BCBS of Tennessee: Prescription Drugs Have Become the Single Leading Cost Driver

Drug costs accounted for 30.1 percent of what BCBS Tennessee paid out on behalf of members in their insured group plans last year. Just five years ago, this wasn’t the case. Drug costs accounted for 24.1 percent of claims costs for their commercial members in 2012 — meaning drugs have become a bigger slice of an already growing pie. What accounts for this shift? Are Tennesseans taking more drugs? That’s part of the story.

In 2012, the average member received 12 prescriptions per year, and that number grew to 15 per year in 2017. The bigger issue is cost. Drug costs are growing faster than overall medical inflation, which is in turn growing faster than the cost of consumer goods overall. First, we’ve seen a sharp increase in costs for the drugs you pick up at the pharmacy.

Source: America’s Health Insurance Plans (AHIP)
Tyrone’s Commentary:


PBMs have moved into the medical benefit to manage prescription drug utilization and spend. Despite the trend, most self-funded employers, benefits consultants and brokers spend considerably more time managing the medical benefit (that part which excludes prescription drugs) than the pharmacy benefit. Is it because medical management is a comfort zone and the shift to prescription drugs, as the leading cost driver, requires additional education? More education is a tough sell for a busy professional 50 years of age or older who already has a college degree and professional credential or two. This age group 50+ also just happens to be the demographic with the largest number of covered lives under care. Some have been desensitized to the plight of the employer or patient and care only about the almighty dollar bill. A clear indication money might be most important is when you hear a consultant, CHRO or CFO refer to a covered life as a “belly button,” for example. Whatever the reason it’s concerning to say the least. Stakeholders, including patients, want more. No scratch that….they need more. Learn how to manage pharmacy benefits like an expert. You will help prolong life or even better help save a life. 

Since 2008, brand name drug inflation has increased 15 times faster than the Consumer Price Index. If you applied the same rate of inflation to a gallon of milk, you’d be spending around $12 instead of $4 or $5. Cost growth is even more pronounced in the medical drug category, where we’re seeing inflation of around 13 percent already in 2018. In other categories of spending, like physician or hospital services, the figures range from six to eight percent.

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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 234)

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.

Is consolidation in health care good for employers?

Click to Learn More

CVS’s proposed deal with Aetna has received a lot of attention. If the deal goes through, experts believe patients could end up paying more, not less. A company with such leverage will make it challenging for new organizations offering insurance coverage to enter the market and compete.

Furthermore, many employers and other health care purchasers have enjoyed the flexibility of offering medical benefits and pharmaceutical benefits to their members through separate companies. By keeping medical benefits and pharmaceutical benefits separate, employers and other purchasers have been able to shop around, gaining leverage as competitors know prospective customers have multiple choices.

Without the option to offer these benefits separately, purchasers will have to look for which singular health plan offers the best combination of medical and pharmacy benefit management. This might leave them compromising on one to ensure the other meets their needs.

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Three Ways to Avoid Bankrupting Costs for Medical Spend J Code Drugs

Image result for medical spend j code drugs
Radical transparency in pharmacy benefits management 
starts with training and education. Click here to begin yours.

Well not quite bankrupting costs for companies like Amazon, Berkshire Hathway or JPMorgan Chase, but high enough for each to forgo the status quo and walk a new path together. The challenges associated with specialty drugs requires a whole new playbook, one with collaboration as the organizing principle. Third-party payers must be proactive in working with providers and PBMs, in several areas, to rein in specialty drug spend.

Appropriate sites of care. When it comes to specialty drugs, the driver of total cost is not just in the unit pricing but also in how and where those drugs are administered. Working jointly to steer patients to the most effective sites will boost total effectiveness and help control costs.

Clinical management. Given the rapid evolution of the pharmaceutical market, the question is no longer whether a treatment exists for a condition, but how effective it is. The pace of innovation and approvals puts a premium on keeping up with the incoming waves of new research, driving drug choice and adherence to cost-effective protocols, and engaging with patients so they follow treatment as prescribed.

Cost containment. When it comes to pharmaceutical cost and trend, misaligned incentives can get in the way of optimal solutions. Third party payers and providers must streamline their processes, especially as they pertain to medications, and wring out unnecessary expenditures whenever possible. Reducing costs can involve many levers, including standardizing therapies and negotiating prices accordingly, expanding the use of generics and exploring biosimilar alternatives.

To the naked eye what I’ve shared here might be overlooked, yet I can’t stress enough how important sites of care, clinical management and cost-containment are for plan sponsors. We recently worked on a medical Rx claim case for IL-2 (Interleukin-2) where our cost was $51,300 compared to the billed amount of $549,920 for a potential savings of $498,620!

Large PBM is staking out million-dollar gene therapies

Image result for us gene therapy market size
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Express Scripts Holding Co. built a multi-billion enterprise pressuring drug companies to lower their prices for U.S. patients. Now it is quietly building a side business: getting paid to help drug companies dispense a new generation of high-priced drugs.

Express Scripts is in talks with biotechnology companies Biomarin Pharmaceutical Inc., Spark Therapeutics Inc. and Bluebird Bio Inc. to have its specialty pharmaceutical business exclusively distribute their new hemophilia therapies when they are expected to become available in 2019 and 2020, Chief Medical Officer Steve Miller told Reuters in an interview.

Tyrone’s Commentary:

The shift is on! Non-fiduciary PBMs are giving more transparency, on the pharmacy benefit, only to shift [pharmacy] cost to the medical benefit. Vertically integrated carriers are preaching the benefits of their business models and in some cases rightfully so. But, if integrating the medical and pharmacy benefit requires that you relinquish flexibility and cost controls, the disadvantages of integration far outweigh the advantages. Disadvantages may include:

  1. Plan members may pay U&C (usual and customary) prices, which are higher than discounted prices
  2. Formulary and rebate arrangements may not be available or are significantly limited
  3. Plan sponsors lack authority and flexibility and are typically unable to adjudicate plan limitations, plan exclusions, enforce generic dispensing mandates or validate appropriate drug pricing

Biomarin, Spark and Bluebird confirmed to Reuters that they were speaking to payers, a group generally defined as pharmacy benefit managers, health plans and government agencies, about pricing models for future therapies. Analysts project those drugs could top $1 million to $1.5 million in price.

Rather than rail against the drugs’ expected high prices, Miller echoes the familiar drug company argument that the potentially curative therapies will likely be worth the high cost if they supplant the hundreds of thousands of dollars in annual medical costs to treat ailments such as hemophilia, which affects about 20,000 people in the United States alone.

[Read More]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 233)

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.

Auditor’s Report: Pharmacy Benefit Managers Take Fees of 31% on Generic Drugs Worth $208M in One-Year Period

Radical transparency in pharmacy benefits management 
starts with training and education. Click here to begin yours.

Ohio’s Pharmacy Benefit Managers (PBMs) charged the state a “spread” of more than 31 percent for generic drugs – nearly four times as much as the previously reported average spread across all drugs, according to a new report by Ohio Auditor of State Dave Yost.

An analysis conducted by Auditor Yost’s staff found PBMs collected $208 million in fees on generic Medicaid prescriptions, or 31.4 percent of the $662.7 million paid by managed care plans on generics during the one-year period April 1, 2017 through March 31, 2018.

The Auditor’s review, conducted at the request of state lawmakers, largely confirmed the findings of a private consultant hired by the Ohio Department of Medicaid to examine the state’s system of managing its pharmacy plan. Specifically, lawmakers wanted to know how much PBMs are paid through the “spread” – which is the difference between what the state’s managed care plans pay the PBMs and what the PBMs pay pharmacies to dispense drugs.

Tyrone’s Commentary:

On the heels of terminating two large PBM contracts, the State Auditor of Ohio released this bombshell report detailing the financials which prompted terminating said contracts. Why do you think Chase Bank, Amazon and Berkshire Hathaway have taken matters into their own hands? Self-insured employers must first make sure all vendors and advisers interests are perfectly aligned to theirs. Second, get self-educated AND (not or) hire an expert with a proven track record whose interests too are perfectly aligned. I can assure you these qualifications makes the list of qualified candidates much smaller than you think. The bottom line – trailing public entities in how you manage pharmacy benefits is no longer sustainable.

“The more we learn, the more troubling this becomes,” Yost said. “Our review has answered many of the questions presented by state lawmakers, but the lack of information from the PBMs limits the depth of our work. Without more information – on what’s happened in the past and what is planned for the future – Ohioans will never know if they’re getting a fair price. They deserve an accurate accounting of this work.”

[Read More]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 232)

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.

Ohio Medicaid pulls the plug on contracts with two big PBMs over ‘spread’ pricing

In the June 26, 2018 blog post, “What is a fair share? Pharmacy middlemen made $223.7M from Ohio Medicaid” I challenged plan sponsors to not be distracted by large AWP discounts or substantial gains from guaranteed rebate dollars.

Cost-Effective Pharmacy Benefits Management Begins 
and Ends with Education. Click Here to Begin Yours.
Instead, I argued, it is more important to understand the cost of your PBM service or how much you pay the PBM for the services it provides. This fee is hidden in your final plan cost and is not the administrative fee! It is the savings (less a reasonable administrative fee) the non-fiduciary PBM negotiated on your behalf but did not pass all of it back to you. 
For the first time Ohio Medicaid did exactly that and what it discovered was enough to terminate their PBM contracts with Optum and CVS Health. The department on Tuesday directed Ohio’s managed care plans to terminate contracts with pharmacy benefit managers, or PBMs, based on the “spread pricing” practice, The Columbus Dispatch reported. The state said it’s moving to a more transparent pass-through pricing model Jan. 1.
Under that model, PBMs would receive administrative fees and must bill the state the same amount they pay pharmacists. “The black box will effectively be eliminated,” said Patrick Stephan, the department’s director of managed care. A state-commissioned report showed PBMs billed taxpayers $223.7 million more for prescription drugs in a year than they reimbursed pharmacies to fill those prescriptions.

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 231)

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.