A subsidiary of Cigna (CI.US) was revealed to be selling generic drugs at a higher price than its peers, raising further questions

The Zhitong Finance App learned that a new analysis shows that Cigna (CI.US)'s subsidiary that sells generic drugs has higher drug pricing than many of its competitors, which has raised questions about the company's role in drug pricing. Cigna sells insurance in the US and operates the nation's largest drug benefits administration agency, which is responsible for negotiating drug prices among drug manufacturers, health insurance plans, and pharmacies. Pharmaceutical companies and politicians often accuse drug welfare agencies of driving up drug prices, but these agencies argue that they actually lowered drug prices; the problem is with pharmaceutical companies.

Quallent Pharmaceuticals, a subsidiary of Cigna, sells a variety of generic drugs independently developed by Cigna, which means that Cigna not only negotiates with pharmaceutical companies through its pharmaceutical welfare department, but also profits from generic drugs sold by its Quallent company. In addition, Cigna also has door-to-door drug delivery services and specialty pharmacies to provide drug delivery services to patients. The market doesn't know much about Quallent, which is headquartered in the Cayman Islands, which lists dozens of drugs on its website. As Cigna's profit margins in the pharmacy benefits business continue to decline, these business segments are likely to become more important. The company recently announced adjustments to the business, which upset investors and led to the biggest drop in Cigna's stock price since 2008.

46Brooklyn Research, a non-profit organization that focuses on drug pricing, has had many disputes with drug benefit management agencies (PBM). The agency's analysis found that generic drugs sold by Quallent, which had been in business for four years, were often priced higher. Quallent itself does not manufacture pharmaceuticals; instead, it labels drugs produced by other companies and then sets its own prices.

46Brooklyn CEO Antonio Ciaccia said, “They told you they hate high prices, they told you they tried to get the lowest price, but this data shows that the opposite is actually the case.”

Justine Sessions, a spokesperson for Evernorth Health Services, which is responsible for managing drug benefits under Cigna, said 46Brooklyn “appears to be deliberately misrepresenting the pricing and sales method of generic drugs.” Sessions said, “We are unable to verify the data or methodology in this 46Brooklyn Report, but it appears to be based on misuse of the average, including extreme outliers, which have resulted in data biases and incorrect assumptions.”

Ciaccia and other members of the non-profit organization also run a for-profit consulting firm whose clients include government agencies, health plan sponsors, and companies in the pharmaceutical supply chain.

46Brooklyn's analysis unravels the mystery of US drug sellers, which are part of the same group as drug benefit management companies. In recent years, the three major US medical groups with pharmaceutical benefit management companies have all set up drug sales companies: Nuvaila, a subsidiary of UnitedHealth (UNH.US), and Cordavis, a subsidiary of CVS.US (CVS.US), to focus on selling their respective versions of complex biosimilar drugs. Quallent has also launched a number of biosimilar drugs as well as many generic drugs.

46Brooklyn's analysis focuses on generic drugs and a lesser-known drug pricing metric called “average wholesale price” (AWP). This is not a “list price” that many politicians have been concerned about, but rather a technical indicator that determines how much health insurance plans pay for medicines.

The analysis showed that the price of Quallent's drugs is often a more expensive option compared to its competitors. The 46Brooklyn website found that the price of Quallent's drugs is usually 33 times that of the cheapest drugs in the same category. The report shows that Quallent's products are never the cheapest, but sometimes they are the most expensive. On average, they cost more than 80% of the highest price.

Jaya Subramaniam, president of Quallent Pharmaceuticals, said in a statement that the company is seeking the highest quality and most affordable drugs, and these drugs may not be the cheapest. She pointed out that other lower-cost generic drugs may have safety or quality issues.

Subramaniam said, “Quallent's price is very close to that of most premium generic manufacturers — usually within $2. 46Brooklyn's approach is flawed, and if it were used, the same conclusion would be reached for any good generic drug manufacturer.” She said extreme outliers in price data would cause such comparisons to be inaccurate.

Medical giants say these private label pharmaceutical companies enable them to better control the supply chain and ensure the quality of drug production, especially in high-tech biologics. Critics, on the other hand, pointed out that these companies can also guide patients to choose drugs sold by their own companies by, for example, giving priority to recommending their own drugs in the preferred drug list.

To perform this analysis, 46Brooklyn used an industry-standard drug pricing database and compared the price of Quallent generic drugs with the prices of other similar generic drugs. However, they are unable to publish actual prices because this information is a trade secret.

Ciaccia said a higher average wholesale price (AWP) would increase costs because contracts between health plans and pharmacy benefit management agencies usually stipulate that plans must pay a percentage off the average wholesale price.

US drug prices are expressed in a complex series of benchmark prices, which are also often the basis for various discounts. As a result, the price that anyone actually pays in a particular transaction may vary. 46Brooklyn President Ben Link said, “When everything is tied to these discounts to form a worldview, people are motivated to raise the starting price to make more profit. We can totally see this kind of behavior here.”

However, 46Brooklyn's analysis found that from another perspective, Quallent's spending price is often lower: wholesale procurement costs, which are related to the prices purchased at pharmacies. Link said this “disconnect” shows that Quallent sets relatively low drug purchase prices for pharmacies, but higher prices for dispensing drugs to external customers.

Sessions, on the other hand, said that pharmacies do not buy generic drugs based on wholesale procurement costs.