Express Scripts CEO Sees Transparency Law Consequences
This article was originally published in The Pink Sheet Daily
Executive Summary
PBMs are able to secure better prices from manufacturers without transparency, Paz says.
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Pharmacy benefit manager transparency laws are a disincentive for PBMs to promote generic drugs to clients, Express Scripts CEO George Paz said. "The problem with transparency...is everything flows through to the client, and it takes away the incentive to promote generics, mail [order] or anything else," Paz said during the PBM's second quarter earnings call July 27. "All of a sudden, the PBM is no longer aligned with its members and clients." In 2004, Maine and the District of Columbia enacted legislation seeking to provide the disclosure of contract financial terms between PBMs and drug companies. The Pharmaceutical Care Management Association challenged both laws (1 (Also see "PCMA Challenges D.C.'s PBM "Transparency" Provision In Federal Court" - Pink Sheet, 28 Jun, 2004.)). PCMA lost its case in a Boston federal appeals court in November 2005; a December 2004 injunction against the D.C. transparency law is still in effect, though a request to lift the injunction was presented to D.C. federal court in May (2 (Also see "PCMA To Continue To Fight D.C. PBM Transparency Law" - Pink Sheet, 3 May, 2006.)). PCMA has argued that "precise information about rebates, if generally known, would cripple the PBMs' ability to negotiate rebates with drug manufacturers and pharmacies and 'destroy the value of this trade secret information'" (3 (Also see "PBM Regulation In Maine Blocked By Federal Court; ERISA Preempts State" - Pink Sheet, 10 Mar, 2004.)). Paz maintained that transparency laws would be counterintuitive to Express Scripts' goal of driving greater generic utilization to clients. He noted the PBM makes more money off generics than branded products. For the quarter, the company's generic fill rate was 56.3% compared to 53.9% for the same period last year. "You take that incentive away, what's the reason for us to continue to spend significant amounts in SG&A...costs in order to promote the generics," the exec said. "I think the model, as it's evolved, is a very efficient tool for driving proper incentives to the PBM and drug trends to the client." "Now what's the incentive to continue to try to drive the extra costs associated with driving down trends if you don't share in any of the upside?" he asked. "In a current pricing deal that's not transparent today, we're willing to bet more on where the generic and our ability to move generics reside." The company's effort last year to encourage patients to switch to Zocor (simvastatin) from Lipitor (atorvastatin) in anticipation of generic simvastatin becoming available in June 2006 took "some work," Paz added. According to the chief exec, the effort, which involved dropping the Pfizer statin from its preferred formulary list, has paid off, leading to a significant decline in atorvastatin scripts from clients (4 (Also see "Express Scripts Sees Rapid Switching to Zocor" - Pink Sheet, 1 May, 2006.)). "By mid-June, we reduced the use of Lipitor in our book of business by 17 percentage points, versus a national average decline of 5 percentage points. Approximately half this share shift went to Zocor and other generic statins, with Crestor [rosuvastatin] and Vytorin [ezetimibe/simvastatin] gaining the other half." The company attributed its positive second quarter results to the "success of our formulary strategy, which promotes the use of lower cost generic drugs." For the quarter, Express Scripts reported revenues up 12.9% to $4.45 bil. and net income up 5.7% to $107.8 mil. - Jonathan Block |