Cost Plus Drug Company CEO Mark Cuban recently pointed out that self-insured businesses could save over $70,000 per employee annually by getting their workers to switch from AbbVie’s blockbuster anti-inflammatory treatment Humira to a lower-cost biosimilar called Yusimry.
Humira has a list price of roughly $7,000 per month. Since it lost market exclusivity last year, nine nearly identical copycats have hit pharmacy shelves. A year’s supply of Yusimry costs the same as just one month of Humira.
Why doesn’t every employer in America follow Cuban’s advice? The answer has three letters: PBM.
PBMs are pharmacy benefit managers. Health insurers hire these middlemen to negotiate with drugmakers and administer “formularies,” or lists of drugs the health plan covers.
PBMs have an incentive to select the highest-priced drugs for their formularies even when cheaper alternatives exist. That’s because they’re compensated according to how much in the way of rebates and fees they can attract from drugmakers.
These payments are calculated as a percentage of a drug’s list price. So a drug with a high list price on which a PBM “negotiates” a lower net price can mean a much bigger payday than a drug with a lower list price on which the potential rebate or discount isn’t as high.
Patients, meanwhile, don’t see much benefit from those lower net prices. Their cost-sharing obligations are based on a drug’s list price.
These perverse incentives have helped a pricey drug such as Humira retain 96% of the market as of February, even after less expensive biosimilars had been available for more than a year.
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Wider adoption of biosimilars could save the entire healthcare system money. An analysis by my Pacific Research Institute colleague Wayne Winegarden found that biosimilar competition already saves patients and the health system over $11 billion annually. Other research forecasts potential savings of up to $375 billion through 2031, as the patents for several major biologics are set to expire soon.
But as long as PBMs have a financial incentive to push patients toward the most expensive treatments, these savings won’t fully materialize. Lawmakers must intervene to ensure that PBMs can’t continue to manipulate the drug market to the detriment of patients and their employers.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on X, formerly Twitter, @sallypipes.
