When the $10K brand name drug is more affordable than its $450 generic: How PBMs control the system
Pharmacy benefit managers — the much-maligned middlemen between drug manufacturers and health insurers — often tilt the market, 80% of which is controlled by 3 of the largest PBMs, in their own and unusual ways.
These games, like clawing back money after a prescription has been dispensed, or offering reimbursements that don’t cover the cost of what pharmacies pay for a drug, were on full display at Thursday’s meeting where the Federal Trade Commission debated whether to look into these PBMs, some of which have grown so big to be on the Fortune 15.
But community pharmacists and other PBM complaints didn’t end up swaying two of the conservative commissioners on the FTC, who voted down chair Lina Khan’s plan to study the PBMs’ anti-competitive business practices further.

But a closer look into some of these pricing games shows how PBMs can control markets, and use anti-competitive tactics, like favoring brand-name drugs when generics are available, to boost their own bottom lines.
Antonio Ciaccia, who examines drug pricing practices at the research firm 46brooklyn, explained to Endpoints News that many health insurance plan sponsors are unsophisticated when it comes to drug pricing, and many rely on benefits consultants who also have varying degrees of expertise and conflicts of interest.
“Think of it like a cable bill. The bill is the bill until you call and say you’ll cancel it, and then the bill changes. In a much more sophisticated fashion, this same thing exists in the PBM world,” he said. “Just when you think you know how PBM contracts work, you realize you have no idea how they work.”
One recent example sheds light on the extent of how people with cancer can get stuck with a much more expensive drug for the entire health care system, even though cheaper generics are on the market and readily available.
Janssen’s metastatic prostate cancer drug Zytiga (abiraterone or Xytiga) costs $10,000 as a brand name drug, but came to market in 2019 as a $450 generic. Still, some health plans and PBMs only cover the brand name version.
One of the myriad reasons why a PBM would want to cover a much more expensive brand name drug than the cheaper generic is that they receive a percentage of that price as a rebate and they can rack up these larger rebates more quickly with more expensive drugs. This is part of the reason why insulin list prices continue to increase each year even though the top 3 drug manufacturers will maintain that the actual net prices have declined in recent years.
But in the case of Janssen’s blockbuster cancer drug, generic competition in the US ravaged it, pulling US sales down from almost $2 billion in 2018 to $119 million last year. The brand version of Zytiga still controls international markets outside the US, where the drug hauled in more than $2 billion last year.
Despite that generic competition, some US health plans and PBMs might incentivize patients to select the brand name version — such as by offering a lower co-pay – so that a PBM may earn more.
Here’s a look at a list of insurers covering the generic version of Zytiga, with some plans placing it in higher tiers that require these highest out-of-pocket costs, or some like UnitedHealthcare which appear to not cover the drug. According to the insurer Humana,
- Tier 1: Low-cost generic and brand name drugs
- Tier 2: Higher-cost generic and brand name drugs
- Tier 3: High-cost, mostly brand-name drugs that may have generic or brand-name alternatives in Levels 1 or 2
- Tier 4: Highest-cost, mostly brand-name drugs
And despite what the chart says, UnitedHealthcare told Endpoints recently that it does cover the generic version of Zytiga at 250 mg “across our commercial prescription drug lists. Zytiga 250mg, Zytiga 500mg and the generic abiraterone 500mg are currently excluded from coverage.”
Endpoints obtained a recorded phone call between a physician and someone who works for a PBM discussing Zytiga generics. Both speakers asked to remain anonymous, but they explain how coverage can be restricted in certain circumstances so that a brand-name drug has to be used.
“If the brand name is Tier 2, the generic would be a Tier 4?” the doctor asks. “So in that case, taking the generic product would be significantly more expensive than taking the brand.”
Ciaccia said that sometimes PBMs will set guaranteed prices for 96% of drugs covered, but then it’s in these other 4% — where they can play games, and “where all the fat of the meal will be cooked.”
He said PBMs can also dictate that a drug has to be obtained from a PBM’s own specialty pharmacy too. “PBMs can make money on either the upstream or the downstream.”

Coverage for Zytiga in Medicare also varies based on the two strengths of the drug, 250 mg and 500 mg versions.
Stacie Dusetzina, associate professor of health policy at Vanderbilt University Medical Center, told Endpoints that for Medicare Part D plans, there were almost 600,000 beneficiaries who are still on plans that have brand-only coverage for Zytiga 500 mg version, although that number represents just 1.4% of all those enrolled.
Another nearly 10 million plans cover both the Zytiga 500 mg generic and brand (22% of all enrolled), while 54% of those enrolled are on generic-only plans, and another nearly 20% of the plans don’t have coverage for either the generic or the brand, data provided by Dusetzina show.
For the 250 mg version, however, none of the Part D plans only cover the brand name, and almost 99% of plans just cover the generic (the other 1% covers the generic and brand).
The American Cancer Society estimates about 270,000 new cases and about 34,500 deaths of prostate cancer in the US in 2022.
But beyond the games that were on full display at the FTC hearing on Thursday, many experts point out that PBMs have also grown too big to fail, or cut out. Mark Cuban recently launched a cost-plus-15% generic drug company, but it doesn’t cover every drug yet, and they’re planning to operate as a compounding pharmacy.