Specialty Formulary Exclusions Gaining Traction

Hepatitis C Drug Policy Transformation

In late December, the pharmacy benefit manager (PBM) Express Scripts announced that it will make the AbbVie Hepatitis C treatment its exclusive option for patients with the most common form of Hepatitis C. The announcement means that Viekira Pak, priced around $84,000, will almost certainly take market share from Gilead’s Harvoni, priced around $95,000, for a 12-week course of treatment.

The earlier generation Gilead product, Sovaldi, created a firestorm in early 2014 when it announced the $84,000 price tag.  Members of Congress probed the company’s pricing rationale.

Ultimately, Gilead withstood the Washington heat, without having to lower the price substantially given the tremendously efficacious nature of the drug: it essentially clears the body of debilitating Hepatitis C.

Express said the formulary decision is effective Jan 1, 2015, and will apply to 25 M people whose employers contract with the PBM directly.

Express Scripts manages drug benefits for about 85 M people in the U.S., while CVS had about 26% of the pharmacy benefits market in the U.S. last year, behind Express Scripts, according to the U.S. Department of Labor.

Clearly, PBMs have the power to drive lower prices through guaranteed volume, and they will continue to use it.

On Jan 5, the #2 PBM, CVS Health, followed suit and gave preferred formulary status to Gilead’s Harvoni and Sovaldi for Hepatitis C, with Abbvie’s Viekira Pak available through a medical exception or prior authorization. The formulary changes will become effective on January 7 and will also apply to the standard commercial formulary and exchange marketplace formularies, as well as Medicare and Medicaid plans.

Other PBMs, like Prime (serves Blue Cross Blue Shield members) and Catamaran are watching and waiting, as well. Additional therapeutic classes are likely to be announced in short order.

Pitting companies with competing agents against one another will drive prices down.  Multiple Sclerosis, Rheumatoid Arthritis, and oncology will likely be the next categories of focus. Orphan products are probably OK for now.


The Landscape: Specialty Drugs

Prescription drugs rank third in US healthcare spending. Hospitals and physicians rank first and second, respectively.  PwC projects that from 2012 to 2020, spending on specialty drugs will increase by 361% (to $402 B from $87 B).

As pointed out in an earlier Morning Consult column, Sovaldi (Gilead) pricing did not break new ground: a 12-week standard course costs $84,000 in the United States. The controversy about Sovaldi (and now Harvoni) is related not to the price but rather to the cost to society, which is a function of both price and market size. By producing an effective, safe and tolerable cure, Gilead dramatically expanded the market for Hepatitis C.

Some context is important here. HCV has not historically been a blockbuster therapeutic category for pharmaceutical companies and Sovaldi is far from being the highest price drug in the U.S. There are 3.2 M Americans with Hepatitis C.

However, headlines about the cost of quickly covering millions of patients has seized attention on Capitol Hill and beyond. State Medicaid agencies have placed pressure on formularies by creating step therapy and prior authorization to ensure that only the sickest receive the pricey treatments.

While the headlines over Hepatitis C product pricing are unlikely to lead to direct Congressional action, the din over specialty pharmaceuticals will only continue in D.C.

On the one hand, Republicans are working on an initiative to speed the approval of breakthrough drugs, which some worry could lead to high drug prices. On the other hand, Democrats believe in requiring drug makers to provide rebates as a condition of participation in the Medicare prescription drug program.

The conversation in Washington around specialty pharmaceutical pricing will likely expand in 2015. There are two legislative vehicles: (1) the drug user fee reauthorization bill in the works and (2) a 21st Century Cures bill scheduled to be unveiled in early 2015. It’s entirely possible that legislative language addressing specialty drug pricing could be attached to one of these bills.


PBMs: Exclusionary Formularies

In the meantime, payers and PBMs are left to their own devices to address specialty drugs.

With the announcement by Express, increasingly, PBMs will create exclusionary formularies, as they vie for cost-effective options in a world where specialty pharmaceuticals comprise 70% of the drug pipeline.

Express and CVS-Caremark have created exclusionary formularies over the past few years. The events around Hepatitis C only foreshadow a movement, particularly for products with therapeutic equivalence.

CVS has said that an exclusionary formulary has over 95% preferred drug utilization versus a 55% share for traditional tiered formularies. CVS currently excludes 31 specialty drugs across 11 therapeutic classes and has noted that exclusion opportunities are growing.

With specialty drug trend projected to be almost 20% over the next 5 years, PBMs will flex their muscle, as will insurers.


Insurers: Co-pays, MLRs and Drug Price Transparency

For their part, private health plans are concerned about specialty pharmaceutical pricing.

Insurers would like to see a medical loss ratio (“MLR”) instituted for prescription drugs, which would cap profits for drug makers and reduce coverage costs for insurers.  An MLR for drug makers may be far-fetched, but something may have to give.

Price transparency is something that insurers have publicly requested, as well.  Like clockwork, many biopharmaceutical manufacturers raise prices anywhere from 3 to 6 to 9%, sometimes twice a year. Insurers would like to shine a spotlight on pricing by payer.

Co-pays have steadily risen over the past few years.  Employers are using co-pays, sometimes greater than $60, for specialty drugs. The trend will continue, as blockbuster drugs are launched.

Like PBMs, insurers can and will almost certainly play the volume card to rein in spending on high-priced drugs.


Ipsita Smolinski is Managing Director for Capitol Street, a healthcare research and consulting firm in Washington, DC.

Morning Consult