Reprinted with permission from ProPublica.
by Charles Ornstein, ProPublica, and Katie Thomas, The New York Times
A company that manages prescription drug plans for tens of millions of Americans has sued a tiny drug maker that makes an emergency treatment for heroin and painkiller overdoses, increasing the tension between the companies that make drugs and those that decide whether they should be covered.
Express Scripts, the nation’s largest pharmacy benefits manager, is suing Kaléo, the manufacturer of Evzio, the injectable overdose treatment whose price quintupled last year, drawing widespread outrage and inquiries from members of Congress. Express Scripts claims it is owed more than $14.5 million in fees and rebates related to Evzio, and it has dropped the drug from its preferred list.
In recent months, anger over rising drug costs set off a civil war within the pharmaceutical industry, pitting drug makers against other players in the health care system, including the little-known pharmacy benefit managers who negotiate with drug makers on behalf of insurers, large employers and government health programs. Drug makers and some members of Congress have accused Express Scripts and other benefit managers of operating in the shadows, pocketing an undisclosed share of the payments they exact from drug makers even as consumers are asked to pay inflated prices for the medicines they need.
The lawsuit was heavily redacted because Express Scripts said it contained “sensitive business information,” but nevertheless it provides some tantalizing details about the company’s dealings. Consultants and brokers — who advise employers on their prescription drug plans — said it showed that Express Scripts is collecting fees that keep rising as drug prices go up.
For example, according to the lawsuit, which was filed in federal court in St. Louis, Express Scripts charged Kaléo “administrative fees” that climbed sharply at the same time that Evzio was rising in price. In January 2016, when Evzio carried a list price of $937.50 for two injectors, Express Scripts billed Kaléo monthly administrative fees of about $25,000 for its commercial clients. But three months later, Evzio’s price had climbed to $4,687.50, and these fees totaled nearly $130,000. That’s on top of charges that included “formulary rebates,” or drug discounts, and “price protection rebates,” which are triggered when a drug jumps in price. Those price-protection rebates totaled $14 million — most of the money that Express Scripts is trying to recoup.
Benefit managers like Express Scripts typically pass the rebates they collect from manufacturers along to their clients — insurers and large employers — after taking a portion of the rebates for themselves. But critics, like Linda Cahn, the chief executive of Pharmacy Benefit Consultants in Morristown, New Jersey, say that the benefit managers are not transparent about what share of fees they keep, and what share they pass along to clients.
Administrative fees are particularly murky, she and others said. Some of the fees are passed to clients, but benefit managers also collect other fees that are not returned to clients.
“The lawsuit reveals that Express Scripts is collecting immense sums of money. No one knows what they’re passing through and what they’re retaining,” said Cahn, who flagged the lawsuit in a note to clients Monday. “Every client and the federal government and taxpayers should insist that they do.”
But Brian Henry, a spokesman for Express Scripts, disagreed with her assessment and described Kaléo as a “deadbeat dad.” “They owe rebates and administrative fees that we share with our clients and we are working to get that money back,” he said in a statement.
Henry also said, “The vast majority of the administrative fees are passed back to our clients.” In cases in which they are not, he said, it is with the consent of the client. While Henry initially said that all administrative fees are passed along to Medicare plans, he later said he misspoke and that he should have said the “vast majority” of such fees were passed along to Medicare plans.
Spencer Williamson, the chief executive of Kaléo, said in a statement that the lawsuit was “baseless” and that the company was committed to providing affordable access to its drug “without burdensome paperwork or high out-of-pocket costs.”
The lawsuit is the latest piece of bad news for Kaléo, a private Virginia company with just two products on the market. When Evzio arrived on the market in 2014, it was sold as an easy-to-use device, similar to an EpiPen, that could be stowed in a pocket or medicine cabinet and quickly used by friends or relatives to reverse the effects of a drug overdose.
But while the device was initially hailed by addiction experts who said it would make it easier to stop fatal overdoses, the company came under heavy criticism in 2016, when it quintupled the price of Evzio. The price increase — which came in the midst of a national opioid abuse epidemic — prompted letters from members of Congress, demanding to know what had prompted the change.
Kaléo has said it sharply raised the price of Evzio to cover the cost of a new patient-assistance program that lowers the out-of-pocket costs for people who cannot afford the product. Kaléo covers all of the out-of-pocket costs for patients with private insurance, and offers Evzio free of charge to uninsured people who make less than $100,000 a year.
But critics have said that such patient-assistance programs serve to drive up the cost of drugs to the health care system because while they ease the burden on patients, they leave insurers with the bulk of the bill, especially when a less expensive alternative is available. Other forms of naloxone, the active ingredient in Evzio, are available at a much lower price.
This is not the first time Express Scripts has sued a drug maker with expensive products. In 2015, Express Scripts filed suit against Horizon Pharma, also over unpaid fees. Horizon agreed to pay Express Scripts $65 million in September 2016 to settle the case. After initially dropping coverage of Horizon’s drugs, Express Scripts added them back to its preferred drug list.
Express Scripts is also being sued. Last year, the insurance giant Anthem sued Express Scripts in federal court in New York for $15 billion and claimed the company had been overcharging it for drugs. Express Scripts, which denied the claims, said recently that it would most likely lose Anthem, its largest customer, beginning in 2020, leading to speculation about how the company will replace the business it is losing.
Correction, May 31, 2017: An earlier version of this article quoted Brian Henry, a spokesman for Express Scripts, as saying that all administrative fees are passed back to plans in the Medicare program. After the article was published, Henry indicated that he misspoke and should have said that the “vast majority” of such fees were passed along to Medicare plans.
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