Monthly Archives: October 2017

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 187)

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.

Hospital Impact—Pharmacy benefit managers are a lot like car dealers

Any time you try to buy a car, the same question is considered: Am I getting the best price? Sure, price tags are displayed on freshly waxed cars, but it’s always possible to talk the salesman down. The system for car purchases—where Americans buy cars from dealerships instead of directly from the companies making them—makes it hard to know how much it actually costs to make a car, so it’s hard to know you’re getting the best price.

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The same system applies to buying lifesaving prescriptions. Drug manufacturers set a list price, but consumers rarely pay that, and how much drugs should really cost is uncertain. That’s because of pharmacy benefit managers (PBMs), large corporations wielding enormous power over which drugs you get. Just three big PBMs control nearly 80% of the market, using their size and influence to negotiate drug prices with manufacturers. However, big PBMs have mixed incentives around containing drug costs and managing premium costs, while maximizing profits from their own in-house pharmacies.

Tyrone’s comment: While I agree with the premise of this article’s title, there is one small yet very important distinction that must be made. That distinction is “non-fiduciary” pharmacy benefit managers are a lot like car dealers. Moreover, how do we classify those trusted advisors who steer their clients to these car dealers or non-fiduciary pharmacy benefit managers without first having won radical transparency? PBMs are not created equally with some volunteering radical transparency and others much less so. Be sure to do your [plan sponsors] homework which requires going far beyond simple spreadsheet analysis and 25 page RFPs. Who is watching the watchers?

In the past few years, PBMs have ramped up their mail-order and specialty pharmacies to lock down profits and exclude independent pharmacies. Increasingly, they’re exploiting a Medicare provision allowing them to charge “direct and indirect remuneration fees” to pharmacies within their network. They’re ratcheting up the use of these fees—ostensibly part of Medicare reimbursement—to price out competition: local independent pharmacies, where pharmacists have personal relationships with patients and partner with referring providers to support patient care.

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