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‘Flipting’ the switch: a technological prescription for lower drug costs

Guest commentary: BIO’s Levin says technological disruption could usher in a new era of more transparent drug prices

Guest commentary: BIO’s Levin says technological disruption could usher in a new era of more transparent drug prices.

Oct 1, 2020 | 9:42 PM GMT

It is time to do away with the middlemen that drive up drug costs for patients through their complex system of kickbacks.

This week’s House committee hearings on drug pricing are a sign the issue is not going away. While biopharma companies will have to address the issue themselves, a major piece of the drug pricing picture in urgent need of fixing is the practices of pharmacy benefit managers (PBMs).

Few players in our healthcare system confuse, impact and are as invisible to consumers as much as PBMs.

These are the players positioned between drug manufacturers, patients, and employers as they negotiate the drug benefits a health plan covers. To many consumers, their PBM is a mysterious entity that somehow combines employer insurance payments, copays, and drug company rebates to come up with drug prices few understand.

For consumers and employers, that confusion is a headache as well as an enticing reason to point fingers at the pharmaceutical and biotechnology industry.

For PBMs, the lack of transparency is an essential part of their business model.

The problem is that PBMs operate via a hidden system of drug markups and rebates that increase costs for patients. While some states and health plans are waking up to this issue and taking steps to address it, new technologies also promise solutions.

One model for how technological disruption could improve the management of pharmacy benefits is Flipt, a startup that charges a transparent flat fee and provides an app to help consumers find the best deals on their medications.

Steps toward transparency

PBMs were originally conceived to help employers and insurers negotiate the best prices for prescription drugs. But following massive industry consolidation, today’s PBMs are giants who are driven by economic interests essential to their success. Today, their operations depend on a complex, opaque system of rebates paid by pharmaceutical companies.

The rebate game often works like this: drug developers must offer rebates to secure a position on a PBM’s formulary, with the largest rebate winning preferred status. To cover the rebates, drug developers increase the list prices of their drugs. Because patient copays are usually based on list prices, while the rebate sizes remain secret, this system of drug markups and rebates can add to out-of-pocket costs in meaningful ways — as much as 40% in many cases.

As a result of the existing model and its profitability, the top six PBMs handle more than 95% of total U.S. equivalent prescription claims, and multiple PBM conglomerates now rank in the top 10 on the Fortune 500 list.

PBMs’ have become the de facto gatekeeper of the American medicine cabinet.

Over time it has become apparent that the industry would prefer a simple system with far greater transparency for employers and patients.

Driven by outcries in the press, changes appear to be edging closer. A more transparent model that states, employers and non-profits have been calling for might be emerging.

States are taking action to hold PBMs accountable for driving up costs to consumers, employers and state budgets. West Virginia has reportedly saved $54 million a year by removing PBM practices from its Medicaid program. And in Massachusetts, the Health Policy Commission is calling for more oversight and transparency, alleging that the PBMs’ use of spread pricing has cost Bay State taxpayers millions of dollars in excess spending.

The new “transparent model” is based on two core principles: transparency in pricing and a simple fee-based economic model that no longer relies on PBM middlemen.

The Alliance of Community Health plans offers an illustrative example of the transparent approach. ACHP member plans run a fully transparent fee-based PBM that keeps drug costs in check by returning 100% of their rebates and discounts back to their members.

In addition to changes in business models, it is exciting to see disruptive technologies beginning to tackle this problem.

A promising new startup called Flipt is offering a high-tech approach that “flips” the existing PBM model. Flipt was founded by a family-owned pharmaceutical maker that was surprised to discover their PBM was charging company employees five times the factory price of the very same drugs those employees were making in their factories!

Flipt puts employers and employees in control by replacing PBM-style hidden drug price markups with a plan where sponsors pay a flat fee for each covered employee. Employees gain more control and choice as they manage their prescriptions through the Flipt app on their smartphones. They are able to see the different prices for their prescribed drugs at nearby pharmacies and decide where they want to get their medicine. When they choose a lower cost option, they share in the savings with their employer.

This disruptive model has arrived at the right time, as the focus on drug pricing by legislators, a frustrated public and the administration is once again rising, against the backdrop of the COVID-19 pandemic and the nearing elections.

Flipt’s founders developed a transparent model based on technological innovation and market understanding. Flipt has opened up an important new avenue for the industry to follow; one which leads to a new and transparent approach to drug pricing. In November, Flipt is hosting the first ever conference to present this new model to biopharmaceutical industry leaders. One can expect other similar types of programs to soon follow.

The transparency model is quickly gaining steam in the healthcare system. We know the transparency approach saves money, gives consumers more control and makes the system more honest. Technology is bringing it to reality.

Jeremy Levin is the CEO of Ovid Therapeutics Inc. and the chairman of BIO, the Biotechnology Innovation Association. He is not affiliated with Flipt and does not own stock in the company.

Signed commentaries do not necessarily reflect the views of BioCentury.

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