Cole Schmidtknecht, 22, recently moved into his own place with his best friend as his roommate. He was starting an exciting new chapter of his life. Unfortunately, his life was unexpectedly cut short due to entirely preventable and unforgivable circumstances.
I am sharing Cole’s story today in hopes that no patient will ever be subjected to the same fate because of our corrupted healthcare system.
Cole went to a Walgreens Pharmacy in Appleton, WI, to refill a prescription for Advair, a medicine for chronic asthma.
Advair is a combination medicine that includes an inhaled steroid and a component that expands the airways that become restricted during asthma attacks. It is critical for asthmatics as it prevents severe asthma attacks from occurring.
When he filled his Advair prescription, he usually had a $5 copay. The pharmacist informed him the price was $539. This was unaffordable for Cole, and he left without his critical medication. According to Optum Rx, the pharmacy benefit manager for Cole’s insurance plan, the Advair prescription changed from $5 to $539 because they took it off the formulary. A formulary is a list of medications that the insurance company will pay for. The patient must pay the entire price if a drug is removed from the formulary.
Five days later, he had a severe asthma attack and died on the way to the hospital. He was resuscitated in the hospital, but he suffered severe brain damage and died. Cole’s death was entirely preventable.
Dr. Patrick Conway is the CEO of Optum Rx, a United Health subsidiary. He is a pediatric hospitalist, and in his testimony before the House Oversight Committee on July 23, he reported that he still works on weekends in a Boston hospital. A Pediatric Hospitalist is a pediatrician who works in the hospital, taking care of children admitted with life-threatening issues, such as asthma.
Dr. Conway would be familiar with the necessity of life-saving medications such as Advair. His company has no excuse not to communicate with Cole’s physician before taking away his Advair.
You are probably wondering what a Pharmacy Benefit Manager is and why it makes life-and-death decisions about a patient’s healthcare. Pharmacy Benefit Managers, or PBMs, are corporate middlemen in the pharmacy supply chain.
PBMs began in the 1960s when insurance companies began offering prescription drug benefits. Initially, they processed the claims and had a minor role. Over time, they became huge corporations instrumental in determining the price and accessibility of medications.
The PBMs have grown rapidly with the three largest PBMs accounting for about 80% (the six largest, 95%) of all prescriptions filled in the US. This market consolidation allows for the significant influence of PBMs on drug pricing and accessibility.
Another key factor that promotes the influence of PBMs is vertical integration. This occurs when companies in different but complementary businesses merge to form a conglomerate. The three largest PBMs are all part of a conglomerate that includes an insurance company, health care providers, mail-order, and specialty pharmacies.
The three largest PBMs and their associated insurance companies and market share are:
CVS Caremark has a 34% market share; the health insurer is Aetna; the pharmacy is CVS Pharmacy, a retail chain with over 9,000 stores.
Express Scripts has a 23% market share; the health insurer is Cigna.
Optum Rx has a 22% market share; the health insurer is United Health. Optum controls 90,000 physicians, making it the largest employer of physicians in the country.
The revenue of the three largest PBMs increased from $196.7 billion in 2012 to $492.4 billion in 2022, and the profit increased from $6.3 billion to $27.6 billion over the same time period. Therefore, margins increased from 3.2%to 5.6% over this period. This is an enormous profit for a business that doesn’t perform any of the following services:
- Does NOT Research or Develop Drugs
- Does NOT Manufacture the Drugs
- Does NOT Transport or Store the Drugs
- Does NOT Fill the Prescriptions
PBMs serve several different functions. They negotiate with drug manufacturers to determine the price of drugs. The drug manufacturers are the companies that produce the drugs. The manufacturers often pay a rebate and other fees to the PBM. PBMs follow opaque business practices, and the amount of rebates and fees paid to them is difficult to determine.
The PBMs claim that the rebates from manufacturers lower the price of the drugs.
However, PBMs aren’t required by law to pass the rebate or fees to the health plan or to you, the customer.
The PBMs also develop the formulary or list of medications your health plan approves. The formulary has tiers or groupings of medications from least to most expensive. The lower tiers involve a lower copay, and the higher ones can be very expensive and usually include noncovered brand names or specialty drugs.
The drug manufacturer wants their drug on as low a tier as possible, as the low tiers are associated with much higher sales. Often, several drugs can be used to treat a disease. The PBM can then list the drug that will provide the highest rebate to them. To provide a high rebate, the manufacturer needs to increase the drug’s list price.
A recent House Oversight Committee report found that PBMs routinely place higher-priced drugs in a preferred position in the formulary, even though there are more affordable options available. This increases the PBM’s profitability at the customer’s expense. Although PBMs claim to reduce the cost of drugs, the House Oversight Committee found numerous examples of PBMs overcharging customers by hundreds of millions of dollars.
The decision of what medication a patient can use should be between the physician and the patient. However, the formulary often does not approve a drug that is beneficial to the patient or stops approving a drug that has worked for the patient for years. The PBMs are not required to inform the patient or their physician of these crucial changes to the formulary.
Even though the PBM makes medical decisions, it has no liabilities for its actions.
PBMs argue that drug manufacturers are to blame for the exorbitant prices we pay for prescription drugs. However, there are numerous examples of PBMs overcharging both the entities that hire them and the public.
Express Scripts (one of the big 3 PBMs) was found to have overcharged the US Postal Workers union. The audit reveals that Express Scripts overcharged the union by $45 million from 2016 to 2021. The most significant issue is that Express Scripts should have refunded 100% of the rebates as they were supposed to per the contract. Express Scripts agreed to return all the rebates.
CVS Caremark, the largest PBM, had to pay $45 million to the State of Illinois for not passing through manufacturer rebates to a Union Pension plan. This is the same issue identified in the Express Scripts case above.
The Federal Trade Commission released an interim staff report on PBMs in July 2024. This report contains a case study of two drugs and their cost with the PBMs.
The first drug is Abiraterone (generic Zytiga for prostate cancer). This study revealed the following costs:
- The acquisition cost is $229 per month for this drug.
- Affiliated pharmacies’ costs were $ 5,800 per month.
- The price charged to customers is over 25 times the acquisition cost.
The second drug is Imatinib (generic Gleevic for leukemia). The study revealed the following costs:
- The acquisition cost is $66 per month for this drug.
- Affiliated pharmacies’ costs were $2,700 per month.
- The price charged to customers is over 40 times the acquisition cost.
An executive at one of the PBMs was concerned with the following prices for Imatinib:
- At a non-preferred pharmacy (Costco) was $97
- At a preferred pharmacy (Walgreens) was $9,000
- Preferred home delivery via mail order was $19,200
He was concerned because there are plan designs that aggressively steer patients to home delivery, and it is almost 200 times the cost they can purchase without insurance.
The House Oversight Committee hearing revealed the following cost to an employer in Massachusetts for Teriflunomide, which is used to treat multiple sclerosis:
- The acquisition cost base was $16 for this drug.
- The price charged by CVS was $6,229 for this drug.
- The price charged by Cost Plus Drug Co. was $12.80 for this drug.
The price charged by CVS Caremark is almost 500 times more than the price of Cost Plus Drug Co.
These are but a few examples of the large PBMs overcharging customers. You can often save money by asking for the cash price at your pharmacy or by checking the cash price on the Cost Plus Drugs Company website.
On March 20, the maker of Advair, Glaxo Smith Kline, announced that they would cap the price of US customers’ out-of-pocket costs at $35 per month. Cole tried to fill his prescription on Jan. 10, and suffered his fatal asthma attack on Jan. 15.
Cole would still be with us if the $35 cap on out-of-pocket costs had been in place on Jan. 10.
Pharmacy Benefit Managers are silent middlemen who increase the costs of medications and limit the drug choices for patients and their physicians. The Federal Trade Commission and the House Oversight Committee have done a great job uncovering the harm that PBMs cause. It is time for both federal and state legislators to reform the Pharmacy Benefit Managers and put patients before profits.
