Dec 6, 2021 - Health
Axios Investigates

Documents reveal the secrecy of America's drug pricing matrix

Illustration of a close up of a blacked out price tag on a prescription pill bottle.
Illustration: Aïda Amer/Axios

American businesses spend hundreds of billions of dollars a year on prescription drugs, and the bills keep getting bigger. But some of the companies promising to help rein in those costs prevent employers from looking under the hood.

Why it matters: Documents provided to Axios reveal a new layer of secrecy within the maze of American drug pricing — one in which firms that manage drug coverage for hundreds of employers, representing millions of workers, obscure the details of their work and make it difficult to figure out whether they're actually providing a good deal.

The big picture: Americans spent $370 billion on retail prescription drugs in 2019, and employers shouldered about $166 billion of that, according to federal data.

  • Employer drug spending rose by more than 6% in 2019 and by more than 5% in 2018. Those rising costs have prodded companies to look for savings anywhere they can.

How it works: Employers hire pharmacy benefit managers to handle the drug coverage in their workers' health insurance plans. PBMs negotiate prices with drug manufacturers and decide which drugs get preferential treatment.

  • Big consulting firms work with PBMs to organize drug pricing coalitions, pulling Fortune 500 companies and other large employers into purchasing agreements that, in theory, maximize negotiating power.
  • But it can be difficult for employers to determine the financial upside of these arrangements.
Chart: Sara Wise and Will Chase/Axios; Illustrations: Maura Losch and Shoshana Gordon
Chart: Sara Wise and Will Chase/Axios; Illustrations: Maura Losch and Shoshana Gordon

Zoom in: Aon, a major global benefits consulting firm, runs one of the largest drug pricing coalitions. It includes more than 400 large companies and 2.4 million insured people, according to the Aon documents provided to Axios.

  • Aon works exclusively with the three dominant PBMs that control almost 80% of the market: Express Scripts, CVS Caremark and OptumRx.
  • Employers paid between $20,000 and $300,000 in 2020 to be part of Aon's coalition, depending on their size, according to the documents.

So what are employers not seeing within this coalition? The data on prices, and understanding whether those prices are a good deal.

  • Consulting firms and PBMs that create coalitions guard this information for the same reasons insurance companies guard their negotiated rates with hospitals and doctors: Those rates and data are the backbones of their businesses.
  • "PBMs and consultants will work very hard to convince employers they have employers' best interests at heart — until you ask for data," a longtime drug benefits expert said.

Details: The Aon coalition documents place tight limits on employers' ability to access information about their drug costs — and on their ability to analyze that data, if they can get it.

  • A confidentiality agreement between Aon and third-party vendors stipulates that if employers hire vendors to audit the coalition's data, vendors "shall never include [a drug's average wholesale price], ingredient cost, or member cost share or any other information that could be used to derive the [coalition's] proprietary pricing information" in reports they provide to employers.
  • "You can't even back into the basics of it," one industry source said. "People are just trusting Aon."
  • Employers also "will not permit any third party ... to access, attempt to access, test or audit" Express Scripts' electronic systems and databanks, according to a contract between Aon and Express Scripts.

What we're hearing: Several people who work in the industry, who asked not to be named due to the confidential nature of coalitions, said most employers, regardless of how big they are, have no idea what they're giving up when they enter coalitions.

  • Once employers are locked into the coalition, they can't get a full second opinion on the drug prices they pay, experts said.

The other side: Executives at Aon and Express Scripts declined several interview requests.

  • Aon said in a statement that members of its coalition saved, on average, 18% on their drug costs in 2020, but did not address Axios' questions about the documents or data rights.
  • After Axios first reached out to Aon about the documents, an outside law firm hired by Express Scripts sent a cease-and-desist letter demanding that Axios identify the source of the leaked documents and destroy all such documents.

Context: The secrecy and complexity of the drug pricing process goes beyond this coalition.

The bottom line: Employers foot a large chunk of the bill for millions of workers' prescriptions. But secretive contracts, which are nothing new in health care, are blocking employers from understanding whether they are paying reasonable drug prices.

Go deeper: Our previous reporting on pharmacy benefit managers

Go deeper