Biosimilars and Formulary Construction
For those of us who have been looking into PBMs for many years, it is no surprise that PBMs’ formulary construction has become a profit center for them. Now, with so many adalimumab biosimilars having entered the market, it has become the Wild West where only those with the most money to fork over to the PBMs get preferred placement. Unfortunately, many of the choices that make money for the PBM cost employers and patients more.
How did we get here? In the 1980s and 90s, the price of medications began to increase to the point that many were not affordable without insurance. And who better to construct the list of drugs that would be covered by insurance (formulary) than the PBMs who were already adjudicating the claims for these drugs. The Federal Trade Commission (FTC) realized the power inherent in constructing this list of medications known as the formulary. So when the manufacturer Merck acquired the PBM Medco in the mid-1990s, the FTC stepped in. The FTC surmised that making the drugs and deciding which ones will be paid for created a “conflict of interest” with anticompetitive ramifications.
So, in 1998, William J. Baer, director of the FTC’s Bureau of Competition, said, “Our investigation into the PBM industry has revealed that Merck’s acquisition of Medco has reduced competition in the market for pharmaceutical products … We have found that Medco has given favorable treatment to Merck drugs. As a result, in some cases, consumers have been denied access to the drugs of competing manufacturers. In addition, the merger has made it possible for Medco to share with Merck sensitive pricing information it gets from Merck’s competitors, which could foster collusion among drug manufacturers.” Wow!
These anticompetitive behaviors and conflicts of interest resulting from the Medco acquisition led the FTC to propose a consent agreement.
The agreement would require Merck-Medco to maintain an “open formulary” — one that includes drugs selected and approved by an independent Pharmacy and Therapeutics Committee regardless of the manufacturer. Medco would have to accept rebates and other price concessions and reflect these in the ranking of the drugs on the formulary. Merck would have to make known the availability of the open formulary to any drug maker with an agreement with Medco.
Let’s hope the FTC of 2024 remembers the stance of the FTC in the 1990s regarding anticompetitive behavior involved in formulary construction.
Conflicts of Interest
But today it is apparent that crafting formularies that pay only for the drugs that make the most money for the PBM is not a conflict of interest. In its policy manual, Cigna directly tells employers and employees that they are collecting and keeping rebates and fees on medical pharmaceuticals, and they are not for the benefit of the employer or the plan.
And now, in August 2023, CVS launched Cordavis, a subsidiary wholly owned by CVS. Cordavis/CVS has partnered with Sandoz, which makes Hyrimoz, an adalimumab biosimilar. There is a high-priced version that is discounted 5% from Humira, a lower-cost unbranded version that is discounted 80% off the list price of Humira, and a co-branded CVS/Sandoz version of Hyrimoz that is lower priced as well.
It isn’t a surprise that CVS’ Standard and Advanced Commercial and Chart formularies are offering only Sandoz adalimumab biosimilar products. While these formularies have excluded Humira, CVS has entered into an agreement with AbbVie to allow Humira on a number of their other formularies. It can be very confusing.
As stated earlier, in the 1990s, the FTC frowned upon manufacturers owning PBMs and allowing them to construct their own formularies. Here we have CVS Health, mothership for the PBM CVS Caremark, owning a company that will be co-producing biosimilars with other manufacturers and then determining which biosimilars are on their formularies. The FTC knew back then that the tendency would be to offer only their own drugs for coverage, thus reducing competition. This is exactly what the CVS-Cordavis-Sandoz partnership has done for their Standard and Advanced Commercial and Chart formularies. It is perhaps anti-competitive but certainly profitable.
Perhaps the FTC should require the same consent agreement that was given to Merck in 1998. CVS Caremark would then have to open their formularies to all competitors of their co-branded, co-produced Sandoz biosimilar.