A huge healthcare company with a key role in drug pricing just had a meltdown when one of its contracts was posted online

  • Axios posted a template for a contract between Express Scripts, the country’s largest pharmacy benefits manager, and its clients.
  • On Tuesday, Express Scripts demanded it be taken down, citing copyright infringement.
  • The contract highlights the many ways Express Scripts gets paid by pharmaceutical companies on top of their own clients.
  • It also requires clients to do on-site contract reviews and closely monitored audits.

Express Scripts, one of the largest healthcare companies in America, behaves like it has something to hide.

On Tuesday, citing copyright infringement, Express Scripts had DocumuentCloud – a service that lets people upload and publish documents to the web – remove a template of one its contracts from the Internet. The template had been uploaded by news site Axios, and it offered us a rare look at the secret sauce that has made Express Scripts’ business such a success.Axios’s story on the subject is still up but currently says the publication is looking for another way to share the document.

Express Scripts is the largest pharmacy benefits manager in the country. That means they control lists called formularies – the lists that determine what drugs your health insurance (public or private) will pay for. They are, in a sense, the gatekeepers between your dollars and pharmaceutical companies.

With drug prices soaring this function has become highly profitable. Revenue could top $US100 billion and earnings could grow by over 33% this year, the company has told investors – who have made a bundle as the stock has soared over the past few years. Anyway, the company just landed a $US67 billion sale to insurer Cigna

But the PBMs role in drug pricing has also become highly contentious. Express Scripts biggest client, insurance company Anthem, accused it of overcharging last year and said it would start its own rival as a result. Another question, if the PBMs job is to help insurers and employers limit payments to drugs that work, why do they continue to leave ineffective or unproven drugs, or those with much cheaper alternatives, on their lists? Who is paying for that?

At the heart of all this is the PBMs secrecy. We know nearly nothing about how they’re getting paid and by whom, and they work hard to keep it that way.

Which brings us to the importance of Axios’s discovery.

The 36-page contract that Axios put up was between an employer – that is, whoever is paying for your insurance – and Express Scripts. Because it was a template, it contained no specific numbers, but it did outline general terms for how Express Scripts gets paid, and why.

Much of the payment has to do with the rebates pharmaceutical companies pay in order to cut a deal with Express Scripts and the client. Pharmaceutical companies want their drugs to be on your formulary so your insurer will pay for it, and the fatter the rebate they offer Express Scripts, the better the chance of that.

The thing is, Express Scripts doesn’t give that entire rebate back to the client. It keeps some – we don’t know how much – and it’s a different amount for every client.

The how much, why and when of those rebates going to Express Scripts is drawn up in encyclopedic detail in every contract. It’s clear from this template, though, that the contract explicitly gives Express Scripts the right to “realise positive margin” – make money – without necessarily having to share it with clients.

That is to say, you.

The devil is in the details

There are other weird things in the contract too. For example, Express Scripts gets to determine what a “generic drug” is based on their internal algorithm which can be viewed by a client’s auditor upon request. Clients can audit Express Scripts, but the audits must be conducted with an auditor approved by Express Scripts at Express Scripts.

Again, we should note that Express Scripts has come under fire recently for this very issue. Back in 2016 Anthem, then the company’s biggest client, sued Express Scripts for putting them into a predatory contract. After this came to light Express Scripts told its other clients that Anthem’s contract was just especially bad. Nothing to see.

But the SEC has also wondered recently about who Express Scripts’ real clients are – the drugmakers or the insurers. Last year it sent the company a series of letters about that question. Based on how the company marks its revenue, certain line items suggested Express Scripts might have an incentive to serve the needs of pharmaceutical companies as much as they do their own clients.

The contract that Axios posted showed that Express Scripts collects a bunch of fees from drug companies that have nothing to do with rebates. These include “administration fees” and “other pharma revenue.” Express Scripts can also negotiate rebates directly for itself. In fact, what’s considered a “rebate” at all is subject to all kinds of ifs and buts.

In practice, this can look even uglier than it does on paper. One of the fees Express Scripts can collect from a drug company, according to this contract, is called an “inflation fee,” that is to say the rebates must keep up with price hikes.

At the moment, Express Scripts is suing Kaleo, the manufacturer of Evzio, an auto-injector that delivers a single dose of potentially life-saving naloxone. Kaleo jacked up the price of Evzio from $US690/dose to $US4,500/dose, so Express Scripts is suing them, not for hurting its clients, but for not sharing the wealth.

In the lawsuit this is called a “price protection payment,” and Express Scripts thinks it should mean Kaleo owes it another $US14 million.

This contract makes one wonder how much of that $US14 million Express Scripts’ clients would ever see.

When Axios asked Express Scripts for comment on this contract it said that it’s years old – that is to say barely relevant.

So what’s the harm in putting it back up? Express Scripts has yet to respond to our request for comment.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.