The way the Medicare program works now is pretty straightforward: Part B pays the average sales price of a drug plus a 6% add-on. This add-on is what’s designed to cover the costs of care for physicians and their staff. But there’s the idea floating around among the Centers for Medicare and Medicaid Services, which is implementing this experiment, that physicians are being influenced to prescribe the most expensive drug rather than the best drug for a patient to garner the biggest add-on possible.

The solution? The new model, which is being tested in select markets, pays the average sales price of a drug while imposing an add-on payment of just 2.5%, plus a flat-fee payment of $16.80 per drug per day. The CMS’s idea behind this change is to see if patient quality and value of treatment can be improved while simultaneously saving Medicare money.

Source: Centers for Medicare and Medicaid Services

Although improved patient quality and value are broad goals of the CMS, there are a few specific strategies they’re targeting. For one, they hope to substantially reduce patient cost-sharing. If physicians opt for those cheaper medications, then the consumer will be on the line for 20% of a much lower cost (Medicare typically covers 80% of qualified medical expenses, with the consumer picking up the remainder).

This experiment would also help the CMS examine indications-based pricing. The CMS would analyze the clinical effectiveness of certain therapies and, based on price as well, weed out what works and what doesn’t so the program only pays for therapies that provide positive results and good value for patients.

Lastly, this model will test the effectiveness of a standard payment rate for groups of similar therapeutic products. No flat fee has been tested like this before — but if effective, it could dramatically lower program costs.

Will it work?

The new plan is a rough draft and in time, with diligence and proper oversight, the finished product is going to eliminate incremental waste. My primary concern is the 2.5% add-on payment. The percentage basis incentivizes manufacturers to jack up prices and physicians to prescribe more costly medications although less costly yet therapeutically equivalent products are on the formulary. A better strategy would have been to add more dollars to the dispensing fee thus completely eliminating the add-on percentage. Simply put, the plan will eventually work.

Indeed, the growth rate is supposed to increase each year through 2020, the report says – thanks largely to drugs targeting cancer. “Of the $282 billion of growth over the next five years from branded medicines, $91 billion is forecast to result from new medicines launched during that period, with the largest share coming from oncology,” the report says.

[Click to Enlarge]

The number of recently approved drugs buoyed the overall spend: Demand for new branded drugs was high. Generics didn’t help offset much of the costs typically spent on branded drugs, though higher rebates and price concessions from manufacturers helped offset these pressures on patients themselves.

Tyrone’s Comment:  Last week I spoke with a large self-funded organization who was caught off guard by the rapid cost increases for prescription drugs in the last twenty-four months. The reason they were caught off guard can be explained by how they historically viewed prescription drug costs in the first place; and that is drug costs are “relatively inexpensive” compared to medical costs. This is true if looking solely at percentages and not whole numbers. $10 million is a lot of money but so is $1 million yet if I evaluate the difference by percentage $1 million is only 10% of $10 million. Since drug costs didn’t garner nearly as much attention as medical costs, no one took the time to learn how to effectively manage pharmacy costs. Consequently, PBMs profit greatly from this error and plan sponsors overpay. The key factor in mitigating rising pharmacy costs is strong [insider] PBM industry knowledge.

There are a few major market segments at play here. Specialty medicines proved to be a particularly strong influencer of growth – contributing nearly half, or $150.8 billion, to the medicine costs. And 43 new medicines were launched in 2015 – of which, about a third were orphan drugs. Another 30 brands were launched that weren’t necessarily novel, but served as combination therapies and alternative dosing that further filled the medication landscape.

Advances in precision medicine and biosimilar development were also impactful. These trends will just continue, as more specialty drugs continue to hit the market.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Prices for many specialty drugs are higher in the United States than other developed countries, and about 1 in 4 people in the United States who take prescription drugs report difficulty affording them. The majority of the public favors 4 policy actions to hold drug prices in check: requiring pharmaceutical companies to publicly release information on how they set prices; allowing Medicare to negotiate medication prices; limiting charges for high-cost drugs; and allowing people in the United States to buy drugs imported from Canada.

Source: Kaiser Family Foundation analysis. Original data and detailed source information are available at http://kff.org/JAMA_4-05-2016.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

The partnership between Walgreens and OptumRx may help bring an end to speculation Walgreens will buy its own PBM company as the drugstore chain instead works more closely with health plans and PBMs on commercial deals. Some on Wall Street have speculated Walgreens may need to own a PBM like its rival CVS Health, which has for years now owned a PBM in Caremark.

[Click to Enlarge]

OptumRx and Walgreens say their partnership will offer a “more convenient, accessible and connected pharmacy experience.” No financial terms were disclosed of the new integrated pharmacy care offering the two will make available to commercial clients effective Jan. 1, 2017.

The partnership gives enrollees in OptumRx drug benefit plans the option to fill 90-day prescriptions for the same cost at the generally cheaper home delivery co-payment level.

Tyrone’s comment:  Plan sponsors who have OptumRx as their PBM vendor and are keen on eliminating overpayments should insist on being able to view the pharmacy network contract(s) between OptumRx and Walgreens. This deal will inevitably create an opportunity for spreads larger than normal; any spread is unacceptable.

Optum , which manages more than one billion prescriptions, and Walgreens, with its network of more than 8,000 drugstores, will also work to improve clinical outcomes by sharing health data and analytics while connecting enrollees in Optum and UnitedHealth benefit plans with “clinical guidance” that addresses various diseases and drug adherence.

“By integrating Walgreens industry-leading in-store pharmacy capabilities and convenient retail locations with OptumRx’s advanced pharmacy care services, we expect to create significant value for our clients and members,” Optum chief executive officer Larry Renfro said in a statement.

Click here to read more >>

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

The committee identified studies, reports, surveys, relevant news articles, policy documents, and other sources of public information on the pricing of prescription drugs; cost of prescription drugs; cost of drugs to patients and payers; and other aspects of the research, development, regulation, and marketing of prescription drugs.

[Click to Enlarge]

Draft recommendations were reviewed by ACP’s Board of Regents, Board of Governors, Council of Early Career Physicians, Council of Resident/Fellow Members, Council of Student Members, Council of Subspecialty Societies, and outside expert reviews. The position paper and recommendations were reviewed by the ACP Board of Regents and approved on 16 February 2016.

Recommendations

1. ACP supports transparency in the pricing, cost, and comparative value of all pharmaceutical products:

a. Pharmaceutical companies should disclose:

i. Actual material and production costs to regulators;

ii. Research and development costs contributing to a drug’s pricing, including those drugs which were previously licensed by another company.

b. Rigorous price transparency standards should be instituted for drugs developed from taxpayer-funded basic research.

2. ACP supports elimination of restrictions of using quality-adjusted life-years (QALYs) in research funded by the Patient-Centered Outcomes Research Institute (PCORI).

3. ACP supports the following approaches to address the rapidly increasing cost of medications:

a. Allow greater flexibility by Medicare and other publicly funded health programs to negotiate volume discounts on prescription drug prices and pursue prescription drug bulk purchasing agreements (7, 8);

b. Consider legislative or regulatory measures to develop a process to reimport certain drugs manufactured in the United States, provided that the safety of the source of the reimported drug can be reasonably assured by regulators;

c. Establish policies or programs that may increase competition for brand-name and generic sole-source drugs.

4. ACP opposes extending market or data exclusivity periods beyond the current exclusivities granted to small-molecule, generic, orphan, and biologic drugs. ACP supports robust oversight and enforcement of restrictions on product-hopping, evergreening, and pay-for-delay practices as a way to increase marketability and availability of competitor products.

5. ACP supports research into novel approaches to encourage value-based decision making, including consideration of the following options:

a. Value frameworks;

b. Bundled payments;

c. Indication-specific pricing;

d. Evidence-based benefit designs that include explicit consideration of the pricing, cost, value, and comparative effectiveness of prescription medications included in a health plan’s benefit package.

6. ACP believes payers that use tiered or restrictive formularies must ensure that patient cost-sharing for specialty drugs is not set at a level that imposes a substantial economic barrier to enrollees obtaining needed medications, especially for enrollees with lower incomes. Health plans should operate in a way consistent with ACP policy on formularies and pharmacy benefit management.

7. ACP believes that biosimilar drug policy should aim to limit patient confusion between originator and biosimilar products and ensure safe use of the biosimilar product in order to promote the integration of biosimilar use into clinical practice.

Conclusion

Recent trends show that increases in the price of prescription drugs have drawn the interest and concern of patients, payers, government officials, and physicians, particularly in the cases of very substantial price increases for some generic drugs, and in the price of existing brand-name drugs and specialty drugs (9).  The United States often pays more than other high-income countries for the same drugs, and despite discounts, rebates, coupons, and assistance programs, high and increasing drug prices still threaten to keep patients from getting the drugs they need.

Through collaboration and innovation, stakeholders have the ability to effect change by supporting transparency in how drugs are priced, developing and piloting novel approaches to evaluate and pay for drugs through evidence-based practices that reward advancements in the medical field, assuring access to needed prescription medication by not placing disproportionate economic burden on patients, encouraging informed patient participation in their health care decision making, and ensuring a truly competitive marketplace.

Continue Reading >>

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

[Click to Enlarge]

Combined, those factors are creating a perfect storm that virtually mandates a key role for hospital inpatient pharmacy in a health system’s or hospital’s clinical and financial decision making. Pharmacy, until recently (or in some cases, still) relegated to simply dispensing drugs from the basement, needs to find its way upstairs, unleashing its ability to manage chronic disease, reduce readmissions through rigorous medication reconciliation while a patient is in the hospital and be a team member that helps keep patients from returning to the hospital.

It does appear that the biggest driver to achieving that larger role is drug cost inflation, which even made its way onto the ECRI Institute’s 2016 Top 10 Hospital C-suite Watch List, usually a ranking of technology issues facing healthcare executives.

“The only person who can really get a handle on drug costs is the pharmacist,” says Marvin Finnefrock, PharmD, vice president of Clinical and Purchasing Services for Comprehensive Pharmacy Services (CPS), a national provider of inpatient and outpatient pharmacy management services to nearly 600 hospitals. “In many cases, we actually see a better patient outcome by not using the more expensive drug. We’ve known that for a long time, but now it seems like everyone is more aware of it.”

Taking advantage of the opportunity that knowledge creates hinges on a provider’s willingness to invest in some form of data analytics and, just as importantly, act on those findings. A widespread absence of information technology systems that support and track interventions adds to the challenges care providers face. Buying or creating these systems is expensive and comes at a time when capital spending is severely stressed by lower reimbursements and competing demands.

The Centers for Medicare & Medicaid Services (CMS) has been road-testing an initiative that includes a single payment for inpatient stay for joint replacement surgery, plus the post-acute care and all related services for up to 90 additional days. On April 1, CMS is making involvement in the test mandatory for 789 hospitals in 67 geographic areas across the country.

Meanwhile, as just one of many examples of private-payer bundled payment initiatives, on Jan. 1 the Pacific Business Group on Health Employers Centers of Excellence Network began contracting with hospitals for a single payment for bariatric surgery for employees of large national employers.

“Bundled payment and other programs are going to change how we have to manage drugs across a health system,” says Edward Choy, PharmD, president of Health Systems Operations for CPS. “Inpatient drugs used to be under formulary, while outpatient drugs were managed by private insurers and pharmacy benefit managers. Now, all drugs need to be managed under formulary. Finding the most cost-effective way to treat the patient becomes more of a priority.”

Choy and Finnefrock suggest a few key steps toward developing a long-term plan for the pharmacy piece of bundled payments. They include:

• Maintaining a relentless focus on outcomes. “Being ruthless when it comes to deciding on using a lower-cost drug or device that may go against established physician practice is essential,” Finnefrock says. “‘That’s the way we have always done it’ isn’t going to cut it anymore. It may make physicians feel comfortable, but it’s no longer a strategy for success or even, in some cases, survival.”

• Focusing on physician prescribing patterns and how they correlate with outcomes. “Presenting physicians with really robust outcomes data is a powerful tool for changing behavior,” Choy says.

• Taking a second look at generic drugs, even older drugs that may have lost cachet but not effectiveness. For example, new research favors the use of heparin, an older blood thinner that costs about $3 a dose, prior to percutaneous coronary intervention over the anticoagulant bivalirudin, which costs hundreds of dollars per case.

• Making pharmacy an equal partner in post-discharge care. “CPS research, about to be published, finds a 20 percent to a 50 percent reduction in readmissions from having a pharmacist make follow-up calls to make sure patients have filled prescriptions and understand how to take medicines,” Finnefrock says. That research updates a 2001 study in the American Journal of Medicine that found a pharmacist follow-up call reduced 30-day readmissions by more than half versus no intervention, while also improving patient satisfaction.

“It is pretty clear bundled payments are only going to get bigger as healthcare continues to try to get hold of rising costs,” Finnefrock says. “More and more providers are starting to understand that pharmacy can be a crucial ally in succeeding under these new value-based purchasing models.”

By Todd Sloane