A free drug experiment bypasses the US health system’s secret fees

A top California health plan is set to offer one of the world’s biggest-selling drugs for free in a bid to show the medicine can reach Americans affordably without going through the middlemen that typically control its flow.

Blue Shield of California struck an unusual deal to buy a lower-cost version of Humira directly from a manufacturer, bypassing the giant pharmacy benefit managers that normally determine which maker’s drug will go to tens of millions of Americans.

AbbVie Inc.’s Humira has been a poster child for how drug prices can stay high even after drugmakers lose patent protection. At one point, the world’s top-selling drug, Humira, sales were $14 billion last year even after low-cost versions hit the market.

Pharmacy benefit managers, known as PBMs, typically agree to pay drugmakers higher prices up front in exchange for payments known as “rebates.” The U.S. Federal Trade Commission recently alleged in a lawsuit that rebates illegally drive up patients’ costs. In the case of Humira, drug plans initially favored the brand name drug and higher-priced copycats that came with higher rebates.

The three largest PBMs say they’re now removing the branded version of Humira from their lists of preferred drugs in favor of cheaper versions.

Blue Shield’s trying to call out the dysfunction in the existing system. “We don’t want rebates. We don’t want middlemen. We don’t want people dipping their hands in,” said Matt Gibbs, vice president of pharmacy transformation at Blue Shield of California. “We want to be able to present the price to our membership so that they can make the choice.”

There’s also a profit motive: Blue Shield of California currently spends more than $100 million a year on Humira, Gibbs said, more than any other drug. The new lower prices and lack of fees for middlemen should result in a savings of $20 million over three years, executives said, adding that might be a low estimate.

Beginning next year, Blue Shield will pay for $525 a month for the drug. That’s about a quarter of what the company currently pays for Humira after rebates, according to a person familiar with the pricing who asked not to be named discussing private information.

Blue Shield provides pharmacy benefits for about 2.5 million people and sees about 40,000 prescriptions a year for Humira, which treats inflammatory diseases like rheumatoid arthritis, Crohn’s disease and psoriasis.

Broken market

The $525 a month price is notable because it’s lower than the best prices available from the U.S.’s largest pharmacy benefit managers, units of CVS Health Corp., Cigna Group and UnitedHealth Group Inc. Those companies have faced intensifying pressure in Washington over how they purchase prescription drugs and whether they favor medicines with higher upfront prices that raise patients’ costs.

The FTC sued the three largest PBMs in August, alleging they used rebates to steer patients to higher-priced insulins and profited at patients’ expense. An FTC official not authorized to speak publicly said the agency is witnessing similar patterns in the market for Humira and cheaper copycat versions known as biosimilars.

PBMs have disputed the FTC’s characterization and said they intend to fight the lawsuit. The companies maintain they pass most of the rebates they get from drugmakers back to their clients—employers, unions and health insurance companies—who then use them to lower the prices people pay for drugs or to offset other medical expenses.

Rebates aren’t the only PBM practice under scrutiny in Washington. Lawmakers have recently started calling out PBMs, including CVS and Cigna, for forming divisions outside of the U.S. that are partnering with drugmakers to sell their own biosimilar versions of Humira.

Senator Mike Braun, an Indiana Republican, and Senator Elizabeth Warren, a Massachusetts Democrat, wrote to the FTC in August urging the agency to investigate this.

“By preferring private labeled biosimilars,” the senators wrote in a letter viewed by Bloomberg News, PBMs “are protecting their own profits even as the drug’s price has fallen dramatically.”

Higher prices

The prices the PBMs currently charge health plans for their brands of biosimilar Humira are well above the $525 a month that Blue Shield is now getting.

CVS’s Ireland-based unit Cordavis offers its version for about $1,315 a month. Cigna’s says biosimilars will be available through its Cayman Islands-based subsidiary Quallent Pharmaceuticals, with a list price of about $1,038. And UnitedHealth’s Optum Rx’s lowest price for its Humira copycat is about $1,177 a month.

The companies cite different reasons for the higher prices, but pointed to rebates that get prices further down for clients. All three said many patients can get the drug for no out-of-pocket costs.

A CVS spokesperson also said its price isn’t lower because it sought a combination of low cost, stable supply and a formulation it says is closer to Humira than some competitors.”

A Cigna spokesperson said with rebates, its PBM offers Humira biosimilars for “less than $1,000” a month to its clients, with no cost to most patients.

Blue Shield isn’t the only company working to show how rebates are contributing to higher drug costs. The Mark Cuban Cost Plus Drug Company sells a version of Humira for $584 for people paying cash as part of a broader effort the celebrity businessman has underway to expose how drug prices can be inflated by middlemen. Another smaller player, GoodRx, offers a Humira biosimilar for $550 for people paying cash, undercutting the prices that the largest PBMs charge their clients.

A UnitedHealth spokesperson said comparing manufacturers’ list prices to cash prices for consumers is “not a fair comparison.”

For its new Humira pipeline, Blue Shield struck the deal through a company called Evio Pharmacy Solutions, which is owned by them and other Blue-branded health plans. Unlike a PBM, Blue Shield of California pays Evio a flat fee to negotiate with drug manufacturers rather than a fee based on the drug’s price. A division of German manufacturer Fresenius SE is making the drug for the insurer.

Blue Shield sent the stock prices of major pharmacy benefit managers sinking last year when it unveiled a plan to break with the conventional PBM model. Instead of outsourcing drug benefits to one firm, it would split up the business among many vendors, including CVS, Amazon Pharmacy and Mark Cuban Cost Plus Drug Company.

At the time, the insurer said it would save as much as $500 million a year by gaining more control over its drug purchasing. The company’s Chief Executive Officer Paul Markovich said Blue Shield of California is on track to save more than $100 million in the first year.

“How quickly we get to the rest of it depends on how quickly we can do more deals like this one where we are directly contracting for the lower-cost alternative,” he said.

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