Cigna's Dual Role in Drug Pricing Under Scrutiny
A recent investigation has uncovered that Quallent Pharmaceuticals, a little-known subsidiary of healthcare giant Cigna Group, consistently charges higher prices for generic medications compared to many competing suppliers. This revelation raises serious questions about the company's influence on medication pricing in markets including India.
The analysis conducted by 46brooklyn Research, a nonprofit organization specializing in drug pricing, found that Quallent's generic drugs typically occupy the premium end of the market spectrum. Quallent's products were never the cheapest option available, and sometimes ranked as the most expensive in their categories.
The Contradiction in Cigna's Business Model
Cigna operates in multiple segments of the pharmaceutical supply chain that potentially create conflicts of interest. The company sells health insurance and manages the largest pharmacy benefit manager in the United States, which negotiates drug prices between manufacturers, health plans, and pharmacies. Simultaneously, through its 4-year-old Quallent Pharmaceuticals unit, Cigna sells its own versions of numerous generic drugs.
This means Cigna wears two hats: negotiating drug prices through its pharmacy benefit division while simultaneously profiting from the generic medications sold by its Quallent subsidiary. The company also operates home delivery and specialty pharmacies that dispense medications directly to patients.
Quallent, based in the Cayman Islands, lists dozens of drugs on its website but maintains a relatively low profile in the pharmaceutical industry. The subsidiary doesn't manufacture drugs itself but rather puts its label on medications produced by other manufacturers and then determines the selling price.
Concerning Pricing Patterns Revealed
The 46brooklyn analysis employed industry-standard drug pricing data to compare Quallent's generic drug prices against equivalent medications from competitors. The findings revealed startling patterns:
Quallent's drugs typically cost 33 times more than the cheapest available options in their respective categories. On average, Quallent's prices exceeded 80% of the maximum price point in each drug category.
Antonio Ciaccia, CEO of 46brooklyn, expressed concern about the findings. "They are telling you they hate high prices, they are telling you they work to get the lowest prices," Ciaccia stated. "This data suggests the opposite is occurring."
The analysis focused on the "average wholesale price" (AWP), a technical metric that often determines how much health plans pay for medications. According to Ciaccia, having a higher AWP can significantly increase costs because contracts between health plans and pharmacy benefit managers frequently stipulate that plans pay a specific discount off the AWP benchmark.
Company Response and Counterarguments
Cigna representatives strongly disputed the analysis and its methodology. Justine Sessions, spokesperson for Evernorth Health Services (the Cigna division containing the pharmacy benefit manager), asserted 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 stated.
Jaya Subramaniam, President of Quallent Pharmaceuticals, defended the company's pricing strategy in a separate statement. She emphasized that Quallent seeks "the highest-quality, most affordable products, which might not be the cheapest." Subramaniam suggested that lower-cost generic alternatives might compromise on safety or quality standards.
"Quallent's prices are closely in line with the majority of high-quality generic manufacturers — typically within $2 or less," Subramaniam claimed. "46brooklyn's flawed methodology would yield the same findings about any high-quality generic manufacturer."
Broader Industry Trend and Implications
The situation with Quallent reflects a larger pattern emerging in the healthcare industry. Each of the three major health conglomerates that own pharmacy benefit managers has recently launched its own drug distribution subsidiary:
- UnitedHealth Group Inc. established Nuvaila
- CVS Health Corp. created Cordavis
- Cigna developed Quallent Pharmaceuticals
While Nuvaila and Cordavis have concentrated on selling complex biosimilar drugs, Quallent has expanded into both biosimilars and numerous generic medications.
Health conglomerates argue that these private-label drug companies provide better control over the supply chain and ensure quality manufacturing, particularly for sophisticated biologics. However, critics contend they can steer patients toward drugs sold by their own companies by favoring these medications on preferred drug lists.
Ben Link, President of 46brooklyn, explained the financial incentive behind maintaining higher price benchmarks: "When everything is tied to these discountings as a worldview, the incentive is to raise the starting point to make more money. Here we can see that behavior to a T."
Conflicting Price Metrics and Market Impact
The analysis revealed an interesting contradiction in Quallent's pricing strategy. While the company's drugs showed higher average wholesale prices (AWP), they demonstrated lower wholesale acquisition costs—the amount pharmacies pay to stock medications.
Link described this as a "disconnect" that suggests Quallent sets relatively low prices for its own pharmacies to acquire drugs while charging higher rates when dispensing them to external customers.
Sessions countered this interpretation, stating that pharmacies don't typically purchase generic drugs based on wholesale acquisition costs. She also noted that Cigna is working to transition away from contracts linked to the AWP price benchmark.
On an individual transaction level, Sessions maintained that health plans pay identical amounts for Quallent's generic drugs as they do for equivalent medicines from other manufacturers. However, the higher Quallent prices could potentially inflate overall payments for generics in contracts still tied to the AWP benchmark.
This development comes at a crucial time for Cigna, which recently announced changes to its pharmacy benefits business that alarmed investors and triggered the company's most significant stock decline since 2008. As profit margins shrink in pharmacy benefits, subsidiaries like Quallent may assume greater importance in Cigna's overall business strategy.
The revelations about Quallent's pricing practices have significant implications for healthcare markets worldwide, including India, where controlling medication costs remains a persistent challenge for both public health systems and private consumers.
