Part 1: Cheryl Larson on How Employers Are Taking on PBMs

The Center for Biosimilars^® (CfB): Hello, I'm Matthew Gavidia. Today, on the MJH Life Sciences Medical World News, The Center for Biosimilars^® is pleased to welcome Cheryl Larson, president and CEO of Midwest Business Group on Health. Can you just introduce yourself and tell us a little bit about your work?

Larson: Sure. I am, as you said, the president and CEO of the Midwest Business Group on Health. We're one of the oldest and largest employer coalitions in the country. We're a 501(c)(3) organization, so we focus on education and employer-directed research projects. We represent members like Boeing, Caterpillar, Walgreens, the state of Illinois, the city of Chicago. We represent 11 states in the Midwest. Most of what we have focused on in the last 10 years has been addressing waste, misuse, and low value/no value care in the health care system, as well as the whole area of specialty drugs, biologics, biosimilars, and better cost management of those areas.

CfB: So, to start us off, why has saving money on biologics become so more important than 10 years ago?

Larson: Well, I think employers weren't seeing as many biologics in the marketplace as we see today, and for some disease states the number of therapeutic actions has grown significantly but the costs have grown as well. This is important to employers because, in the end, they're really the real payers of health care. Not the health plans or the PBMs [pharmacy benefit managers]. It's public and private employers like we represent and the government. And we have a fiduciary responsibility to our plan beneficiaries to offer the best benefits at the best price. If you look at the fiduciary responsibility from the Department of Labor, it says a bunch of stuff, but in the end, it says, "pay only reasonable expenses," and the marketplace in many ways has not been reasonable and [the rising cost of] biologics have contributed to that.

We know that biologics and specialty drugs have the ability to change the face of treating diseases. And there are an increasing number of them being produced for varying chronic conditions or previously untreated conditions. For the past 10 years or so our members have cited managing specialty drugs as their top priority for over 5 or 6 years; otherwise, it was in the top 2 or 3. So, it continues to be very, very important to them. And employers recognize it's not just about saving money on biologics; it's about getting the right drug to the right patient at the right time for the right price.

And that's where partners and stakeholders come in, and if they're adding to the cost of biologics and specialty drugs and if they're preventing biosimilars, which we're going to talk about in a minute, from getting to the market and being more utilized, we have to address those issues. And so, our focus has been on helping them manage that waste and that misuse and low value/low value care in the system, because it does have a direct impact on the cost of the drug.

We tell [pharmaceutical companies] all the time, we can't impact what they charge for a drug, but we don't have to buy it, though. We also want innovation in what drugs they're bringing to the marketplace. So, it's a double-edged sword. Most employers—at least, all of ours—are offering all of the specialty drugs that are out there that have proven to be innovative, game changing, and efficacious, and they are getting rid of low/no value drugs, because they've got to figure out a way to afford them.

Our issues today are that intermediaries like PBMs and others are adding significantly to the cost of the drugs, and it's everything from retaining the rebate—many employers love rebates because they think that they're saving money or making money, but in reality, it's fake money. I call it fake money because it's like a tax return that looks good to the CFO [chief financial officer] initially, but you're paying for it upfront. And PBMs are often keeping the spread, keeping all of the drug distribution in house, locking out new drugs, clawing back co-pays. We wrote a report on this a couple years ago. And it's really opened a lot of employers’ eyes. Our members tend to be pretty sophisticated and understand the challenges, but the average employer out there that may not be part of a coalition, what are they doing? Who are they talking to? Who can they trust?

This has continued to be a problem. I don't think any legislation is happening soon. Rebate legislation may be the only thing that gets us where we need to go. But getting the rebate back to the patient at the point of care is probably not the solution. So, employers and other key stakeholders really need to share our thoughts on this to get it right this time.

CfB: Today, roughly 90% of traditional drugs prescribed are generics. Where are we with biosimilars? And what does this signify to you?

Larson: Well, it took a long time to get employers to embrace generics. Then, they started using them and then, most plan designs became “generics first.” But even though adoption was slow, once generic competition gained momentum, costs went down, and today we're at 90% as you said. There was a RAND study quote recently that said the use of biosimilars in the [United States] could lead to a reduction of $54 billion in direct spending on biologic drugs between now and 2026. That's not very far away from right now.

And we recently launched an employer accord on biosimilars, and we actually quoted your organization where you stated that price competition between biosimilars and biologics may actually lower prices overall or force out competition as a result, and we're hoping for that. We want employers to know when it's appropriate to use a biologic because there's no alternative and a biosimilar that is just as efficacious and been FDA approved. They're not interchangeable yet. We still can't figure out why the FDA has dragged their feet on that. But the doctors will base, oftentimes, what drugs they prescribe on that factor.

Education is key to all of this to all of the key stakeholders. Biosimilars first came out a number of years ago and it took forever for more than just 4 of them to be out there. We need to educate them about clinical efficacy, that they're as safe and effective [as the reference product] for the approved indications. Although, we do talk about the desire or the recommendation that at least for the time being, don't take a current patient off of a [reference product] if it's working for them, because sometimes with RA [rheumatoid arthritis] or MS [multiple sclerosis], they've gone through 4 or 5 or 6 drugs and they finally found one that they don't have any adverse reactions to. Keep those people on those drugs for now, unless a switch needs to be made, and focus on biosimilars for new patients.

CfB: A lot has been said about the savings being left on the table because of failure to adopt biosimilars. Do employers have a viable role in helping biosimilars become assimilated into health care?

Larson: They absolutely do and that vital role, for example, our larger and more progressive employers say, "I want biosimilars on my formulary, that's the end of it." And their PBMs or their plans have to figure that out. I know that often if PBMs want to carve a drug out or add a drug and they're not going to get the maximized benefit of discounts and rebates, the employer's paying for it in the end. So, you've got to have the clout to be able to do that. And I know that it's a challenge for midsize employers, and we've got some recommendations for them.

But I think they're going to get to a point where, with more and more biosimilars coming to the market, they're going to have to integrate them into the strategy. We're talking about doing things very differently. I'll share a little bit about that, where we're not giving PBMs and intermediaries the option to make those decisions. We're making them on our own. So, I'll share that in a minute, but we need to learn from each other, peer to peer and employer to employer, what best practices are going on out there. And if an employer is not part of a coalition, I hope they have a pharmacy benefit consultant or someone advising them about what to do.

CfB: Can you describe the obstacles that payers have imposed that are preventing biosimilars from reaching employees of your member companies?

Larson: Sure. When [biosimilars] came out, we thought they would be priced more competitively. We thought 20% to 40%, maybe, but they came out at 10% to 15%, and that was not what we had hoped for. I think there was disappointment in the marketplace, and it was a mistake by the biosimilar manufacturers. We also know that some biologic originator drug manufacturers have kept adding patents to their drug to protect their originator and block biosimilars from entering into the market. There are some lawsuits going on. It's going to all settle. Hopefully, we'll all sing “Kumbaya” and start figuring things out.

And then price negotiating with payers, like PBMs that do rely heavily on rebates and discounts to get a drug on formulary. They may want the originator over the biosimilar because a lot of biosimilars don't pay rebates, and that's why they choose the originator drug. We know physician adoption has been slow because, as I said earlier, they're concerned about interchangeability, efficacy, safety. What if the carrier or the coverage doesn't cover the biosimilar? Then, they're putting the patient in a difficult situation. We know entry into the US market has been slow and very ineffective at lowering prices. And we failed to overcome the discounts to the middlemen.

So, we need to look at the European Union's example where they've been using biosimilars for a long time, and they found and have shared that once a biosimilar was introduced into the market, they saw competition between the reference biologic and the biosimilar, which lowered the cost of the reference biologic across the board. So, we do recognize that it's easy for a reference biologic to reduce their costs to that of or below the biosimilar, and that's just part of the risk of what's going on in the market. We're hoping that competition really helps drive down costs.

CfB: And you alluded to this before, but how about the role of pharmacy benefit managers and other middlemen in syphoning off the potential savings from biosimilars?

Larson: Again, they're making a lot of money on rebates right now, and of course, we know that has to change and it's going to change at some point. If they don't get rebates or get less rebates from biosimilars, PBMs don't want to include them on the formulary. Employers need to talk to their vendors and demand this. They need to have a collective voice. Employers need to be educated about these challenges. We think coalitions have been effective in doing that, but not if the message is not getting to every employer. The PBMs and the intermediaries are not going to do this on their own so, education is key.

CfB: In a recent employer group webinar, it was described how Costco and Disney are working biosimilars into health care. What's significant about these efforts?

Larson: You know, I think this is great. These are disruptors. We don't have Disney as a member, but we've got a bunch of other large nationally known companies like them. And it's about time, first of all. I know Costco and a few of the other organizations out there, like Walmart and others, are willing to be disrupters. They're willing to try new and different things. We're grateful for that and we want to see more of that. In fact, we are doing some of that ourselves and I'll explain that in a minute.

But in terms of integrating biosimilars into the plan design and the formulary, our members, the big guys, have gone to the PBMs and said what drugs they want added on the formulary. I think, eventually, PBMs will likely have a different tier and they'll recognize that they're not going to maybe make as much money on that, or they'll figure out another way to integrate a revenue stream, but they're going to have to change the offerings that they have in order to stay competitive in the marketplace as well.

To watch part 2 of this interview, click here.