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.

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 groundbreaking approval of 3 CAR T cell therapies in 2017 has not only opened up the possibility of cures for patients, but also sent shockwaves through the payer community, which is responsible for a large chunk of the costs. The launch cost of hundreds of thousands of dollars plus spending on monitoring and hospitalization, it is clear that payers must revisit their traditional formulary approach.

2017 Launch Forecast for Specialty Drugs (source: Diplomat Specialty Pharmacy)

Biosimilars have also complicated formulary decisions. Payers must now compare the safety and efficacy of these products to reference drugs to determine how to meet patient needs, while also controlling costs.

In part 1 of a 2-part interview with Specialty Pharmacy Times, Steve Johnson, assistant vice president, Health Outcomes, Prime Therapeutics, discussed how newer specialty drugs have resulted in the need for new coverage strategies.

SPT: What are some important things for payers to know about CAR T cell therapies?
Johnson: First and foremost, these are obviously very complex therapies that we say are truly innovative, offering potential cures for very difficult diseases and conditions. These therapies aren’t limited to prescribed drugs, rather they often require hospitalizations.

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The smirk from a non-fiduciary PBM salesperson after closing a deal with an unsophisticated employer

How it works:

• Imagine a generic drug has an average sticker price of $100, and its cost (including money for the drug maker, wholesaler and pharmacy) is $15.
• The PBM says it will apply an 80% discount on generic drugs, meaning an employer should only pay $20 for the drug. The PBM pockets $5 on normal spread pricing (after subtracting the $15 cost).
• However, using the algorithm, the PBM could define the generic drug as a brand, which only commands a 17% discount.
• Under that scenario, an employer would pay $83, or more than four times what it should for the generic, and the PBM pockets $68 after subtracting the drug’s cost.
• Multiply this strategy for millions of generic prescriptions, and the profits add up quickly.

Tyrone’s Commentary:

Within a PBM service agreement, the definitions usually start on pages one or two. Not coincidentally, this is also when the games [self-dealing] begin and some of the largest companies in the world fall for it. Just because you can make smart phones, build cars or design software doesn’t necessarily mean you are good at managing pharmacy benefits. Take ego out of it here are three no-no’s:

1. Don’t allow the definitions for important terms such as generic, brand and specialty drugs to be defined by non-fiduciary PBMs. Create a template in-house for important contract definitions and demand they replace ambiguous definitions in your PBM contract. 
2. Don’t count on in-house lawyers to eliminate contract loopholes. There is nothing illegal about the contracts non-fiduciary PBMs present to their clients. Subsequently, some of the largest companies in the world (see Anthem vs. Express Scripts) think they are protected because they have in-house and outside attorneys vetting these contracts and that simply is not necessarily the case.
3. Don’t hire or retain any adviser who doesn’t protect you from points one and two above.

The thing is, assessing transparency is more effectively done by a trained eye. Someone who knows the ins and outs of PBM revenue models, contract loopholes and has personal knowledge of the self-insured employer’s plan goals.

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