The EpiPen Price Increase: A Deeper Look at a Complicated Story

Over the past couple of months, EpiPen's (epinephrine) manufacturer Mylan has been under increasing scrutiny for skyrocketing the list price to over $600 for a two pack of the drug, an increase of more than 500% since 2007. The result: public outcry, multiple Senate committee meetings, and a scramble to salvage their reputation.1

Mylan's Response and Potential Implications

In response, Mylan:

  • Provided copay cards to help some patients affected; however, this will not reduce the cost to payers.
  • Launched a generic version of EpiPen® autoinjector within a few months. For the generic, the price will be around $300.
  • Lobbied to get their EpiPen on the US Preventive Services Task Force (USPSTF) preventive drug list. For drugs on this list, payers are required to pay 100% with no member cost share.
  • Settles with CMS for $465M related to errors from the Medicaid Rebate Program.

The Bigger Picture

What have we learned from the price increase controversy centered on Mylan's EpiPen autoinjector? What are the potential impacts or consequences for drug manufacturers, pharmacy benefit managers, health plans, and consumers? Who pays when drug prices increase, such as in this EpiPen scenario?

Examining the pharmacy supply chain can shed some light into the flow of monies. In some instances, when a retail pharmacy dispenses an EpiPen prescription for an insured patient, they have no idea how much the insurance company is paying for the drug. Moreover, the insurance company in many cases is not clear how much the pharmacy is getting reimbursed for the drug. Finally, Mylan does not receive the published list price.

A multitude of variables and dynamics have, over a surprisingly short amount of time, created a perfect storm of complexity in the pharmacy supply chain: drug manufacturer > distributor > pharmacy > pharmacy benefit manager (PBM) > insurer, and ultimately to the consumer.2 Most notably, there is a lack of complete transparency with rebates negotiated by PBMs in most PBM pricing models. In many purchasing and pricing arrangements between pharmaceutical manufacturers and PBMs, the rebate is negotiated as a percentage or with a price cap, meaning the PBM makes more money as the price goes up. This, in turn, creates counterproductive incentives for the PBM that do not lead to reducing the overall cost of healthcare. Take a look at the following EpiPen rebate analysis (2014-2016):

WAC = wholesale acquisition cost
Illustrative rebate analysis for a given three-year period

  • The EpiPen list price increased from $378.00 to $600.11.
  • The net WAC after rebate (the price Mylan received) increased from $293.55 to $311.43.
  • The estimated rebate amount increased from $85.00 to $289.00, assuming a base rebate percentage and single-digit price protection on EpiPen.

Rethinking the Way We Contract and Pay for Drugs

Price protection rebates are effective only if they are passed on to payers. Although PBMs share a majority of the aggregated rebates collected, most payers do not receive rebates at the drug level. Rather, there is a lack of transparency at the drug level, and many PBMs may not be allowed to share this information with payers. Further, pharmacy benefits are procured based on the "best financial pricing," creating a misaligned incentive to manage to the lowest net cost.

Performance Based Contracting ("PBC"), although at its infancy, is an innovative reimbursement methodology that aligns with the performance of the drug versus simply reimbursing on a fee for service basis. The goal of PBC is to help deliver the best outcomes at the most appropriate price. These objectives are achieved through tying reimbursement with how well the drug performs its intended use. Currently, there is no recommended standard for contracting in this manner.

Further, this approach has limitations, for example can we apply to life saving drugs like EpiPen? Also, PBC may not work well for newly approved products pursuing formulary access where data on drug performance in a real world setting is limited. DST Pharmacy Solutions is currently engaged with these contracts with manufacturers to learn from the process and determine the viability of population-based application of these concepts. With that in mind, DST Pharmacy Solutions views value-based agreements as an important innovation in addressing the rising costs of medications with a more critical analytical lens which emphasizes drug performance.

In an ideal scenario, performance based contracting could eliminate the perverse incentives if pricing did not increase more than CPI. However, administration of these arrangements are difficult and challenging. Plans would receive no rebates if the drug is effective and meet end points according to FDA label and clinical trials. Meaning, plans would enforce formulary and UM protocols to help drive evidence based utilization (right drug right patient) and if the medicine worked in patients who were compliant, pharma pays no rebates for this population. For patients whom the medication did not work, the plan would receive 100% drug cost refund.  Determining the inclusion and exclusion criteria is a challenge. How do we handle non-compliant patients? The data fragmentation and ability to measure using statistical p values are also challenging (e.g. large plans with integrated data vs. smaller plans). The ability to collect supplemental and lab data would also need to be solved to ensure objectivity is applied in the analysis vs subjectivity.

In the case of EpiPen, Mylan will produce both the brand and generic equivalent, therefore we would expect rebate dollars to decrease as the generic version gains market share. However, Kaleo is expected to relaunch Auvi-Q to compete in 2017 and Teva may launch a generic in 2018. It is possible PBMs may engage in rebate arrangements with new competition, which could spur another price war involving generics. This could start the cycle all over again.

1 The Wall Street Journal. The EpiPen Controversy Isn't About Mylan. Published August 25, 2016. Accessed September 27, 2016.

2 Business Insider. These companies you’ve never heard of are about to incite another massive drug price outrage. Published September 12, 2016. Accessed September 27, 2016.

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