Abolishing Drug Rebates May Push Consumer Drug Costs Higher

Debates about PBMs can be confusing in large part because their role is generally not well understood, and also because the drug system is so Byzantine. Groups like Express Scripts or CVS Caremark–to name two of the demonized PBMs–negotiate with drug manufacturers to extract rebates for certain drugs in exchange for putting the manufacturer’s drug on an insurance plan’s formulary.

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

If a PBM does not get on a plan’s formulary, the manufacturer loses sales and market share. The Data show that manufacturers need not provide much of a rebate for drugs that are still on patent and have few rivals, but they tend to give larger rebates when they have less leverage in negotiations regarding drugs with several possible substitutes–either generics or simply drugs with comparable effects.

These rebates are tantamount to discounts off the drug manufacturer’s list price. PBMs do not keep the entire rebate that they negotiate: The lion’s share goes to insurers, which allows them to keep premiums lower.

Tyrone’s Commentary:

It’s true rebates can reduce net prices. The burden, however, is on self-insured employers to extract those rebate dollars from the PBM and to not allow the non-fiduciary PBM to profit from manufacturer revenue or rebates. Because they tend to be more sophisticated purchasers, insurers are better at keeping rebate dollars than are self-insured employers. How well a PBM performs depends largely on the sophistication level of their clients. If the self-insured employer is unsophisticated, the non-fiduciary PBM and any benefits consultant whose interests are misaligned will feast off hidden cash flow. These cash flows are hidden in the employers’ final plan costs thus equate to a service.

[Read More]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 238)

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.

Gilead to launch generic versions of its hepatitis drugs

Source:  https://nu-retail.com/mavyret-antitrust/

Gilead Sciences Inc said on Monday it plans to launch generic versions of its hepatitis C drugs in the United States, at a time when regulators are looking to lower healthcare costs.

The drugmaker’s generic version of drugs such as Harvoni and Epclusa, which raked in combined sales of $831 million in the quarter ended June 30, will be launched via a newly created subsidiary Asegua Therapeutics LLC.

Gilead said the low-cost variants of the drugs will be available at a list price of $24,000 for the most common course of therapy from January.

Tyrone’s Commentary:

While this move should be applauded, let’s not kid ourselves. It was the launch of Mavyret which has driven the manufacturing of the generic (biosimilar) versions for Harvoni and Epclusa. Competition and sophisticated purchasers drive lasting change in Rx cost containment.

U.S. healthcare companies, ranging from insurers to drug retailers, are stepping up efforts to combat rising drug prices that have been widely criticized by regulators.

[Read More]

Fiduciary rule revival: Should it apply to pharmacy benefits managers?

The $280 billion drug-benefit industry has fought off efforts by a number of states to impose a fiduciary standard by arguing that U.S. employment law takes precedence. But the federal government could try and overcome that resistance with new regulation, or press Congress to solidify such a change through legislation.

Click to Learn More

Some of the biggest players in the industry have warned that a fiduciary standard could be deeply damaging to their business. Express Scripts Holding Co., which agreed to be bought by health insurer Cigna Corp. this year, said in a 2015 filing that a fiduciary rule “could have a material adverse effect upon our financial condition, results of operations and cash flows.”

Tyrone’s Commentary:

The Pharmaceutical Care Management Association or PCMA is ‘the’ trade arm for large PBMs like Express Scripts, Optum, CVS Health and others. Nothing comes out of that camp which hasn’t first been vetted by its membership. Stephanie Kanwit, outside counsel for the trade group said and I quote, “PBMs aren’t fiduciaries for their customers and they don’t want to be.” This isn’t true as a handful of PBMs do want to put their clients’ interests first even above their own; meaning they don’t benefit at all from spreads, manufacturer revenue or poor clinical management. The law of common sense tells us that if a vendor’s fees go down then so too does the client’s cost.

Benefit managers don’t believe a fiduciary designation will lower drug costs, said Stephanie Kanwit, outside counsel for the trade group Pharmaceutical Care Management Association. They’re responsible for honoring a contract, she said. “It’s an idea whose time should never come,” she said. “PBMs aren’t fiduciaries for their customers and they don’t want to be.”

[Read More]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 237)

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.

Why third-party payers are gobbling up PBMs

With the OK from the Justice Department, Cigna’s nearly-final takeover of Express Scripts moves closer to the end of an era when standalone pharmacy benefit managers dominated the industry.

Click to Learn More

Pending remaining state approvals for that $67 billion pact and the expected clearance of the CVS-Aetna megamerger, the three largest PBMs will all be hitched to health plans. UnitedHealth created its own in 1990 with OptumRx.

The crowded landscape has drastically changed from just a decade ago when PBMs were scooping up competitors and morphed the sector into one dominated by a few behemoths controlling the prescription drug benefit for millions of Americans.

Tyrone’s Commentary:

And I quote, “The black box model is under scrutiny,” Tanquilut said. “It’s better for them to be embedded. You can kind of hide your economics.” In a June 6, 2018 blog post I wrote,“if integrating the medical and pharmacy benefit requires that you relinquish flexibility and cost controls, the disadvantages of integration far outweigh the advantages.”

“Drug pricing is becoming a mainstream national issue,” Brian Tanquilut, an analyst with Jefferies, told Healthcare Dive. Tanquilut thinks the increased scrutiny has played a role in fueling these payer-PBM acquisitions.

PBMs decide which drugs they will cover each year for their members and, to get a preferred status, drug manufacturers agree to rebates or discounts. It’s unclear how much of that savings actually makes it way back to patients. PBMs also use spread pricing — pocketing the difference between what they charge the pharmacy and what they bill their client.

“The black box model is under scrutiny,” Tanquilut said. “It’s better for them to be embedded. You can kind of hide your economics.”

[Read More]

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 236)

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 Marriott Rewards Program and Non-Fiduciary PBMs have a lot in common

When the announcement was made last year that Marriott International was purchasing Starwood Hotels and Resorts I was ecstatic. This meant I would have access to more hotel properties, especially internationally, and let’s be honest the Starwood properties are just better. The Starwood hotels, at least in my experience, are more up to date and offer superior customer service.

The cynic in me, however, said this is going to be a tricky project [merging the two rewards programs] so I immediately set out to take screen shots of my accounts such as stays, points, and membership levels. One can never be too careful in protecting what they’ve earned in the digital age. Long story short these screenshots came in handy not too soon after the integration was complete.

On August 18, 2018 the Marriott and Starwoods Preferred Guest rewards programs were finally combined sort of. While the integration of the two programs was taking place in the background, I was learning how the SPG (starwoods preferred guest) program worked. During my research, what I learned shocked me!

First, Marriott platinum premier members are entitled to 10 complimentary suite upgrades every year. I’ve been a member for 15 years and never knew about this benefit! I’m not that picky but when on vacation I like to splurge. That’s a lie. I’m extremely picky when it comes to certain things like spending $300 or more of my hard earned money on a hotel room.

Second, Marriott platinum premier members are eligible for free suite upgrades at the Ritz Carlton what! The Ritz Carlton seemingly never gives free suite upgrades to anyone or for any reason. This too was a benefit I didn’t know was available to me until I started digging into the benefit of the merged programs.

By now two questions are probably bouncing around in your head. One, why didn’t I know about the two suite upgrade benefits?  Two, what does this have to do with managing pharmacy benefits? Let’s tackle the first question.

Marriott’s policy around these suite upgrades, while not published, is clear. That is not to be proactive in educating it’s members about these two particular benefits. It would be easy to blame Marriott for no one ever mentioning the benefits to me but I won’t. That’s the easy way out. The reason I didn’t know is because I wasn’t proactive in learning about all the options available. It doesn’t matter that some of the information is in the fine print.

So what does this have to do with managing pharmacy benefits? Simple. The reason so many employers are overpaying is they [you] are not proactive and reluctant to invest the time to learn how to properly manage pharmacy benefits. Like Marriott, non-fiduciary PBMs have learned how to leverage the purchasing power of unsophisticated clients to their financial advantage.

Having knowledge about the upgrade benefits would have saved me a lot of time and money. I wouldn’t have purchased as much chapstick to kiss up to the front desk staff for a free upgrade. For you, the stakes are much much higher. Having more knowledge about managing pharmacy benefits could save an employer millions of dollars, help grow a brokerage business or maybe even save someones life.

The Secret Drug Pricing System Middlemen Use to Rake in Millions

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

For years, Frahm’s South Side Drug bought pills from distributors, and dispensed prescriptions to the Wapello County jail. In turn, the pharmacy got reimbursed for the drugs by CVS Health Corp., which managed the county’s drug benefits plan.

As he compared the newspaper notice with his own records, and then with the county’s, Frahm saw that for a bottle of generic antipsychotic pills, CVS had billed Wapello County $198.22. But South Side Drug was reimbursed just $5.73.

So why was CVS charging almost $200 for a bottle of pills that it told the pharmacy was worth less than $6? And what was the company doing with the other $192.49?

Tyrone’s Commentary:

It’s not a secret at least for those who regularly read this blog or follow me on LinkedIn.

Frahm had stumbled across what’s known as spread pricing, where companies like CVS mark up—sometimes dramatically—the difference between the amount they reimburse pharmacies for a drug and the amount they charge their clients.

[Read More]

Health Plan with 495,000 Covered Lives Says Prescription Medications Account For One in Four Dollars Spent

The high prices of individual medications are the subject of frequent media reports. However, overall national pharmaceutical spending has received somewhat less attention because it is considered less relevant for health care cost containment, as it is dwarfed by national spending on hospital care. This may not be the case for commercial payers.

At 25 percent of total health care expenditures in 2016, net spending on pharmaceuticals by Harvard Pilgrim Health Care (HPHC) was consistent with retail pharmaceutical spending proportions of commercial payers across states and considerably higher than 10 percent to 17 percent often reported nationally.

Click to Enlarge

At HPHC, considering only pharmacy benefit spending would fail to account for the 25 percent of medication spending attributable to those medications administered in physicians’ offices and paid under the health plans’ medical benefit—similar to an estimated national 28 percent spending contribution of non-retail medications.

Tyrone’s Commentary:

1 in 4 dollars attributed to prescription medications and this doesn’t include spend on inpatient HCPCS J Code drugs! Soon the DOJ will approve the mergers of CVS/Aetna and ESI/Cigna. Like Optum and Prime Therapeutics, CVS and ESI want to capitalize on the potential of inpatient medical spend J code drugs. The PBMs will bring with them all of their knowledge and drug utilization management tools which is a great opportunity to improve patient outcomes and contain costs. Unfortunately, it also gives them the chance to add to costs. Because PBMs generally rely on the demands of clients for the level of transparency provided, the scenario which plays out is largely up to plan sponsors and their advisers. When you know better, you do better.

It is noteworthy that our pharmaceutical spending estimates exclude payments for inpatient-administered medications, as those are included in inpatient spending. Consequently, our data understate total pharmaceutical spending.

[READ MORE]