New York Times: Health Insurers Pressing Down on Drug Prices

Jun 23, 2014
Smart formulary management forces manufacturers to compete on price or else have their medications excluded if clinically equivalent, more affordable alternatives exist.

This past weekend, The New York Times ran a front-page article, “Health Insurers Pressing Down on Drug Prices,” examining how Express Scripts is standing firm against drugmakers to make medications more affordable for our clients and members.

The article discusses the use of smart formulary management to force manufacturers to compete on price or else have their medications excluded if clinically equivalent, more affordable alternatives exist. No longer can these manufacturers charge whatever price they like. As Times’ reporter Andrew Pollack writes:

  • Drug companies are facing a new imperative – bargain or be banned…. Determined to slow the rapid rise in drug prices, more health plans are refusing to cover certain drugs unless the companies charge less for them.

On what’s driven the recent drug cost increases:

  • Spending on specialty drugs rose 14.1 percent last year and by even greater amounts in previous recent years, according to Express Scripts. Most of that increased spending comes not from new drugs or new patients, but from price increases on older drugs that can often exceed 10 percent year after year…. Pharmaceutical companies rarely talk in detail about how they set prices or decide on price increases. They generally say that the price reflects the value of the medicine, which in some sense is a measure of what the market will bear.

On why closed formularies are the most effective strategy in negotiating with manufacturers:

  • With exclusions, bidding to get on the formulary becomes more of a winner-take-all contest. The winning companies gain more market share because rivals are excluded, so "they are willing to give us greater discounts," said Dr. Steven Miller, chief medical officer of Express Scripts…. He said the new formulary, which covers more than 25 million people, would save about $700 million this year for clients who adopt it, or about 2 to 3 percent of their spending on drugs…. Dr. Miller said the excluded drugs represented only a carefully selected 1 percent of drugs covered by Express Scripts and that the company had little problem switching patients.

On what’s next:

  • A big test of the strategy could come next year with drugs for hepatitis C. Health plans are worried about their ability to afford Sovaldi, a new drug from Gilead Sciences that costs $84,000 for a typical course of treatment. But AbbVie and Merck are expected to introduce competitive drugs, and the payers hope to pit one manufacturer against another to drive down prices.

For more information about our National Preferred Formulary, click here. For more information about our push for fair pricing of the new hepatitis C therapies, click here.

Dr Miller on Drug Pricing

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