New York Times examines increasing prices of specialty drugs distributed exclusively by pharmacy benefit managers

Apr 21 2008

The New York Times on Saturday examined how pharmacy benefit managers in recent years "have built lucrative side businesses ... acting as exclusive or semi-exclusive distributors of expensive specialty drugs."

According to the Times, the practice is "seemingly at odds" with their stated intention of helping employers manage prescription drug plans and get drugs at the best prices available.

The prices of specialty drugs -- which treat diseases such as cancer, multiple sclerosis and hepatitis C, and can be regulated as federally controlled substances -- range from about $5,000 annually to about $389,000 annually, and have been rising "much faster" than prices for mainstream drugs, the Times reports. Many large employers say their spending on specialty drugs is growing at more than twice the rate of the rest of their employee drug benefits.

Gerry Purcell, a health benefits consultant serving large employers, said, "We are headed right down into conflict alley with these exclusive arrangements," because PBMs "can raise the prices at will," and "employers will have little chance but to pay the bill." PBMs say providing employers with the best drug prices is still their top priority and have defended their involvement in the pricing of specialty drugs as necessary to keep track of the medications' use (Freudenheim [1], New York Times, 4/19).

Effect on Medicare

PBMs also offer coverage through the Medicare prescription drug benefit, "and so are profiting from federal spending on specialty drugs and from Medicare patients' own high out-of-pocket copayments," the Times reports. According to Jack Hoadley of Georgetown University, many Medicare drug plans require enrollees to pay 25 to 33 percent of a drug's price when it is part of a specialty drug tier. Richard Frank and Joseph Newhouse, senior health economists at Harvard University, in a report published in the January issue of the journal Health Affairs wrote that driven in part by specialty drugs, prices of medicines heavily used by the elderly have increased by more than 24% since June 2006. The article stated that the trend does not bode well for "the worrisome future financial health of Medicare" (Freudenheim [2], New York Times, 4/19).