Class Action Lawsuit against Mylan

Since 2007, list price increases have been an annual constant in the world of EpiPen sales. Mylan acquired the exclusive rights to EpiPen in 2007 when the list price of a 2-pack was $93.88. That price skyrocketed to $608.61 by 2016, a CAGR of 23%. However, over the same time period, the cost to produce a 2-pack remained relatively consistent at around $70. In a class action lawsuit, EpiPen users contend that this increase in price was thus caused by Pharmaceutical Benefit Managers (PBMs) inducing and/or colluding with Mylan to increase list prices for their own financial benefit. The plaintiffs claim that market consolidation, closed formularies, and an opaque rebates system were tools used by the PBMs to drive up list prices.

The initial step in their logic is that PBMs consolidated to gain power over other players in the value chain. As of the case filing, the four largest PBMs controlled access for 81% of the total retail prescription drug market. The plaintiffs argue this oligopoly power gave PBMs the leverage to manipulate the market to their benefit. Once PBMs secured a sufficiently large portion of the market, they then began using closed formularies to give themselves enormous control over the financial success or failure of prescription drugs. Closed formularies allowed PBMs to steer their member’s pharmacy dollars to a drug of their choosing, and failure to be included on a PBM’s formulary could result in massive market share loss for a pharmaceutical manufacturer. This gave PBMs a new tool to strong-arm manufacturers into offering attractive incentives to PBMs to ensure that their drug was the primary drug included on the formulary.

Pharmaceutical manufacturers needed to find a way to remain in good standing with the PBMs, and they did this by paying them substantial kickbacks in the form of rebates. For each prescription sold, the PBMs received a portion of the revenue by retaining an undisclosed share of the rebates that manufacturers gave off of the list price of their drugs. These revenues were material and account for 37% of Express Scripts’ net receivables in 2017. The combined effects of closed formularies and rebates created a ‘pay-to-play’ system in the drug market. To ensure that their products would continue to receive favorable placements on the PBM formularies, Mylan continuously increased the list price of EpiPen. The document alleges that these price hikes were primarily done to benefit the PBMs, and they argue that PBMs actually want a higher list price since that means they can extract a higher rebate. The plaintiffs argue that the high share of price increases offset by increased rebates (77% in 2015) proves that the primary beneficiaries are the PBMs. Since PBMs refuse to disclose how much total rebate they receive and how much of that rebate is passed through to insurance companies, the plaintiffs conclude that the PBMs must pocket a significant portion.

Their logic concludes that PBMs induced Mylan to increase the list price of EpiPen by threatening to take away market access for their drug. PBMs’ profits increased dramatically due to these list price increases, while individual consumers were hurt financially since their deductibles and coinsurance rates were based on this increasingly high list price. These actions violate PBM’s fiduciary duties as detailed in ERISA § 404,406.

Are The Allegations True?

Each logic step for this complaint is based on a core underlying assumption: the actions of the PBMs were made because of malicious greed and the rising list price of EpiPen would not have been possible under normal market incentives. In other words, if the PBMs would have taken these actions without colluding with Mylan, then the substantial increases in list prices could be simply the result of misaligned market incentives. While complete refutation of this claim is difficult given PBMs’ extreme lack of transparency,¹ there are strong reasons to believe that a list price increase was not the result of collusion or PBM-induced changes.

PBM Consolidation and Use of Exclusive Formularies

Market consolidation and exclusive formularies are useful bargaining tools to help drive down drug prices–without them PBMs would functionally only have bulk discounts, significantly reducing their negotiating power. Exclusive formularies are a powerful weapon for PBMs to lower drug prices, especially for drugs which have a clinically interchangeable equivalent. Exclusive formularies force drug manufacturers to compete on price in order to be included on said formularies. Thus it is logical for PBMs to consolidate to maintain exclusive formularies and thus have the market power to lower drug prices. Therefore, consolidation by PBMs is an expected result and does not imply intent to use that power for malicious greed.

In this case, there were clinically interchangeable equivalents to EpiPen: Sanofi’s Auvi-Q and Adrenaclick, a generic. CVS Caremark, Express Scripts, Prime, and Optum excluded Adrenaclick and to a lesser extent, Auvi-Q, supposedly in an effort to reduce EpiPen’s price. However, Auvi-Q was taken off the market for dosing concerns and EpiPen was 90% of the market. Given the limited alternatives, PBMs may have felt obligated to include EpiPen on their formularies. If EpiPen was the prevailing epinephrine injector, then it is unclear how much power exclusive formularies represented. Even if PBMs had power in excluding Adrenaclick, PBMs allege that they used this power to lower prices for EpiPen. That the PBMs wielded immense negotiating power through exclusive formularies is not sufficient evidence for greed at the expense of patients.

Increasing Rebates

The plaintiffs in the case argue that the main reason PBMs work for higher rebates is to increase their own profit. However, giving PBMs a share of the rebates they negotiate also serves to align their interests with the insurance companies that they serve. In other words, it is a PBM’s job to minimize final drug costs, and they do this by fighting for higher rebates. Showing that a substantial portion of price increases are being offset by rebates does not prove that PBMs are pushing for that increase to profit more; it could simply mean they are doing their job and preventing final drug prices (net prices) from going up. In fact, net price increases were substantially lower than list price increases, indicating that PBMs may actually be playing a positive role for end customers through rebates.

This question is complicated by the fact that the passthrough rate of rebates to the final payors (individual customers and insurance companies) is not known. If the PBMs kept the majority of these increased rebates for themselves, then there is a stronger argument for why they would induce a higher list price. On the other hand, if the majority of the increased rebates flowed through to the final payors, then there is little reason to believe the PBMs wanted to create a higher list price. An article from 2017 provides a few examples to suggest that PBMs were favoring EpiPen on their formularies at a higher cost to insurers than generic offerings ($438.53 for EpiPen vs $227.52 for generic).² If this information is true, then there is strong reason to believe that PBMs are favoring Mylan due to higher kickbacks. However, it could be that these are isolated cases and net price to insurer was actually lower for EpiPen than generics because of high rebate passthrough.

In essence, because PBM contracts are kept secret, the public does not know how much of the rebate is passed on to payors. With only the information that is public today, it is difficult to prove that the PBMs had control in creating and implementing the alleged kickbacks.

Price Hikes May Be Unrelated to PBM Profits

The plaintiffs allege that PBMs pushed Mylan to increase prices in order to receive higher rebates. However, while prices and rebates increased together, this does not imply that Mylan increased prices to offer higher rebates. The directionality and timeline of price hikes and rebate increases are important for discerning the cause of Mylan’s price hikes. Indeed, Mylan could have increased price without regard to PBMs, and after prices were raised, PBMs reasonably captured as much as they could in rebates to help their insurance companies.

If we look to cases beyond EpiPen, data shows changes in drug prices and changes in rebate are not correlated.³ Notably, there are examples of drugs that have increased in price while rebates stayed the same or declined, and examples where drug prices have decreased and rebates have increased. In contradistinction to the plaintiff’s allegations, the data suggests that drug companies generally do not set a higher price in order to offer higher rebates.

It is also important to note that drug prices by and large have been increasing, and so the price of EpiPen may have increased independently of any PBM action. In the subsequent section, we discuss factors outside of PBMs that may have led to EpiPen’s price increases. Because we can reasonably expect the price of EpiPen to increase, it is difficult to discern the extent to which PBM’s actions have affected EpiPen pricing. Hence, the mere increase in EpiPen price does not support plaintiffs allegation that PBMs induced and/or colluded with Mylan to increases prices.

Other Factors in EpiPen Price Hikes

EpiPen prices have been increasing for a long time for various reasons, some of which are not related to PBMs.⁴ One factor is the increasing demand of EpiPen, in part facilitated by Mylan lobbying congress to require epinephrine autoinjectors in school. Mylan efforts have also introduced EpiPen in Walt Disney Parks and airplanes.⁵ Total EpiPen sales increased to over $1B in 2015. On a per person basis, a JAMA study reports that prescriptions have remained stable:⁶ “the annual rate of EpiPen prescription fills per EpiPen patient increased from 1.18 to 1.20 (+1.6%).” Mylan’s successful marketing efforts to portray EpiPen as a necessary medical equipment in public spaces, similar to defibrillators, allows Mylan to increase prices in line with increased demand.

Another factor is the difficulty competitors are facing in entering the market. At the time of the price hikes, EpiPen had a virtual monopoly with 90% of the market and the auto-injector device is patented. Moreover, patients are unlikely to want to switch to another epinephrine auto-injector, especially if the EpiPen had saved their lives before. A competitor, Teva Pharmaceuticals, failed to gain FDA approval for their epinephrine auto-injector. Sanofi also had difficulty and had to recall its epinephrine auto-injector because of potentially incorrect dosages being delivered. That leaves Mylan with significant pricing power.

Types of Insurance Exposing Patients to High OOP Costs

In addition to increasing EpiPen prices, changing coverage policies also play a role in the increasing out-of-pocket costs to patients. With an increasing use of cost-sharing mechanisms by health plans, patients may be financially responsible for more of their prescription costs, particularly with high deductible health plans and high coinsurance plans. A high deductible health plan could expose a patient to the full list price of EpiPen. These high deductible health plans have been on the rise with nearly half of employer-based health insurance subscribers opting for one.⁷ Additionally, some drug manufacturers will offer coupons directly to the patient in order to incentivise the patient to remain loyal to their brand in the face of high deductibles. While these coupons are not allowed for Medicare and Medicaid enrollees, Mylan currently offers a $300 EpiPen rebate for commercially-insured patients.⁸

This essay was written in collaboration with Phil Holsted.