Disrupting Pharmaceuticals

Radical Health Care Disruptor vs Status Quo Pharmacy Industrial Complex

Pharmacy benefit managers are, as Bloomberg News explains, “the middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold, and for how much.” 

The system is opaque and perverse — and it’s the only system we know………

SOURCE: Brian Klepper

Disrupting Pharmaceuticals

By Pramod John

August 31, 2017

These days, we’re not surprised to open the paper and see another headline about the latest Epi-pen, Martin Shkreli, or yet another new drug with an exorbitant price tag that has no basis in reality. Since Sovaldi, a pill to treat Hepatitis C, hit the market at a price point of $1,000 (never mind that you could purchase it for $4 per pill in India), it has become acceptable for mass market therapies to suddenly become very expensive — often to the tune of $100,000 per therapy per patient per year.

So it might blow your mind to open up a newspaper (or these days, your web browser) and learn that a new, more effective drug is significantly cheaper and better, especially if it is a cure for Hepatitis C.

Mavyret, manufactured by AbbeVie is the first example of new brand name Hepatitis C drug that is actually better for patients and costs far less. Eighty percent of patients with Hep C can do an eight-week course, versus the alternative, manufactured by companies including Gilead and Merck, which requires a 12-week course.

It is the only drug that works for genotypes 1-6 and it has a list price that is less than half of what the competitors charge, even when you factor in the bizarre middleman shenanigans. It ends up being about $26,000 to cure a patient of Hep C. If that sounds high, just consider the fact that all the specialty meds for chronic conditions such as psoriasis are now $50,000-100,000 or more per year!  Mavyret sounds too good to be true, right?

In the world of specialty pharmaceuticals — an intentional labyrinth of perverse financial incentives, with zero transparency for the payer or patient — it is actually not too good to be true. But your clients and their employees probably still won’t reap the benefits of it. Unfortunately, our current system probably locks them into paying more for a drug for employees that is less effective, even though a cheaper alternative exists.

Most of our efforts to manage pharmacy costs rely on working with a pharmacy benefit manager or PBM, who uses strategies like formulary management, prior authorization, and step therapy. And pharmacy benefit managers are, as Bloomberg News explains, “the middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold, and for how much.”

For starters, your PBM may have contracted to have the more expensive drug on their formulary because that manufacturer offers them better rebates. This decision, of course, is not based on what is most effective for the patient, or cheaper for the payer. It is based on the formulary and written into the contract, so you are stuck with it. And with the bizarre economics of rebates for manufacturers, Gilead and other makers of Hep C drugs can argue that their post-rebate prices are only 50 percent to 60 percent of their list price, so they really aren’t committing too much highway robbery.

The New York Times recently reported that contrary to conventional wisdom, an increasing number of patients are being steered away from lower cost generic drugs toward brand name alternatives because this is a better financial arrangement for the PBM, thanks to steep rebates from manufacturers trying to “squeeze the last profits from products that are facing cheaper generic competition.”

We feel the financial pain of this broken system every day. Only a few years ago, specialty drugs comprised a reasonable sounding 10 percent of our overall drug spend. Last year, specialty dug spending bloated to 38 percent — and by 2018, it will be an astounding 50 percent, which is an increase of $70 million a day!

The system is opaque and perverse — and it’s the only system we know. But it doesn’t have to be this way. Almost two decades ago, the internet revolution made the travel agency obsolete. Uber and Lyft have done the same thing to parts of the transportation industry, and Amazon continues to do this to many industries.  What have all of these disruptive innovations taught us?  They have taught us that we might, in fact, be able to make better decisions ourselves, without a middleman.

It is time for this type of disruptive innovation to hit the pharmacy benefit world. Today we have a system that focuses on controlling suppliers: PBM’s who use profitability levers like formulary management, prior authorization, and step therapy which, in reality, just limit our choices and prevent the functioning of a real market.

What if instead of focusing on supply, we focus on value? What if we begin by asking “is this drug really working for this patient? How well? And how does it compare to the alternatives?” This scenario represents an incredible opportunity for better health outcomes and savings compared to the status quo. What makes sense and saves cents at the same time isn’t being locked into a formulary choice, but the brave new world of opportunity for employees to get well sooner and pay less for a therapy like Mavyret.

As a benefits professional, breaking out of the status quo isn’t easy. After all, 10 years ago, it wouldn’t have worked to turn to your travel agent, taxi cab driver, or storefront manager and tell them, “I need a new model for your industry and I don’t need you anymore.”

Organizations that have a bit of flexibility to experiment can, should, and will be the early adopters of better ways. Some already exist. As benefits professionals, you have a special opportunity now to help drive the experimentation and innovation in doing better for your clients and their employees. Don’t settle for the status quo. Keep asking your vendors “what have you done for my clients and their employees today?”


Pramod John is CEO of VIVIO Health. Prior to VIVIO Health, Pramod was founder of Oration PBC which is changing the way consumers purchase prescription medications by capturing the prescription in the physician’s office and providing all the pricing options and routing automatically. Pramod was also VP of Strategy and Innovation at McKesson where he helped develop solutions that leveraged advanced technologies and business process improvements to optimize healthcare delivery systems, infrastructure and supply chains. Earlier, he founded and served as CEO of PacketMotion, a venture-funded startup in network space which was acquired by VMWare. In addition, he also founded netExaminer.com, a managed-vulnerability assessment company acquired by SonicWALL (acquired by Dell). Pramod earned his Ph.D. in Electrical Engineering from the University of Illinois at Urbana-Champaign.