Author: Megan Thompson
Two years ago Gretchen Liu, 78, had a transient ischemic attack — which experts sometimes call a “mini stroke” — while on a trip to China. After she recovered and returned home to San Francisco, her doctor prescribed a generic medication called telmisartan to help manage her blood pressure.
Liu and her husband Z. Ming Ma, a retired physicist, are insured through an Anthem Medicare plan. Ma ordered the telmisartan through Express Scripts, the company that manages pharmacy benefits for Anthem and also provides a mail-order service.
The copay for a 90-day supply was $285, which seemed high to Ma.
“I couldn’t understand it — it’s a generic,” said Ma. “But it was a serious situation, so I just got it.”
A month later, Ma and his wife were about to leave on another trip, and Ma needed to stock up on her medication. Because 90 days hadn’t yet passed, Anthem wouldn’t cover it. So during a trip to his local Costco, Ma asked the pharmacist how much it would cost if he got the prescription there and paid out of pocket.
The pharmacist told him it would cost about $40.
“I was very shocked,” said Ma. “I had no idea if I asked to pay cash, they’d give me a different price.”
Ma’s experience of finding a copay higher than the cost of the drug wasn’t that unusual. Insurance copays are higher than the cost of the drug about 25 percent of the time, according to a study published in March by the University of Southern California’s Schaeffer Center for Health Policy and Economics.
USC researchers analyzed 9.5 million prescriptions filled during the first half of 2013. They compared the copay amount to what the pharmacy was reimbursed for the medication and found in the cases where the copay was higher, the overpayments averaged $7.69, totaling $135 million that year.
USC economist Karen Van Nuys, a lead author of the study, had her own story of overpayment. She discovered she could buy a one-year supply of her generic heart medication for $35 out of pocket instead of $120 using her health insurance.
Van Nuys said her experience, and media reports she had read about the practice, spurred her and her colleagues to conduct the study. She had also heard industry lobbyists refer to the practice as “outlier.”
“I wouldn’t call one in four an ‘outlier practice,’” Van Nuys said.
“You have insurance because your belief is, you’re paying premiums, so when you need care, a large fraction of that cost is going to be borne by your insurance company,” said Geoffrey Joyce, a USC economist who co-authored the study with Van Nuys. “The whole notion that you are paying more for the drug with insurance is just mind boggling, to think that they’re doing this and getting away with it.”
Joyce told PBS NewsHour Weekend the inflated copays could be explained by the role in the pharmaceutical supply chain played by pharmacy benefit managers, or PBMs. He explained that insurers outsource the management of prescription drug benefits to pharmacy benefit managers, which determine what drugs will be covered by a health insurance plan, and what the copay will be. “PBMs run the show,” said Joyce.
In the case of Express Scripts, the company manages pharmacy benefits for insurers and also provides a prescription mail-delivery service.
Express Scripts spokesperson Brian Henry confirmed to PBS NewsHour Weekend the $285 copay that Ma paid in 2016 for his wife’s telmisartan was correct, but didn’t provide an explanation as to why it was so much higher than the $40 Costco price. Henry said that big retailers like Costco sometimes offer deep discounts on drugs through low-cost generics programs.
USC’s Geoffrey Joyce said it is possible that Costco negotiated a better deal on telmisartan from the drug’s maker than Express Scripts did, and thus could sell it for cheaper. But, he said, the price difference, $285 versus $40, was too large for this to be the likely explanation.
Joyce said it is possible another set of behind-the-scenes negotiations between the pharmacy benefit managers and drug makers played a role. He explained that drug manufacturers will make payments to pharmacy benefit managers called “rebates.”
Rebates help determine where a drug will be placed on a health plan’s formulary. Formularies often have “tiers” that determine what the copay will be, with a “tier one” drug often being the cheapest, and the higher tiers more expensive.
Pharmacy benefit managers usually take a cut of the rebate and then pass them on to the insurer. Insurers say they use use the money to lower costs for patients.
Joy said a big rebate to a pharmacy benefit manager can mean placement on a low tier with a low copayment, which helps drives more patients to take that drug.
In the case of Ma’s telmisartan, Express Scripts confirmed to PBS NewsHour Weekend that the generic drug was designated a “nonpreferred brand,” which put it on the plan’s highest tier with the highest copay.
Joyce said sometimes pharmacy benefit managers try to push customers to take another medication for which it had negotiated a bigger rebate. “It’s financially in their benefit that you take the other drug,” said Joyce. “But that’s of little consolation to the person who just goes to the pharmacy with a prescription that their physician gave them.”
But Joyce said the pharmacy benefit managers also profit when collecting copays that are higher than the cost of the drug.
In recent years, the industry has taken a lot of heat from the media and elected officials over a controversial practice called “clawbacks.” This happens when a pharmacist collects a copay at the cash register that’s higher than the cost of the drug, and the pharmacy benefit manager takes most of the difference.