In order to capitalize on the opioid crisis, a small company that sells a version of naloxone, a decades-old drug that is widely used to reverse the effect of opioid and heroin overdoses, raised the price of its product by more than 600 percent between 2014 and 2017, which cost the federal government more than $142 million, according to a lengthy report from a Senate subcommittee.
Central to its strategy, Kaleo circumvented the traditional pharmaceutical market by subsidizing patients who were given its Evzio opioid antidote device, instead of contracting with pharmacy benefit managers and insurers. In doing so, the company used a controversial scheme to provide Evzio at no cost to patients, but counted on private and public insurers to pay an ever-rising wholesale, or list, price.
“Kaléo’s more than 600 percent price increase of EVZIO not only exploits a country in the middle of an opioid crisis, but also American taxpayers who fund government-run health care programs designed to be a safety net for our country’s elderly and most vulnerable,” the Senate Permanent Subcommittee on Investigations alleged.
Evzio is an auto-injector device that provides verbal instructions that talk the user through using the product on an overdose victim. Kaleo began selling the device in July 2014 at $575 per unit, but since then, has regularly boosted the price, which is $4,100. However, a lower-cost alternative known as Narcan is available for $125 which, the committee noted, also includes two doses.
For its part, Kaleo did not deny the pricing moves, but argued its product has saved more than 5,500 lives and that the company is working with “stakeholders” to provide Evzio at a lower cost. The drug maker also derided “negative attention” to what it called a “complex story.” The Senate report, which is worth reading, was given in advance to “60 Minutes,” which broadcast a critical segment on its Sunday night program.
The report arrives as the U.S. struggles to contain the number of overdoses and deaths attributed to opioids, which the Centers for Disease Control and Prevention pegged at more than 49,000 in 2017. A growing number of city, county, and state governments, meanwhile, have sued opioid makers for underplaying the addictive risks of their painkillers and encouraging unnecessary prescribing.
Products such as Evzio have been among the tools increasingly used by law enforcement and government agencies in recent years to blunt the costly impact of the opioid crisis. But at the same time, there have been growing complaints about rising price tags. Amphastar Pharmaceutical was first probed three years ago and Kaleo, in particular, has been in the crosshairs more recently.
Kaleo landed there thanks to a tactic that has generated confusion and, in some quarters, dismay. After dramatically raising the list price, Kaleo sales reps encouraged physician offices to sign prior authorization paperwork for Evzio prescriptions, which indicated the device was medically necessary. This move triggered insurance coverage without first requiring patients to try a cheaper option.
In reality, patients received Evzio at no cost regardless of whether they had commercial insurance coverage. How so? Kaleo paid for prescriptions not covered by commercial health plans, including any associated fees. And for patients with commercial insurance coverage, the company paid any associated copays.
At the same time, Kaleo ended contracts with pharmacy benefit managers and health plans for both commercial and Medicare Part D drug coverage. This meant Kaleo no longer paid administrative fees as well as rebates that reduced the cost of Evzio. And the company stopped participating in Medicaid. As a result of these moves, both Medicare and Medicaid began paying more for the device.
The Senate committee found that Medicare was paying an average of $3,522 for each Evzio unit and Medicaid was paying an average of $2,412. Meanwhile, commercial health insurers were only paying an average of $367, which meant that government health care programs were subsidizing usage. It is worth noting that lawmakers have probed Kaleo over pricing tactics for its Auvi-Q allergic reaction device, an EpiPen rival.
The model has been used before. In fact, Kaleo hired two consultants, including Todd Smith, who had previously run two drug makers that relied on this strategy, Horizon Pharma and Novum Pharma. He and his partner were paid $10.2 million over a two-year period for advising Kaleo.
Five years ago, when Smith ran Horizon, the drug maker bought the rights to the Vimovo painkiller and on the first day the deal closed, raised the price for 60 tablets by 587 percent, to $959.00. After yet another huge price hike, the company maintained there would always be a “limited financial impact on the patient,” and that about 97 percent of Vimovo patients would not pay out-of-pocket costs.
Smith later moved to Novum Pharma which, two years ago, gained notice for huge price hikes on skin gels. The company blamed middlemen for passing on extra costs to patients, and claimed that patients do not actually pay much for its products. In fact, Novum insisted people with commercial insurance paid nothing for its gels, even when their insurance does not provide coverage.
As for Kaleo, a spokeswoman sent us this: “We believe two facts are critical to the Evzio story. First, we have received voluntary reports from recipients of donated product that Evzio has saved more than 5,500 lives since we launched the product in 2014. Second, we have never turned an annual profit on the sale of Evzio. Patients, not profits, have driven our actions.
“We believe patients and physicians should have meaningful choices. There is no doubt, the complexity of our health care system has had unintended negative implications for everyone involved, but most importantly, for patients. To this end, we explored viable paths within the current healthcare system to make Evzio available to patients in a responsible, meaningful and affordable way.
“We agree changes need to be made. We believe all patients should have the right to innovative products at reasonable prices. We are actively working with stakeholders in the health care system, including insurers, policymakers, and government officials, to provide Evzio at a lower cost while ensuring patients and their loved ones have access to this life-saving drug.”
The Senate subcommittee, meanwhile, offered several suggestions. This topped the list: The Centers for Medicare & Medicaid Services should review the use of medical necessity formulary exceptions to prevent companies from inappropriately influencing prescribing.