Only 30% of Employers Get Pharmacy Benefit Manager Contracts

According to the National Pharmaceutical Council, only 30 percent of employers have a complete understanding of their pharmacy benefit manager (PBM) contracts. Based upon my experience, the percentage of employers who have a complete understanding of PBM contracts is far lower than 30 percent.

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I can’t stress enough how important it is that anyone involved in the procurement of PBM services be an expert in the industry. The stakes are far too high for your team to be comprised of folks who “pick it up as they go.” Take a look at what Michael Critelli, former CEO Pitney Bowes, wrote to me recently.

“Tyrone I am pleased that you wrote the particular essay I downloaded. Many corporate benefits departments do not understand that they are overmatched in negotiating with pharmacy benefit managers, as are the “independent consultants” who routinely advise them. The first step in being wise and insightful is admitting what we do not know, and you have humbled anyone who touches this field.”  

Employers want to provide the best health benefits for their employees while getting strong value in return for the money they spend on prescription drug benefits which requires self-assessment. Still not convinced you might be overmatched? Take my 3-minute PBM IQ assessment to determine your level of PBM sophistication.

Just 40 percent of the 88 employers participating in the survey said they understand the performance guarantees included in their PBM contracts, while 63 percent added that PBMs are not transparent enough about the financial workings of these arrangements.

Fifty-eight percent of employers also believe that contracts are too complex, ambiguously worded, and often benefit PBMs at the expense of employers. In addition, 50 percent of employers surveyed think PBMs lack transparency about the basis for those decisions regarding formulary and exclusionary list decisions, such as the clinical, financial and economic impacts of contracts

“The problem faced by most employers is that, while they are concerned about a lack of transparency, they are confused and intimidated by the sheer complexity of the prevailing PBM models and ambiguously worded contracts that are common,” NPC added.

According to URAC, PBMs will provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts. The best proponent of transparency is informed and sophisticated purchasers of PBM services. Assessing transparency is more effectively done by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals.

Taking a More Active Role: The Main Ingredient for Controlling Prescription Drug Costs

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On a larger scale, employers know they can’t really do anything about the cost of drugs unless the government steps in, said Cheryl Larson, vice president of the Midwest Business Group on Health. But what they can do is review the performance of their PBM and work off that to manage costs.

Employers are frustrated with the current system, she added. But “a lot of large employers don’t want to disrupt the environment they’re in,” she said. “They don’t want disruption for their employees and family members.”

Employers are responsible for finding the best benefits they can to provide high quality cost options for employees, she said. Included is the PBM contract, for which many employers is vague yet ironclad.

“It’s all about the contract,” she said. “You need to demand transparency, and you need to negotiate financial and nonfinancial contracting terms for both direct and indirect revenues for the PBMs administering your plan.”

For instance, if a consumer’s co-pay at a pharmacy is more than the cost of the drug, PBMs often utilize a clawback practice and the consumer still pays the co-pay. The remainder then goes back to the PBM, not the employer or the patient.

The More In-House Approach

Caterpillar Inc. is one example of a large employer that took an active role and did something disruptive to deal with pharmacy spend. “We carved out a lot of the strategic decisions PBMs make on behalf of employers and made them ourselves,” said Todd Bisping, global benefits manager at the Peoria, Illinois-based heavy equipment manufacturer. This shift of strategic power began in the mid-2000s, he said.

Caterpillar opted to build its own networks — that is, determine which pharmacies to contract with and give its members access to — rather than relying on a PBM to do so. It decided to determine its own pricing methodologies in contracts rather than using PBM-negotiated drug prices. It also designed its own formulary, a list of brand name and generic prescription drugs that employees covered by a specific health care plan can use.

Caterpillar still uses a PBM for tasks like prior authorizations, customer support lines and some step therapies. Over the past 10 years, Caterpillar slowly brought more elements in-house. It started in 2005 when Caterpillar began implementing changes in the way it did formularies and continued over the next decade to include changes in supply chain. A team of professionals managed the process, including doctors who help with the clinical aspects of the design, a third-party pharmacy consultant, the Caterpillar benefits team and their PBM.

When Caterpillar began directly negotiating with pharmacies, the largest hurdle was finding someone willing to partner with them. “No one was really contracting directly with pharmacies in the self-insured employer space, ” said Bisping. But “that’s how you bring innovation into the market.” In 2009, Walmart was the first pharmacy to partner with them, he added.

One major aspect of these first contracts was dealing with the transparency issue. While many companies mean transparency in rebates when they use that term, Caterpillar adopted a broad definition, one that took into account transparency in any revenue associated with drug spend, like marketing fees.

Caterpillar’s decision to take over these strategic functions saved the company hundreds of millions of dollars since its inception in the mid-2000s, and it’s saved the employees tens of millions of dollars, said Bisping. The company spent less in 2015 than in 2005, he added. Since then, they’ve seen costs rise but it’s still much less than the industry average, he said.

Fewer than 10 companies have adopted the same strategy as Caterpillar, according to Bisping. It’s a complex, disruptive process that requires commitment and culture change. Also, many companies outsource a lot of their expertise, so they don’t necessarily have the expertise in-house. But, despite the time commitment to get this internal function operating, he’d recommend it to other companies that want to control drug costs.

Caterpillar accomplished its positive drug price trend without relying on HDHPs or cost-shifting. “We didn’t pass our costs onto employees to accomplish that,” he said. “In that period, we didn’t make any design changes because we were controlling the cost.”

[Source]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 190)

This document is updated weekly, but why is it important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to health care reform. 

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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 acquisition costs 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 Top 200 Prescription and Non-Prescription Drugs, by volume, of 2017

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Sean Kane, Pharm.D., of Rosalind-Franklin University recently introduced the ClinCalc DrugStats Database and the 2017 Top 200 Drugs on his ClinCalc.com website.

The website was originally created to do calculations that would help him as a resident and then fellow practitioners. He noticed that the Top 200 drugs list has been absent for the last 5 years. Through a mechanism he describes on his website, he’s come up with a viable Top 200 and Top 300 drugs that can be valuable for pharmacy schools that accounts for some of the changes in the calculating of these lists and the expense of getting the most recent.  

The annual Top 200 Drugs is a list that takes advantage of Pareto’s Principle, that 80% of effects come from 20% of causes. The Top 200 drugs as the 20% represents the 80% of prescriptions that are actually filled. While the actual percentages deviate from that 80/20, the principle holds. However, the Top 200 Drugs list presents a problem for employee benefits professionals, students and educators. What order should one learn them in?

Anthem, CVS Health sign 5-year deal for a new PBM dealing a blow to Express Scripts

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Three years ago I published a white paper titled, Strategies to Enhance Pharmacy Benefit Managment of a Self-Insured Employer’s Employee Prescription Drug Plan. In it I discussed how employers should take more control over how their pharmacy benefit is managed. Specifically, one recommendation I made was to start your own PBM or form a strategic alliance. Anthem did both! I’m not writing today to brag or boast…well maybe a little. More important, I want to shake things up a bit to effect change.

Anthem and Express Scripts have been at odds for some time. As a result, Anthem decided to start its own pharmacy benefits manager to replace its contract with Express Scripts. Anthem and CVS Health have signed a five-year agreement to launch IngenioRx. CVS will provide prescription fulfillment and claims processing services, as well as expertise in point-of-sale engagement, such as member messaging and Minute Clinic. It will begin offering PBM services starting Jan. 1, 2020, coinciding with the end of Anthem’s current contract with Express Scripts.

What am I getting at? Anthem decided to start its own PBM but maybe for your organization the best option is to start smaller. Carve-out the specialty drug benefit or formulary management, for example. Health insurance is the third largest expense on the P&L with prescription drugs accounting for a larger share of those dollars than outpatient and inpatient hospital costs. The point is to simply take more control and don’t give TPAs or PBMs free reign over your drug benefit. For the record, a few formulary modifications or increasing employee cost share doesn’t count as taking control.

Usual complaints notwithstanding, the pharmacy benefit deserves much more attention than its getting. The smart companies are getting better educated and then taking action to control drug costs without negatively impacting healthcare outcomes. What are you doing different, really?

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 189)

This document is updated weekly, but why is it important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to health care reform. 

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.



How to Determine if Your Company [or Client] is Overpaying

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 acquisition costs 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.

Formulary Management: Don’t Allow the Fox to Guard the Henhouse

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A formulary agent may be restricted or unrestricted, with restrictions defined by indication, service, or specialty group (eg, infectious disease); medical staff hierarchy (eg, attending only), or patient population (eg, cystic fibrosis, pediatric). Off-criteria uses of formulary agents constitute a nonformulary use. Ideally, medication utilization evaluations should be conducted on a regular basis to assess compliance with formulary restrictions.

When multiple agents within a therapeutic category are available on the market (such as low-molecular weight heparins or histamine-2 receptor antagonists), drug class reviews are often conducted in an attempt to declare therapeutic equivalence and maintain only 1 preferred agent on the formulary. An increasing number of medications within a therapeutic category can lead to greater price variation among the medications, which creates potential for significant cost savings through declaring agents therapeutically equivalent and allowing them to be interchanged.

In addition to cost savings, patient safety is enhanced by minimizing look-alike sound-alike medications through streamlined inventory and the medication reconciliation process. Minimizing the number of agents available on a formulary also improves staff competency and knowledge about specific medications. Selecting an agent for inclusion in a formulary requires numerous operational considerations:

  • With respect to purchasing, it is important to determine if a drug is supplied by the organization’s pharmaceutical distributors or if it is a specialty/limited-distribution drug requiring direct shipment. Not all pharmaceutical wholesalers are able to supply the drug product, particularly high-cost specialty medications. Since most pharmacy departments purchase products from wholesalers at a cost minus discount, the pharmacy will be charged a higher price if the drug being reviewed comes from another source, potentially resulting in a significant increase in drug expenditures due to the loss of the cost-minus discount. Manufacturers can switch between different distribution strategies to best fit the needs of patients and providers as the marketplace changes. 

Read more >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 188)

This document is updated weekly, but why is it important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to health care reform. 

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.



How to Determine if Your Company [or Client] is Overpaying

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 acquisition costs 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.

“Don’t Miss” Webinar: How to Slash PBM Service Costs, up to 50%, Without Changing Vendors or Benefit Levels

How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer a fiduciary standard and instead opt for hidden cash flow opportunities such as rebate masking. Want to learn more?


Here is what some participants have said about the webinar.

“Thank you Tyrone. Nice job, good information.” David Stoots, AVP

“Thank you! Awesome presentation.” Mallory Nelson, PharmD

“Thank you Tyrone for this informative meeting.” David Wachtel, VP

“…Great presentation! I had our two partners on the presentation as well. Very informative.” Nolan Waterfall, Agent/Benefits Specialist


A snapshot of what you will learn during this 30 minute webinar:

  • Hidden cash flows in the PBM Industry such as formulary steering, rebate masking and differential pricing 
  • How to calculate cost of pharmacy benefit manager services or CPBMS
  • Specialty pharmacy cost-containment strategies
  • The financial impact of actual acquisition cost (AAC) vs. effective acquisition cost (EAC)
  • Recertification Credit Hours: 2
  • Why mail-order and preferred pharmacy networks may not be the great deal you were sold

Sincerely,
TransparentRx
Tyrone D. Squires, MBA  
3960 Howard Hughes Pkwy., Suite 500  
Las Vegas, NV 89169  
866-499-1940 Ext. 201


P.S.  Yes, it’s recorded. I know you’re busy … so register now and we’ll send you the link to the session recording as soon as it’s ready.