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Focus on the Patent Cliff To Maximize Generic Savings

MANAGED CARE November 2012. © MediMedia USA

Focus on the Patent Cliff To Maximize Generic Savings

Health plan clinical administrators can take much better advantage of the low prices of pharmaceuticals that become untethered to a brand name

Linda Cahn

Health plan clinical administrators can take much better advantage of the low prices of pharmaceuticals that become untethered to a brand name

Linda Cahn

The coming fiscal cliff continues to dominate Americans’ attention. But sitting in your health plan’s offices and trying to achieve lower health plan costs, it’s the patent cliff — not the fiscal cliff — that should be the focus of your attention.

For instance, on the last day of November 2011, the number 1 selling drug globally — Lipitor — lost its patent protection. Immediately before and after that date, many other commonly used drugs, costing billions in brand drug dollars, lost their patent protection as well, including:

  • Zyprexa (October 2011)
  • Ritalin LA (January 2012)
  • Zanaflex (February 2012)
  • Geodon, Lexapro, Boniva, and Seroquel (all March 2012)
  • Avapro, Avalide, Vancocin, and Lescol (all April 2012)
  • Plavix and Requip XL (both May 2012)
  • Symbyax and Adderall XR (both June 2012) and
  • Singulair, Provigil, and Actos (all August 2012)

Regardless of whether lower costs became available immediately after the patent expired or after a 180-day exclusivity period passed, enormous savings were suddenly available to every health plan — assuming that they were contractually positioned to capture those savings and were monitoring their contracts to ensure that PBMs provided the savings.

The question is: How many health plans fit that bill? And more specifically, does yours?

Based on our consulting firm’s recent analysis of some clients’ claims data, the likely answer to each of those questions is disquieting: It appears that in far too many instances, many months pass before health plans benefit from the lower costs that are available when brand drugs fall off the patent cliff. And even when health plans finally benefit, they frequently capture only a small fraction of available savings.

Evidence of the problem

Our firm reviewed recent claims data of three clients to determine how quickly each client achieved lower costs from newly available generic drugs, and how low the costs were that they achieved.

The clients were a midsized insurance company (client 1), a relatively small corporation (client 2), and a large union (client 3). Each had a contract with a different PBM. Clients 1 and 3 had contracts with large PBMs. Client 2 used a smaller PBM. The insurance company thought that it had retail pass-through pricing, although its belief was contradicted by several contract terms, while the other two clients actually had retail and mail pass-through pricing.

Each client provided our firm with its data, but none, to the best of our knowledge, had taken steps to focus on capturing generic drug savings immediately after brand drugs fell off the patent cliff.

We looked at both retail and mail claims of each client, focusing on the per tablet cost of several blockbuster drugs that recently lost their patents. In this article, I report on our findings on three of them: Lipitor, Zyprexa, and Seroquel.

Although our data sets for each client did not include all months that ideally should have been available, the data were sufficient to reach certain compelling conclusions:

  • The three clients received vastly different prices from each of their PBMs for newly available drugs.
  • In no instances did any PBM consistently provide to its client for each drug that we reviewed the generic savings that were available.
  • In some instances, a client still has not captured the savings that have now been available for several months.
  • In most instances, PBMs are invoicing clients for retail drugs at prices far higher than what should be deemed a reasonable pass-through retail price, which would provide a margin of about $6 to $9 per prescription.
  • Similarly, in most instances, PBMs are invoicing clients with mail prices that are far higher than what should be deemed a reasonable pass-through mail price, which would provide a margin of about $9 or a little more per prescription.
  • Although the data demonstrate that PBMs are capable of quickly adjusting and passing through lower prices, in many instances they simply are not doing so.

Let’s start by reviewing our Lipitor findings, to see the evidence for each conclusion.

Lipitor lost its patent protection on Nov. 30, 2011. On the same day, Watson began distributing an authorized generic. The next day, the FDA announced it had approved and would allow Ranbaxy, the first generic manufacturer to seek permission to market its drug with the assistance of Teva.

Although Lipitor’s manufacturer, Pfizer, attempted to preserve Lipitor’s market share by engaging in many tactics (including arranging with PBMs to decrease Lipitor’s copayments, and flooding the market with coupons), exactly six months after Lipitor lost its patent protection — at the end of May 2012 — other generic manufacturers entered the market, causing an immediate and striking result: The price of Lipitor and all competitive generics plummeted.

Faced with the sharp price-drop of an extremely high-profile drug, all three PBMs quickly provided lower prices for Lipitor’s generic equivalent: atorvastatin.

However, as the graph below shows, while Lipitor’s average retail price per tablet for client 2 did plummet from $2.89 to $1.77 between May and June, that June price was still 52 cents higher than client 1’s June retail price of $1.25. By August and September, those two clients’ average retail prices had flattened out to between $1.22 and $1.26, but client 3’s average retail price was far lower ($0.45). Four months after Lipitor fell off the patent cliff, client 3 also had the best mail invoiced pricing at about 7 cents per tablet, with a high per prescription dispensing fee of about $11, while the other two clients were paying far more — about $1.16 and $1.26, though with far lower dispensing fees.

Payers’ differing costs for atorvastatin

Thus, four months after atorvastatin’s price had plummeted, only one client was obtaining reasonable atorvastatin pricing. Two clients had retail pricing that was extremely inflated — by at least 80 cents much per tablet — and each of their mail prices was even worse — inflated by at least $1 per tablet!

Given that every health plan is paying for an enormous number of Lipitor prescriptions, those results are shocking. An 80-cent and a $1 excess cost per tablet results in total excess costs of $24 for every retail prescription and $90 for every mail prescription. Such numbers add up to a lot of wasted money very quickly!

This article is being published in November 2012, meaning almost half a year has passed since Lipitor fell off the patent cliff. One can’t help but wonder how many health plans are still not obtaining reasonable atorvastatin savings. One also can’t help but wonder how many more months must pass before those plans finally start paying reasonable prices.

Costco — a good source for determining reasonable costs for retail and mail drugs — is now charging approximately $15 for 30 tablets of atorvastatin 10 mg, and approximately $37 for 100 tablets of atorvastatin 10 mg. Do you know what your PBM is charging each time one of your members fills an atorvastatin prescription?

Clearly, it would make sense for every health plan to investigate its invoiced atorvastatin costs during recent months to determine the prices its PBM provided. It would also make sense for every health plan to ensure that its atorvastatin price remains consistently low from now on. And that will require every health plan to obtain a PBM contract that positions the health plan to get reasonable prices. (More on that subject at the end of this article.)

Zyprexa is a far more complex drug to analyze. Its costs — for both the brand and the generic versions — vary greatly depending on the dosage. For example, Zyprexa’s AWP is $12.44 for 2.5 mg; $14.68 for 5 mg; $17.87 for 7.5 mg; $22.13 for 10 mg; $33.19 for 15 mg; and $44.26 for 20 mg. As a result, monthly costs can vary sharply based on the mix of dosages. But certain conclusions pop out when one looks at our chart for olanzapine (the generic of Zyprexa) below.

Differing prices for olanzapine

Zyprexa fell off the patent cliff on April 23, 2012. By May 2012, the PBM serving client 2 — a small corporation with pass-through retail and mail pricing — had quickly responded by dropping the average retail cost of generic olanzapine to $1.35 per tablet, but the cost then increased to $2.08, meaning its retail costs per script ranged from about $40 to $60. For reasons uncertain — perhaps the dosage mix or the PBM trying to take extra profits despite mail pass-through pricing requirements — for May and the following four months, client 2’s mail costs also varied (between $1.48 and $3.43), meaning its mail costs were quite high, ranging from about $130 to $310 per script.

Meanwhile, the large PBM serving client 1, the insurance company, took an extra two months — until July — before it reduced its retail olanzapine costs to around $2.60, or about $78 per script. That PBM provided reduced mail costs one month earlier, and continued to provide approximately the same costs thereafter. But again, its mail costs were quite high, ranging from about $217 to $266 per script.

As for the large PBM serving client 3 — the large union with pass-through retail and mail pricing — our firm did not have access to claims data for the initial months after Zyprexa lost its patent. But by August, that PBM was providing very-low-cost olanzapine at mail (19–21 cents per tablet, with a high dispensing fee per script of about $11), resulting in total costs per script under $30. However, its retail costs were far higher (between $2.86 and $2.96 per tablet), resulting in a 30 day retail script cost of more than $85.

Thus, while dose-dependent pricing does make it more difficult to analyze the extent to which the three clients captured Zyprexa’s patent cliff benefits, certain conclusions can be reached:

  1. Every PBM did not quickly pass through reduced costs.
  2. The reduced retail costs that all three PBMs ultimately provided were quite different, ranging from about $1.35 to about $2.96 per tablet.
  3. No PBM provided consistently reasonable retail script costs, and only one PBM provided consistently reasonable mail script costs. And that remained true four months after Zyprexa fell off the patent cliff!

These conclusions are underscored by reviewing Costco’s olanzapine prices, which are far lower than any of the prices that the three PBMs in our study charged their clients, with the sole exception of client 3’s mail costs. Focus on Costco’s prices for 2.5 mg and 20 mg dosage levels, respectively, to understand Costco’s range of possible prices. Here are Costco’s current approximate prices:

  • Olanzapine, 30-tablet package: $14.60 for 2.5 mg and $33 for 20 mg.
  • Olanzapine, 90 tablet package: $30 and $86

It’s also worth noting Costco’s respective prices for 2.5 mg and 20 mg dosages of Zyprexa:

  • Zyprexa, 30-tablet package: $360 and $1,248
  • Zyprexa, 90-tablet package: $1,036 and $3,660

Clearly, it would be worthwhile for you to ensure that you are obtaining optimal olanzapine pricing. And having done so, it would also be wise for you to steer your members to use olanzapine, not Zyprexa.

Do you know what your PBM is now charging you for olanzapine? And do you know your health plan’s Zyprexa/olanzapine mix?

Seroquel

Turning to our final example, Seroquel fell off the patent cliff in April 2012. As our graph below shows, two months later the large PBM providing coverage to client 1 — the large insurance company — was still charging high retail and mail costs of $2.30–$2.60 per tablet and it continued to do so thereafter.

Differing prices for Seroquel

Meanwhile, costs hovered far below ($0.50–$1.10) for client 2, the small corporation receiving retail and mail pass-through pricing from a smaller PBM. As for client 3 — the large labor union with a pass-through pricing contract with a large PBM — retail costs were about the same, but mail costs were again lower (14–33 cents, though with a higher dispensing fee).

Secrets of getting the best price

So what can you do to ensure that you maximize your savings — immediately and continuously thereafter — every time a brand drug falls off the patent cliff?

Here are our firm’s recommendations:

1. Your health plan must negotiate a contract that provides pass-through pricing for every drug dispensed, both at retail and at mail. This is a sine qua non if you want to ensure that you are positioned to obtain patent cliff savings.

Note that many PBMs claim to be providing pass-through pricing — and their clients believe they have obtained such pricing — even though a close reading of their contracts reveals that no such pricing has been provided. Therefore, you must be certain that your contract actually provides pass-through pricing for every drug dispensed, both for retail and for mail drugs.

Note also that pass-through pricing doesn’t ensure optimal pricing for newly-available generic drugs. If your PBM fails to update its reimbursements to retail pharmacies quickly — you won’t obtain optimal costs. But pass-through pricing is the prerequisite that must be implemented to enable our other recommendations (described below) to bring about lower costs.

2. Include language in your PBM contract requiring your PBM to give you a monthly list of every brand drug that is losing its patent protection. Alternatively, you can track this matter on your own through publicly available information on the internet, but you must be sure that you actually do so.

3. Include contract language that requires your PBM to accompany every invoice with the relevant claims data for the invoiced period. When you receive your invoice every month, make certain that you always spot check the claims data to determine the prices you are getting for newly-available generic drugs.

4. Include contract language that requires your PBM to talk with you — at your request — about the invoiced costs on newly available generic drugs, though your contract can limit the PBM’s commitment to “no more often than monthly.” Also, include contract language that requires your PBM to negotiate with you in good faith to establish “maximum price guarantees” for any newly available generic drug, should you discover that you are not receiving prices that are commonly available in the marketplace.

5. Also, create a short list of drugs that have extremely high usage and for which the price has flattened and there is little possibility of price hikes, and require that your PBM provide you with drug-by-drug “maximum price guarantees” as of the execution of the contract. Atorvastatin can be on your list, as well as several other commonly used generics like: simvastatin (Zocor), pravastatin (Pravachol), omeprazole (Prilosec), fluoxetine (Prozac), sertraline HCL (Zoloft), buproprion HCL (Wellbutrin), venlafaxine HCL (Effexor), paroxetine HCL (Paxil), citalopram hydrobromide (Celexa), alendronate sodium (Fosamax), zolpidem tartrate (Ambien) and temazepam (Restoril).

If your PBM claims that it can’t cap those drugs’ prices because marketplace events might make guarantee satisfaction impossible, your contract can allow your PBM to make prospective, but not retrospective, changes to the guarantees. But your contract must also require that your PBM produce evidence demonstrating that marketplace changes prevent the PBM from satisfying the guarantees, and the contract must require that all guarantee changes be agreed to in writing. Whatever you do, don’t accept typical PBM boilerplate contract language allowing the PBM to unilaterally change your contract guarantees.

6. Having obtained contractual rights to be invoiced at low costs for newly available generic drugs and certain other commonly used generic drugs (such as the high-use statins, antidepressants and sleeping pills listed above), it’s time to start examining your drug mix in each therapeutic category. If your members are still using many brand drugs rather than the generics that you can now obtain at low cost, change your copayment structure and/or implement programs to encourage your members to use lower-cost generics. If a single prescription of Zyprexa costs your health plan more than $1,000, why wouldn’t you do everything possible to ensure that most members instead use generic olanzapine, where the cost is likely to be far less than $100 per prescription?

7. Finally, make sure your contract has a “90-day with or without cause termination right,” and the right to carve out some or all types of drugs, such as mail drugs or specialty drugs. Those provisions will provide you with continuing leverage to ensure that your PBM negotiates with you in good faith as you try to ensure that you obtain the benefits of low-cost drugs.

If your current contract provides you with the ability to terminate on short notice, you can try to obtain all of the above-described provisions right now. If you’re stuck with a contract that doesn’t expire — or can’t be terminated — for several years, you’ll have to wait until the contract ends. But whenever you are able to implement the seven steps that I have outlined, you should be able to significantly decrease your health plan’s costs.

So make sure to do so, because it’s reasonably certain you are not currently obtaining patent cliff savings from all the generic drugs that have recently entered the marketplace. And more blockbuster brand drugs are scheduled to lose their patents soon, including Lidoderm, Maxalt and Tricor.

Linda Cahn, a graduate of Princeton University and Hofstra University Law School and a member of the New York and New Jersey bars, is the president of Pharmacy Benefit Consultants, a nationwide consulting company that assists insurance companies, corporations, unions, and government entities in analyzing and improving their PBM contracts and conducting better PBM RFPs. Pharmacy Benefit Consultants, www.PharmacyBenefitConsultants.com, can be reached at 973-975-0900.