(Bloomberg) — A little-known Cigna Group subsidiary that sells generic drugs charges prices that skew higher than many competing suppliers, according to a new analysis that raises questions about the company’s role in setting medication prices.
Cigna sells insurance and runs the country’s largest pharmacy benefit manager, which negotiates drug prices between manufacturers, health plans and pharmacies. Drug companies and politicians often blame pharmacy benefit managers for driving up the cost of medicines, but the businesses contend that they actually lower prices and that the drugmakers are the problem.
Cigna also owns Quallent Pharmaceuticals, a 4-year-old unit that sells its own versions of many generic drugs. That means Cigna is both negotiating with drugmakers through its pharmacy benefit division and profiting from the generic medications its own Quallent unit sells. It also has home delivery and specialty pharmacies that dispense drugs to patients.
Little is known about Quallent, which is based in the Cayman Islands and lists dozens of drugs on its website. These aspects of Cigna’s business may become more important as it faces shrinking profit margins in pharmacy benefits. The company recently announced changes to that business that spooked investors and sent Cigna’s shares on their steepest slide since 2008.
The analysis from 46brooklyn Research, a nonprofit focused on drug pricing that has frequently tangled with pharmacy benefit managers, found that the generic drugs sold by Quallent tend to be priced at the higher end of the market. Quallent doesn’t manufacture drugs, but rather puts its label on drugs made by others and then sets the price.
“They are telling you they hate high prices, they are telling you they work to get the lowest prices,” said Antonio Ciaccia, chief executive officer of 46brooklyn. “This data suggests the opposite is occurring.”
Justine Sessions, a spokesperson for Evernorth Health Services, the part of Cigna that contains the pharmacy benefit manager, said that 46brooklyn “appears to be willfully misrepresenting how generic medicines are priced and sold.”
“We cannot verify the data or methodology of this 46brooklyn report, but it appears to be based on a flawed use of averages, including extreme outliers, which results in skewed data and incorrect assumptions,” Sessions said.
Ciaccia and other members of the nonprofit also operate a for-profit consulting business whose clients include government agencies, health plan sponsors and companies in the drug supply chain.
46brooklyn’s analysis peeks behind the curtain of drug sellers that are part of the same companies as pharmacy benefit managers. Each of the three largest health conglomerates that owns a pharmacy benefit manager started a drug seller in recent years: UnitedHealth Group Inc.’s Nuvaila and CVS Health Corp.’s Cordavis have focused on selling their own versions of complicated biosimilar drugs. Quallent, too, has launched some biosimilars, plus many generics.
46brooklyn’s analysis focused on generic drugs and an obscure drug pricing metric called the “average wholesale price” or AWP. This is not the “list price” that many politicians have been scrutinizing, but rather a technical measure that can determine how much health plans pay for drugs.
The ratio of the prices of Quallent’s drugs to its competitors show it’s often a higher-cost option, according to the analysis. Quallent’s drugs are typically 33 times more expensive than the cheapest option in the category, 46brooklyn found.
Quallent’s products were never the cheapest, but they were sometimes the most expensive, according to the report. On average they were more than 80% of the maximum price.
Jaya Subramaniam, president of Quallent Pharmaceuticals, said in a statement that the company looks for the highest-quality, most affordable products, which might not be the cheapest. Other low-cost generics might have safety or quality issues, she said.
“Quallent’s prices are closely in line with the majority of high-quality generic manufacturers — typically within $2 or less,” Subramaniam said. “46brooklyn’s flawed methodology would yield the same findings about any high-quality generic manufacturer.” She said extreme outliers in pricing data can make such comparisons inaccurate.
Health conglomerates have said these private-label drug companies give them better control over the supply chain and ensure quality manufacturing, especially for high-tech biologics. Critics say they can also push patients toward drugs sold by their own companies, by, for example, favoring those medicines on lists of preferred drugs.
To conduct the analysis, 46brooklyn used an industry standard drug pricing database and compared the prices for the Quallent generics with the prices for other generic equivalents. They couldn’t publish the actual prices, though, because those are considered proprietary.
Having a higher AWP can raise costs, because contracts between health plans and pharmacy benefit managers often dictate that plans pay a certain discount off the AWP, Ciaccia said.
US drug prices are expressed in a confusing array of benchmarks, which are often the basis for various discounts. What anyone pays in a given transaction may vary.
“When everything is tied to these discountings as a worldview, the incentive is to raise the starting point to make more money,” said Ben Link, president of 46brooklyn. “Here we can see that behavior to a T.”
By another measure, though, the 46brooklyn analysis found, Quallent’s prices were often lower: The wholesale acquisition cost. That’s related to what pharmacies would pay to stock the drug. The “disconnect” suggests that Quallent sets relatively low prices for its pharmacies to acquire the drug but charges higher rates to dispense it to outside customers, Link said.
Sessions said that pharmacies don’t buy generic drugs for the wholesale acquisition costs.
The higher Quallent prices could push up overall payments for generics in certain contracts, if the payments are linked to the AWP price benchmark. Sessions said that Cigna is trying to move away from those types of contracts. On an individual level, health plans pay the same amount for generic Quallent drugs as they do for the equivalent medicines made by other companies, she said.
(Updates last paragraph with additional company comment.)
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