. People will suffer from the snail’s pace at times of our justice system. That’s a whole different conversation, but it’s also one that is likely going to provide more narrowed remedies and more wholistic policy changes.
Again, it’s not to say that good investigative work by groups like the FTC or whatnot can’t inform better policy. That’s what we would want to happen. We want policymaking decisions that will be made with eyes wide open. We should recognize that those solutions are certainly going to be on a longer track of success, more likely going to be a continued game of whack-a-mole than we want or should accept as reasonable.
TEDDY DOWNEY: One thing I would say is the FTC is still only investigating the insulin manufacturers and we’ve already seen a pretty dramatic response from Eli Lilly and Novo Nordisk. I personally am interested to see if, as they investigate more of these drugs in relationship with PBMs if we will see that proactive response. Maybe it’s to undermine the case that’s coming. Maybe it’s just a response to all the political pressure, but we are seeing some activity, so I’m interested to keep looking at that.
We’ve got three questions from the audience. Let’s run through them really quickly before we let you go. One is how can small pharma and biotech companies best work collectively to push back on PBM exclusionary practices? Maybe throw in generic companies because they seem to have more of a reason to push back.
ANTONIO CIACCIA: It’s really tough. At the end of the day, if I’m a manufacturer, my business is predicated on getting my medicines in the bodies of patients. And who is standing in between me and the patient? It’s the PBMs and the incentives that govern them, so you’re kind of stuck unless you have better aligned PBMs or better aligned policies that make it more of a traditional model, but today, regardless of whether I’m big or small pharma, if I have a product and it is going to be something where there are other manufacturers that have similar products available, you have to play the rebate game otherwise you will be left out in the cold. We saw that with Semglee.
LAURA WADSTEN: What are some potential future tactics? We see that these PBMs, insurers, manufacturers evolve in response to when action is taken. Do you have any sense of what are some things they might resort to in the future?
ANTONIO CIACCIA: Well, the rise and advent of group purchasing organizations and rebate aggregators or as I’m trying to get them known as, “rebate alligators,” right around the time that the Trump Rebate Rule hit, PBMs started architecting their own group purchasing organizations or rebate aggregators, some of which are located offshore, that work to aggregate the buying power of a multitude of PBMs as if the marketplace wasn’t consolidated enough and use that to push for greater concessions for manufacturers.
What that creates is a new layer of the supply chain that will likely work around superficial policy attempts to get at PBM rebate passthrough but also essentially hide a greater share of drug maker discounts such that the PBMs don’t feel a sense of obligation to pass them through to commercial plan sponsors and government plan sponsors.
We see this on a regular basis where a plan sponsor like a commercial employer will say, “We get 100% of the rebates.” We asked them, “Is your contract with Zinc or MSR or Ascent?” which are the names of these large rebate alligators. They say, “No, our contract is with PBM” so they may be getting 100% of the rebates from the PBM, but not understanding that there is another layer of the supply chain owned by the same company that is harvesting those rebates and discounts before they even make their way to the PBM level.
LAURA WADSTEN: Wow.
TEDDY DOWNEY: One of the things that is shocking about that is that we pretend all these companies that are in the supply chain are really sophisticated. What you just described sounds incredibly unsophisticated in terms of knowing what’s really going on. Is that a problem with these health plans and insurers and employers in terms of the informational asymmetry; the myriad of ways to obfuscate and confuse people with the pricing? That’s just such a ridiculous thing that you just said. They didn’t even know they weren’t actually getting 100% of the rebate? How can you have a functioning market if some of the players are being manipulated that way?
ANTONIO CIACCIA: This is vertical integration and vertical integration is not an intrinsic evil but it presents new challenges from a policy and accountability perspective. If the same company owns the wholesaler, the pharmacy, the PBM, the rebate alligator, the health plan, the specialty pharmacy, mail order pharmacy, it presents new challenges if that same company now is gobbling up prescriber practices. New challenges, right.
That’s not to say that there couldn’t be value from that kind of alignment, but a lack of accountability and a poor alignment of incentives will absolutely allow that to become a massive problem from a payer’s perspective.
And of course, we should expect that as a push for scrutiny and accountability continues, these for-profit companies, not saying that in a bad way, saying it just to make sure that we are all being realistic here, it is incumbent upon them to evade scrutiny and accountability.
BEN LINK: The thing I would add too to answer your question right is at least in Ohio – your own article referenced The Dispatch investigations since 2018. I would challenge you to find commercial contracts in the state of Ohio that have taken on different payment mechanisms for PBM or other related services.
The state Medicaid program, as Antonio said, after finding it was hoodwinked to the tune of over $200 million, they moved to take away the price setting function of the intermediary by creating a different intermediary that they felt would be more beholden to them to set reasonable and fair prices for the network, right. To my knowledge, no one else has adopted a similar thing even when the state’s learning is front and center to them.
Yes, I think again you mentioned the podcast, there are 30 different exemptions that go into calculating what AMP is. Those black boxes are where value goes. The reason why a GPO can be spun up is because, as you say, admin fees don’t go towards that figure. You’ve seen that insulin investigation by [inaudible] talk about the value of the insulin admin piece.
No one is really that sophisticated right now. I think there is clear evidence of that lack of sophistication.
TEDDY DOWNEY: I can’t thank you both enough for doing this. It’s so interesting. We look forward to building off of your work, hopefully partnering up in the future on some of this data. I’m really so impressed with what you’ve done and continue to and really just can’t thank you enough for doing this today.
ANTONIO CIACCIA: Thanks for picking up the load for where we left off and thanks for having us today.
TEDDY DOWNEY: Thanks again. Thanks everyone for joining us today and this concludes the call.
