THE CURE HEIST

The PBM is the middleman between the drug manufacturer, the pharmacy, the insurer, and you. Officially, they “negotiate” lower drug prices on behalf of insurance plans.

In practice, they get paid rebates (kickbacks) from drug manufacturers. Those rebates grow when the list price grows. So the PBM’s revenue goes up when your copay goes up.

The top three PBMs (CVS Caremark, Express Scripts, OptumRx) control approximately 80% of US prescription claims. All three are owned by the same parents that own insurers.

The list price is the starting number for every calculation in the US drug supply chain. It is not the price the manufacturer actually receives. It is not the price the pharmacy actually pays. It is not the price you actually pay at the register. But every rebate, every coupon, every copay, every discount is calculated from the list price.

Manufacturers inflate the list price on purpose. The higher the list price, the bigger the rebate they can “negotiate” with PBMs. The bigger the rebate, the more the PBM keeps. Everyone in the chain wins. Except the patient, whose copay is calculated on the inflated starting number.

A rebate is a payment from a drug manufacturer to a PBM in exchange for favorable formulary placement of that manufacturer’s drug.

Rebates are not passed through to patients in any transparent way. The PBM keeps a portion. The insurer gets a portion. The patient’s copay is calculated on the pre-rebate (inflated) list price.

The rebate structure creates the perverse incentive at the heart of the US system: the PBM makes more money when the list price stays high. They are legally paid to prefer drugs with large rebates, not drugs with the lowest real cost.

A patent thicket is a dense web of overlapping patent claims on a single drug. The patents typically cover minor formulation, delivery-device, or manufacturing-process variations rather than the underlying molecule.

When a drug’s primary molecule patent is close to expiring, the manufacturer files a thicket of secondary patents on related components. The syringe. The cap. The concentration. The manufacturing method. Generic competitors must either license or successfully challenge every patent in the thicket before launching a competing product. Litigation can take years and cost tens of millions, delaying generic entry.

Humira’s thicket of 247 patents kept US biosimilar competition at bay for approximately seven additional years compared to Europe.

A formulary is the list of prescription drugs that a specific health plan will cover (and which ones it prefers).

The formulary decides whether your prescription is cheap, expensive, or denied. A drug on the preferred tier has the lowest copay. A drug on the non-preferred tier costs more. A drug not on the formulary requires prior authorization or is simply not covered at all.

PBMs build formularies based on which manufacturers paid them the largest rebates, not which drugs are clinically best for patients. A drug with a smaller rebate may be excluded even if it is the best treatment.

A requirement that your doctor submit paperwork to your insurer proving the prescribed drug or test is “medically necessary” before the insurer will cover it.

Prior authorization is used as a speed bump to reduce utilization. Even for medications you’ve been stable on for months, insurers can trigger a prior auth at renewal, forcing your doctor to re-justify the prescription.

American Medical Association surveys consistently find that physicians and staff spend 10+ hours per week on prior authorizations. Many patients abandon prescriptions when a prior auth stalls.

A category of high-cost, complex medications (often biologics) that typically require special handling, administration, or monitoring.

The specialty drug tier is where the highest prices live. Once a drug is classified as specialty, it goes through a specialty pharmacy (often owned by the same PBM), gets its own higher-copay tier, and is often excluded from normal coupon and discount programs.

Most new biologics, GLP-1s, and gene therapies are specialty drugs. Hemgenix, the gene therapy for hemophilia B, is priced at $3.5 million per dose.

A clinical term for when a patient does not take medication as prescribed.

The medical system uses non-adherence as if it were a character flaw or a personal failure. In the pharmaceutical pricing context, non-adherence is most commonly driven by cost. People ration doses. Skip refills. Split pills to make them last.

When people ration medicine, the system calls it “reduced utilization.” When people die from it, the system calls it “non-adherence.”

Alec Smith, age 26, died of diabetic ketoacidosis on June 27, 2017, after rationing insulin he could not afford. The clinical term for the cause of his death is non-adherence.