Meet Mylan’s Market Maker in the Pharmaceutical Industry
The New York Times reports that 20 states are accusing Mylan of price fixing. On the heels of #epigate, it’s no surprise. but these 20 attorney generals need to also take a look at Mylan’s middle man and market maker: the pharmacy benefit managers and the unregulated transactions happening there.
To recap: consumers sent Mylan to Congress over the skyrocketing price of EpiPens. After an extraordinary number of price hikes on little to no innovation of their best-selling EpiPen, first introduced in the 1970s, Mylan’s CEO found herself sitting center stage in front of a Congressional hearing trying to explain her business model and justify why EpiPens had hit a price tag of over $600.
She did a terrible job, and the Congressional committee didn’t buy it.
Neither did the state Medicaid or Medicare programs when they learned that the drug had been misrepresented to them, costing them millions. Lawsuits were filed, promises were quickly made. Payments changed hands.
But not enough changed, because consumers are still paying over $700 for a set of EpiPens.
Today, the New York Times launched another story that triggered another reaction in Mylan’s share price: “attorneys general in 20 states on Thursday accused six generic pharmaceutical companies, including the industry giants Teva and Mylan, of a scheme to artificially inflate drug prices…”
The company is already in the spotlight for #epigate, but what got little attention, aside from one mention by Ms. Bresch, Mylan’s CEO, are the transactions happening with the drug dealers of the pharmaceutical industry: the pharmacy benefit managers.
These middle men have carved out an extraordinary niche for themselves. They set the market for drugs.
They design the transactions between the drug companies and the end users. They play an enormous role in pricing, product selection. promotion, the spread and the sales.
There are three main pharmacy benefit managers in the U.S., commonly referred to as PBMs. Their stocks go up if the prices of drugs go up, as they make money on the spreads – the differences between what they charge the drug companies for the product and what they sell it for to the end user. Their stocks also go up if we stay sick with the skyrocketing rates of conditions like allergies, cancer and diabetes. In other words, they have little to no incentive to cut a deal and get the highest priced drugs onto the market. They make money on the size of the spread.
Since 2003, the two largest PBMs—Express Scripts/Medco and CVS Caremark—have seen their profits increase by almost 600% from $900 million to almost $6 billion.
That number, $6 billion, is larger than the current FDA budget. All three PBMs are the largest company by revenue in each of their representative states. Mylan is the largest company by revenue in West Virginia, as they engage in the art of dealing drugs.
“Dealer” is definitely the word, as their transactions resemble those you might find in a casino or the banks prior to the mortgage crisis. Why? They are unregulated, creating their markets, their own players, their own spreads and their own deals. They rig the game, and the drug companies that play nice with them win.
If a company like Mylan wants to keep a competitor out of the epinephrine space, they can buy that option. You have to wonder how that revenue is recognized by the PBMs. The transactions are done to protect market share.
Perhaps that is why Ms. Bresch was so quick to love them up at a recent industry conference. It’s bad for her business to be on the wrong side of these guys, not to mention that they can determine who, if any, of her EpiPen competitors make it into pharmacies and approved drug programs. If Mylan wants EpiPens 90%+ market share to continue, they have play nice with these pharmacy benefit managers.
Some call it extortion, some are calling the PBMs the mafia. One thing is certain: much like the banks used to be, the PBMs are totally unregulated and can set whatever spreads in whatever markets they want.
Many employers and health insurers hire pharmacy benefit managers to provide a list of coverers drugs, negotiate the prices of these drugs with the drug companies like Mylan, and then to create networks of pharmacies. In other words, PBMs are market makers.
For those of us in the food allergy world, we remember the competitor TwinJect, and we watch with deep concern as Auvi-Q tries to re-enter the channel. Mylan has worked closely with the PBMs to secure it 90+% market share that Bresch mentioned in her Congressional testimony. And deals are often made for a price that secure exclusivity. A lock up and a lock out. It drives shareholder returns for both the drug company and the PBM, and given the massive increase in revenue in both channels over the last decade, no one is complaining.
Except for the consumer and now the attorneys general in 20 states. Why? Because this price gouging is impacting the consumer who is not only buying EpiPens, but also diabetes medications and supplies, asthma meds, cancer meds and so many more. In the United States, we spend 18 cents of every dollar managing disease. These guys are at the mouth of that spending fire hose, happy to catch as much as they can.
Can we blame them? It’s their fiduciary duty to shareholders, and no one is regulating them.
But recently, Anthem Health filed a lawsuit against one of these big PBMs to the tune of $15 billion. Others are looking at the PBM channel, too, which is hidden and shrouded in back room deals and under the table handshakes. It truly does seem like some sort of mafia film. And it’s stunning that three companies have been able to command billions from drug manufacturers, health care plans and consumers. It’s become such a lucrative deal that United Health recently launched its own PBM and reports it to be their fastest growing revenue generator.
But according to the drug companies beholden to these PBMs, “its the mafia, extrortion, a system that does not allow access to innovation.”
And given the rates of disease in our country, that is a serious problem.
So who benefits? The long-term, multinational drug companies like Mylan and the PBMs. They end up becoming “the smartest guys in the lab” not unlike Enron claimed to be “the smartest guys in the room.”
Can we afford to have innovation in the hands of so few companies? What does that mean to pricing? To the competitiveness of the marketplace? What does it mean when it comes to protecting the health of our families?
Drug costs in the United States are astronomical compared to other countries.
And the system is not only broken, but unregulated,as we now know with the PBMs. Not only are consumers suffering, but corporations paying skyrocketing health care costs are, too.
This year, something remarkable happened. A groups of multinational companies came together to form the Health Transformation Alliance. In their words, “The current health care system is unsustainable and it costs too much. The Health Transformation Alliance’s goal is to improve the way corporations provide health care benefits in an effort to create better health care outcomes for their employees. By coming together to share expertise, the companies seek to make the current multilayered supply chain more efficient. We view it as A Better Way.”
In other words, they’re getting hosed, too.
Take a look at who is in it:
The 20 companies that formed the alliance include:
- American Express
- American Water
- BNSF Railway Co.
- Brunswick Corp.
- Caterpillar Inc.
- Coca-Cola Co.
- E.I. du Pont de Nemours & Co.
- HCA Inc.
- Hartford Financial Services Group Inc.
- IBM Corp.
- Ingersoll-Rand
- International Paper Co.
- Lincoln Financial Group
- Macy’s Inc.
- Marriott International Inc.
- NextEra Energy Inc.
- Pitney Bowes Inc.
- Shell Oil Co.
- Verizon Communications Inc.
- Weyerhaeuser Co.
There is so much more to uncover here, and we have more articles to share.
The current health care system is broken, and the PBMs certainly don’t want you to know about it.
A few weeks ago at the Forbes Healthcare Summit, Mylan CEO, Heather Bresch, had the following to say:
“The pharma pricing system was not built on the idea of consumer engagement,” she said. “It was built … on market efficiencies. It was not built on the premise of consumerism.”
As the attorneys general turn their eyes onto the price fixing by Mylan and other generics, it’s time for them to take a look at how companies like Mylan play the tables and spreads with the pharmacy benefit managers.
