Latest / CareTalk: Healthcare. Unfiltered. / Blue Shield of CA's Bold Move to Bypass PBMs

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Blue Shield of CA's Bold Move to Bypass PBMs · CareTalk: Healthcare. Unfiltered.

• 0:00
  Blue Shield of California is trying a novel approach to control drug spending.
• 0:05
  It's bypassing PBMs by negotiating directly with the manufacturer of a biosimilar for Humira, a blockbuster drug that costs the insurer at least $100 million per year.
• 0:17
  Will this be a breakthrough for containing drug prices or is it really just a gimmick?
• 0:22
  What are the implications for other drugs and for the PBMs that distribute them?
• 0:32
  Welcome to Care Talk, America's home for incisive debate about healthcare business and policy.
• 0:37
  I'm David Williams, president of Health Business Group.
• 0:40
  And I'm John Driscoll, senior advisor at Walgreens.
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• 1:46
  David, it is the season of Halloween.
• 1:50
  most people, most lot of health plans think that they, their deals with PBMs are kind of trick or treat.
• 1:56
  Yes, I get some sort of a deal somewhere, but I'm not quite sure whether I'm getting tricked or whether it's a treat.
• 2:03
  And I think there's Blue Shield sort of throwing up their hands and negotiating directly with, you know, for biosimilars with Mark Cuban saying the heck with PBMs is sort of an interesting sign, if not of lowering drug prices, because it's unclear that the whole kit and caboodle is going to be saving a ton of money.
• 2:25
  But it is sort of a signature moment for a health plan to throw out a PBM and in fact say, no, I'm gonna do without them.
• 2:34
  Well, know, Humira is a big cost item.
• 2:37
  Hard to say exactly how big it is, but it's a major...
• 2:40
  It's big, big, big.
• 2:41
  It's big, big, big.
• 2:42
  It's a major anti-inflammatory drug used for autoimmune conditions.
• 2:46
  It's a biotech drug.
• 2:48
  So for a long time, they haven't faced any competition.
• 2:50
  Now there's a number of biosimilars that are on the market and these are not directly substitutable, but...
• 2:55
  know, pretty close match for Humira.
• 2:56
  So most patients can take it fine.
• 2:59
  And it gives them new opportunity to do something a little bit different.
• 3:04
  And it looks like what Blue Shield was doing was negotiating, as you're saying, directly with the manufacturer of a biosimilar, and they're trying to offer that.
• 3:11
  Now, I don't know whether you think this, John, this is just kind of a one-off, you know, you mentioned taking PBMs.
• 3:17
  Is this just like a demonstration project or is it the start of something new, you know, for Blue Shield that's significant for them?
• 3:24
  I think it's two things.
• 3:25
  One is I think the CEO of Bob Richie, Paul Markovich, is very creative and entrepreneurial.
• 3:32
  But in my conversations with him, I think the reason he got here is a reflection of the frustration that most CEOs of companies, health insurers who don't have PBMs feel, and that employers feel that the PBM industry is really the lack of transparency.
• 3:52
  means they don't know whether they're actually getting a fair deal or a raw deal.
• 3:56
  And so he decided to, he charged his team to actually go out and try to have a workaround to negotiate directly, not just by the way on Humira, which is a monstrously serious anti-inflammatory drug, which is to say it's very expensive.
• 4:16
  It's very common.
• 4:17
  And it is one of those occasions when you've got a biological drug for which there is a stable supply chain to create a biosimilar.
• 4:26
  Just to remind folks, know, there are two classes of drugs or types of drugs that people typically take.
• 4:32
  Stable chemical compounds like pills and capsules.
• 4:35
  The prices for those have dropped pretty dramatically as patents have expired and generics have taken over.
• 4:41
  Though there's still some branded drugs in that category.
• 4:45
  The real burden of increase in inflationary costs or much of the burden is not just in those pills and capsules, but also in the biologics, the drugs that, you know, typically are transfused.
• 4:57
  The biologics are novel, they're incredibly effective, and they've been protected by patents.
• 5:03
  So what a bio-similar is, is a biological equivalent that creates competition in the category.
• 5:10
  So this, think, is a big shot across the bow.
• 5:14
  not necessarily of the pharma, but certainly for PBMs that health plans can just avoid the middleman and negotiate directly for a pretty large drug, a pretty large meaning expensive and common drug.
• 5:28
  So, John, a lot of this kind of back and forth between the PBMs and the health plans isn't well understood even within the industry and maybe even by the health plans that are doing the negotiation.
• 5:38
  There's different rebates, formularies, different things that make it much more more difficult to understand.
• 5:45
  But at the end of the day, is this just kind of inside baseball or will it make a difference for the patient?
• 5:51
  I mean, if Blue Shield negotiates differently, does that matter?
• 5:54
  Just to remind people, Blue Shield of California is a not-for-profit.
• 5:58
  I mean, they are very mission oriented.
• 6:00
  They are very focused on getting a better deal for the consumers.
• 6:05
  And that means that the CEO, Paul Markovich, and that management team is working very hard to try to...
• 6:12
  to lower the rate of inflation and the total cost of insurance.
• 6:18
  increasingly, drugs are a much higher percentage of the total cost of healthcare, and thus are driving up costs.
• 6:28
  I mean, Cumira, I don't know whether it still is, but it was the biggest drug in the world a few years ago.
• 6:33
  And there is a biosimilar, there are other ways to build these biosimilars.
• 6:38
  In fact, CVS has their own biosimilar manufacturing entity that's part of Caremark.
• 6:44
  But I thought it was pretty meaningful that the SHIELD, as it's often known, throughout Caremark and its biosimilar, just decided to go direct.
• 6:53
  No, think this is a pretty significant move.
• 6:56
  Having said that, not a lot of other health plans followed behind him.
• 6:59
  So this is really a major test case.
• 7:02
  Now, one of the things they are saying for the patient is that they will make it zero out of pocket for a member that's using this.
• 7:11
  Now, maybe they do that for biosimilars in general.
• 7:13
  I don't know.
• 7:14
  If it's really a big part of the portfolio, and Blue Shield is saying that through this plan, they may save up to $500 million.
• 7:21
  So that can't all be on Chimera since they only spent $100 million on that.
• 7:25
  if that happens, mean, does it actually, is it significant enough that it translates potentially into lower premiums and actually changes the equation a little bit here overall?
• 7:35
  I think that's exactly what Blue Shield is looking to do, is to reduce at least the rate of inflation for healthcare premiums and certainly the rate of inflation for drugs.
• 7:48
  mean, at the end of the day, Blue Shield, like most consumers, is sort of baffled by why we spend more more money on drugs every year, and particularly on drugs where there is some competition, where there's biosimilars.
• 8:04
  But I think that the reason why Blue Shield is trying to basically blow up the market for middlemen or pharmacy benefit managers is because they just did not feel they were getting a clear and fair deal.
• 8:20
  This is a complicated supply chain problem they're trying to solve.
• 8:24
  It's not just about Humira, the drug.
• 8:29
  It's really an approach by Blue Shield to establish because I think they're going to still leverage Caremark's retail networks.
• 8:37
  They're going to encourage and provide access to Mark Cuban's cost plus pharmacy, and they're going to negotiate directly for Humira.
• 8:46
  So this is going to be a complex patchwork, but the goal is to lower the rate of increase and at least get to a point where they can understand what the patient should pay, whether they actually achieve that half a billion dollar target, just to be clear.
• 9:02
  They announced that they could save half a billion dollars, but that's over multiple years.
• 9:07
  And without much detail, it's really unclear whether that was a real number or sort of an optimistic projection.
• 9:15
  But I believe that they wouldn't have done this deal if they didn't think that next year Blue Shield's consumers aren't going to be paying less for drugs than they would have otherwise through a Caremark or another PBM.
• 9:26
  Let's talk a little bit about what the PBMs are doing, because certainly this isn't the first time actually the PBMs have been bashed or people said they're going to have a transparent PBM or whatever, or even the government's gone after them in one way or another.
• 9:40
  And yet they've managed to thrive and do well with their business models, either as independent entities or more recently as part of health plans.
• 9:48
  You mentioned that Caremark, which is the biggest PBM, is having its own company to make and to market biosimilars.
• 9:56
  I mean, what?
• 9:57
  How does that fit into the equation?
• 9:59
  It works very well for Caremark and CVS because they can effectively shift a lot of their covered members to their own biosimilar and very quickly capture the margin that otherwise the manufacturer would make.
• 10:13
  It really begs the question as to whether these vertically integrated enterprises, vertically meaning you've got Aetna insurance, you are working with Caremark who Aetna owns, they're pharmacy benefit manager and you're often going to CVS, which is also owned by the corporate entities stores, whether they actually, they're supposed to get that vertical integration is supposed to make sure that the consumer gets a lower cost deal.
• 10:42
  It's unclear whether that's true.
• 10:43
  And they've certainly had a lot of interest in there's a more recently, there's a federal trade commission inquiry into PBM pharmacy benefit managers trade practices.
• 10:56
  And it was so popular with the PBMs that Cigna just sued them because they feel like they've been defamed.
• 11:03
  Yeah, not talking nicely about me.
• 11:04
  It's like Sarah Palin or something coming after the New York Times.
• 11:08
  guess the question, Dave, is you're in the market with looking, talking to people in the health care world.
• 11:15
  What do you think the PBM brand is doing in these days?
• 11:19
  Well, now that there are parts of other companies, they get, I think, a little bit less attention from the average consumer.
• 11:26
  And I think people are just confused about what they're paying for drugs and they just know that it's expensive and they know that they have Medicare, maybe the donut hole is closed.
• 11:35
  I don't think there's that much understanding of it.
• 11:38
  I think one place to look at is actually in the investor community.
• 11:41
  You were referring before to, you know, CBS, which has a care market, the PBM, they've got Etna, they've got the drug stores and so on.
• 11:49
  And there's some interest, not just from the regulators, but even from the investor to say, does this actually make sense?
• 11:55
  And should there Should there be a sort of a breakup of that entity?
• 12:00
  Now, it may not be so easy to do, and it may not actually produce that much.
• 12:04
  But there's at least this concern that something that may look good on paper, that it's a one-stop shop, may not actually completely add up.
• 12:12
  I mean, it's great that the price of Humira is going to drop in a way.
• 12:17
  But I see that one of the things that Caremark is doing and maybe others, Is there actually taking Humira off of the most formularies?
• 12:24
  So if I've been using it and you say, know, just, to be clear that they would be taking the branded version of Humira off the, off of there and they would, they would require you to use their generic, probably pretty high margin.
• 12:39
  Right.
• 12:41
  Alternative.
• 12:42
  Again, I mean, it's not, I don't know for sure if people are going to have it, you know, if someone's, if someone has.
• 12:48
  By definition, you're taking the drug, and I'm not going to pronounce it since I see we're saying it differently, but if you're going to take this drug that's expensive and it's going to be for something that's fairly profound in your life, and the idea that you're being switched to something else because that's better for something that Blue Shield is doing or PBM didn't want to do something or they're going to make money by selling it themselves, I think that by itself is not a positive.
• 13:16
  Now the drug may be the same, it's not going to be exactly the same.
• 13:19
  It's not exactly the same as doing a traditional pill generic.
• 13:24
  I just like I agree with you that being forced to get on someone's formulary may be a challenge, but let's just put this in context.
• 13:34
  Abavie, the pharmacy manufacturer of Humira, which is again, created, it was so effective, it was the largest drug by dollar volume in the world.
• 13:43
  But the reason it got there, is they raised the price more than 30 times over 20 years.
• 13:49
  And you'll notice over 20 years, because it extended the patent life through a wall of phony litigation and intellectual property balderdash.
• 13:59
  That one is that balderdash is actually phonetic.
• 14:02
  And so only in the last couple of years has the FDA figured out a way to allow biosimilars to come to Earth.
• 14:09
  But this is an exceedingly overcharged expensive drug.
• 14:14
  Advi started charging, went from charging $50,000 a year for this drug to $80,000 a year.
• 14:21
  So was an urgent need to bring biosimilars to bear.
• 14:24
  CVS Caremark and others came in.
• 14:26
  So I do think that the alternative competitors are actually playing a positive role.
• 14:32
  They brought down, I think the need in the year after the biosimilars came into the market, I think that Humira's revenues dropped by about 40 percent, but they've been overcharging patients and kind of gaming the system for years.
• 14:49
  And so it's a funny balance.
• 14:51
  You've got the pharma manufacturers jacking up the price for vulnerable patients.
• 14:57
  I think there's estimates that, know, that it's up to 100 billion, but certainly 20 or 30 billion dollars Medicare may have paid more because there was no competition of biosimilars.
• 15:08
  biosimilar manufacturers get in here and it may just be the perspective of SHIELD that Caremark might be charging a little bit too much too.
• 15:18
  But as a force for good, the biosimilars are sort of necessary.
• 15:22
  Yeah, I mean, there is an alternative, which is rather than switching people from one drug to another, you could actually just regulate, negotiate or regulate the price of Humira and not have to have that disruption.
• 15:36
  And I've actually proposed that.
• 15:37
  instead of having biosimilars.
• 15:39
  David, that's the kind of thing that gets people outside of the People's Republic of Massachusetts accused of being socialists.
• 15:46
  Note that every other country in the world negotiates drug pricing of the industrialized world, and all of them have lower prices for these drugs.
• 15:55
  Yeah.
• 15:56
  All right.
• 15:56
  Well, they do.
• 15:57
  So in any case, let's talk a little bit about what others are doing besides direct negotiation and the Mark Cuban drug Mark Cuban, Cost Plus Pharmacy is a great, not just example, but they're really kind of leading the way.
• 16:14
  Now they have traditionally been working with products that are available on generic basis and not dealing with biologics, but they're moving into that area too.
• 16:22
  And it sounds like that they have a biosome or another one for Cumira for $584 versus the 525 that Blue Shield of California says they're getting.
• 16:32
  So maybe this kind of direct negotiation isn't necessary.
• 16:34
  And Mark Cuban, who's probably got more purchasing power overall than Blue Shield.
• 16:41
  Well, yeah, it's going to be able to.
• 16:43
  He's a maverick, right?
• 16:44
  But he may be able to drive things effectively.
• 16:49
  I think that that may be true over time.
• 16:51
  And I'm a huge admirer of what he's trying to do, because it's trying to create a little bit more of a rational market, because he's still making money in his drug money.
• 17:01
  But I think that the volume of Blue Shield, Blue Shield is still the dominant player.
• 17:06
  in California, one of the largest states in the country.
• 17:11
  So I don't know that his purchasing power is up there yet, but it is honestly impressed me that it was within 20 % of the price that the shield could negotiate itself.
• 17:21
  think the most interesting thing here, there are three themes here that I think are interesting, Dave.
• 17:27
  One is that this is the first time I've seen an insurer really blow up and say, we're not going to play the PBM game anymore.
• 17:36
  That's going to be a lot more complicated, I think, than they realize.
• 17:39
  There's a complex administration of network, distribution, negotiation that the PBMs actually do pretty well.
• 17:49
  If Blue Shield can figure out how to put together this pickup team of their own independent negotiations with biosimilars, cost plus, plus somebody else's network, that's going to be really, I think, an important point.
• 18:03
  The second is...
• 18:04
  This notion that A, biosimilars, even though you're skeptical of them, think that they're actually, the FDA took its time to approve them.
• 18:11
  They've been approved and in the market for much longer period of time, very effectively in the European community.
• 18:17
  If people start negotiating directly, I think that's going to be another thorn in the side of big pharma and sort of force them to really rethink of their overcharge now to try to survive later strategy in terms of drug pricing.
• 18:34
  And the third thing is I think that the long term cost of sort of a lack of public justification for the PBMs, all of this I think spells bad news for at least the PBMs brand.
• 18:49
  But what do you think of those three components?
• 18:52
  Well, I was going to say, John, well put.
• 18:55
  I think that's right.
• 18:56
  It's not so easy to...
• 18:59
  to make a shift.
• 18:59
  It reminds me a little bit of a Comcast, you know, my cable supplier and they were charging me for a modem monthly rental.
• 19:08
  And so I get my own modem.
• 19:09
  And so I got my own modem, which is a better modem and less expensive.
• 19:13
  And now instead of charging me for a modem, there's, have another fee for those that aren't renting a modem pay a fee for that.
• 19:20
  It's kind of like that is how I look at the monopolies are bad things.
• 19:24
  Yeah, they do.
• 19:25
  They may be some other up charges for network access or something like that that that may come in there.
• 19:30
  So I think their PBMs are not dead yet, but it's good to have some sort of forces, John, that if not to bring the prices down, at least to put some sort of a lid on inflation so we don't have to just keep throwing our hands in the air and saying like, what could we possibly do about it?
• 19:44
  And I do think the drugs is a good way to start.
• 19:47
  And these very expensive ones where there's biosimilars available.
• 19:50
  makes a lot more sense than just sort of jawboning, which is, like what's happening before.
• 19:55
  Yeah.
• 19:55
  And I just wanted to correct one of the things I said earlier.
• 19:57
  think it's, do think that the Medicare estimate they overpaid during the period that Humira would have lost patent protection, I think it's close to 2 billion, not 20 billion, but the drug was enormously expensive to consumers.
• 20:09
  But I, I think the role of PBMs is something we're going to have to keep watching.
• 20:13
  It's, it's evolving.
• 20:14
  Let's, let's do it, John.
• 20:15
  So that's it for yet another episode of Care Talk.
• 20:18
  We've been talking about drug price negotiations with one very big example from a very big state.
• 20:25
  I'm David Blams, president of Health Business Group.
• 20:28
  And I'm John Driscoll, senior advisor at LawGreatts.
• 20:30
  If you like what you heard or you didn't, please subscribe on your favorite channels.