Formulary Management Disruptiveness Index and the PBM Rebate to WAC Ratio
The ratio of PBM rebate to WAC as a practical measure of non-disruptiveness or formulary interchangeability: Example of Insulin
A recent article in Nature(1) suggests that papers and patents are “increasingly less likely to break with the past in ways that push science and technology in new directions”. This pattern holds universally across fields and is robust across multiple different citation and text-based metrics slowing in several major fields. The article covers six decades, using data on 45 million papers and 3.9 million patents from six large-scale datasets. The authors used a new quantitative metric, the CD index(2), that characterizes the consolidating or disruptive nature of science and technology in terms of how papers and patents change networks of citations.
The authors’ intuition was that “if a paper or patent is disruptive, the subsequent work that cites it is less likely to also cite its predecessors; for future researchers, the ideas that went into its production are less relevant. If a paper or patent is “consolidating”, subsequent work that cites it is also more likely to cite its predecessors; for future researchers, the knowledge upon which the work builds is still (and perhaps more) relevant”. The CD index ranges from −1 (consolidating) to 1 (disruptive). The CD index is measured five years after the year of the patent or paper publication (CD5). As an example, for “drugs and medical” patents, the average CD5 decreased from 0.38 in 1980 to 0.03 in 2010 but the sheer number of disruptive patents and papers remains stable over time. The authors found that the observed declines of the index “are unlikely to be driven by changes in the quality of published science, citation practices or field-specific factors”. They conclude by saying that slowing rates of disruption may reflect a fundamental shift in the nature of science and technology, one that reinforces concerns about slowing innovative activity.
The pharmaceutical industry’s approach to drug discovery is to reduce to practice academic biological discoveries. The first registration of a drug with a new mechanism of action can be seen as relatively “disruptive” whereas the subsequent ones can be seen as more “consolidating” and they are, as a rule, more “interchangeable” on formularies. US manufacturers give rebates to pharmacy benefit managers (PBMs), which encourages the addition of another “new” drug on a formulary that already features one or more drugs with similar properties. Our intuition is that the PBM rebate as a percentage of the WAC (wholesale acquisition cost) is a measure of the interchangeability or the ”non-disruptiveness” of the new formulary entry. The evolution of rebates over time suggests that the “interchangeability” or “non-disruptiveness” factor has increased over time, at least in the case of insulin which is well documented based on various sources that overcame the secrecy of such rebates. One of these sources is the recent complaint (for permanent injunction, civil penalties, and other equitable relief) by the Attorney General (AG) of California (January 12, 2023) which has the three major manufacturers of insulin and the three major PBMs as defendants(3). The AG complaint echoes the findings of the Senate report on insulin prices(4) which shows that rebates for insulin in relation to WAC increased from between 2-4% in July 2013 to as high as 56% in 2018. Other sources such as peer-reviewed medical publications support these findings. The results of a 2020 study published in the Journal of the American Association, show that the insulin rebates for non-Medicaid consumers have grown from 13% of the list price in 2007 to 70% in 2018.
Whether a progressive increase in the PBM rebate to WAC ratio over time is observed for drugs other than insulin is unknown and may remain unknown because of the secrecy that surrounds these rebates, but if these data were available, it would be interesting to examine whether the trajectory of this ratio over time (and a series of non-disruptive successive registrations) applies to drugs other than insulin, particularly those that have a common mechanism of action, such as, for example, checkpoint inhibitors PD(L1) or TNF-inhibitors(5)(6). The period of observation would have to cover the period from the date of the first (and disruptive) approval to this date. This would tell us whether Pharma products follow (or not) the trend towards less disruptiveness and more consolidation that is apparent in the domain of patents and scientific publications.
References:
(1) https://doi.org/10.1038/s41586-022-05543-x
(2) https://doi.org/10.1287/mnsc.2015.2366
(3) https://oag.ca.gov/system/files/attachments/press-docs/2023.01.12%20-%20Eli%20Lilly%20Complaint.pdf
(4) https://www.policymed.com/2021/05/senate-finance-committee-releases-insulin-investigation-results.html
(5) Evaluate Vantage | PD(L)anner – September 2022
(6) https://www.rheumatology.org/I-Am-A/Patient-Caregiver/Treatments/TNF-Inhibitors
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Pharma industry veteran with 30+ years in large Pharma & in leading small biotechs, spearheading large initiatives and securing funding, psychiatry practice and research for 10+ years.