Case Study: Dean Foods Attempts Savings via Specialty Carve-out

October 17, 2020

Before its acquisition this year, Dean Foods attempted a specialty drug carve-out to save with biosimilars and generics.

As large employers experiment with ways to jump start the use of lower-cost biosimilars among their staff, the former Dean Foods tried a health plan carve-out—on both medical and pharmacy benefit sides—that led to a cost savings of $174,600 (77% reduction) by switching employees on a select number of originator specialty drugs to biosimilars, according to a report.

The report describes a no-exceptions policy for switching from reference drugs to biosimilars and was funded by Pfizer, a biosimilar developer and manufacturer that said it did not endorse the content of the report, which included independent viewpoints from Vivio, a specialty drug management company, and dairy company Dean Foods, which was acquired earlier this year after a Chapter 11 bankruptcy filing.

In 2019, Dean Foods, which this year was acquired by Dairy Farmers of America, spent $52,900 on 4 biosimilars, well short of the $227,500 the company would have spent on 3 originator products. The carve-out was arranged through Vivio and enabled Dean Foods to sequester specialty drug costs and management so that savings could be achieved outside of the structure imposed by a pharmacy benefit manager (PBM) plan.

Switching employees on expensive originators to biosimilars, generic drugs, and lower-cost therapeutic alternatives while also discontinuing experimental drugs generated $1.7 million in clinical savings (avoided therapy costs) for the former dairy company, the report said. But given all anticipated vs actual costs from the carve-out program, Dean Foods saved $4.35 million in 2019, according to the report. This includes supply chain savings.

Vivio said in the report it achieves savings by seeking out lowest-cost drug suppliers, passing 100% of rebates to its customers, and taking advantage of manufacturer discounts. It said that “typically, 15% of prescribed specialty drugs have lower-cost therapeutic equivalents alternatives such as biosimilars, generics, and less-costly branded drugs.”

Choosing a Carve-out

In the case of Dean Foods, the company decided to try a carve-out when it realized that although just 2% of its plan members used specialty drugs, this amounted to one third of the company’s overall drug spending.

Vivio estimated that based on that 2% rate, 400 plan members in a population of 20,000 insured lives would be taking specialty drugs, and of those, 15% would have a lower cost, clinically equivalent alternatives, such as biosimilars, generics, and other lower-cost products. Dean Foods employed approximately 14,500 individuals at the close of 2019, according to Statista.

The 4 biosimilars used by Dean Foods plan members were not identified in the report. The savings spread across biosimilars was very uneven. For example, Dean Foods achieved savings of $116,700 (73%) on 1 biosimilar, but just $3000 (71%) on the next largest saving biosimilar, suggesting low use of this biosimilar relative to the other.

Discussing its methodology for promoting biosimilar use, VIVIO said biosimilars are specified for use when therapeutically equivalent and appropriate for a patient, with “no exceptions.”

The company said some employees may complain to their employer or specialty therapy manager about being forced to switch from an originator to a biosimilar; however, most accept the change without complaint.

Employees who express concerns are given “respectful explanations” that include detail on clinical and cost savings potential with biosimilars.

VIVIO said most health care providers accept conversions from originator products to biosimilars, and if physicians have concerns they are provided with clinical evidence supporting why biosimilars are preferred.

VIVIO said in the report that, if requested, physicians are granted a peer-to-peer discussion, which, it said, usually resolves the physicians’ concerns.

Struggles With PBMs

Many employers face blocks to biosimilar utilization in the form of contracts with PBMs and drug carriers. Contracts with PBMs can restrain the use of lower-cost alternatives because PBMs have a large say in what products get added to employers’ formularies and often favor the use of expensive originator products.

In August 2020, the Midwest Business Group on Health (MBGH) issued a call to action for employers that laid out ways for employers to both efficiently negotiate contracts with their PBMs and incentivize the use of biosimilars.

“Contract optimization strategies define all contract terms and pricing so that all PBM revenue is transparent and retained by the employer, all relationships are free of conflicts, and you can use any PBM you want. If your PBM says no or they're not willing to do some of these things, find another PBM that will,” said Cheryl Larson, president and CEO of MBGH, in a recent interview with The Center for Biosimilars®.


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