UnitedHealth’s PBM unit, Optum, tops $100 billion in revenues for the first time

Revenues for Optum, which is UnitedHealth’s PBM unit, topped $100 billion for the first time in the year ended Dec. 31. Optum grew revenues by 11.1 percent year over year to $101.3 billion, the company said Jan. 15.

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Tyrone’s Commentary:

For those of you signaling the end of the PBM business model, I’ve got news for you. We’re just getting started. The question, however, becomes does this growth come at the expense of others or through transparent business practices. I shared an analogy with my CPBS class last night and I’ll share it with you here today. I write this assuming efficiency is very important to you. After all that’s sort of the point isn’t it?

Trial lawyers will often talk about how important jury selection is in determining who wins or loses a case. In fact, law firms spend millions of dollars every year on behavioral and psychological research to help them select the “best” jurors. Evidence be damned as many cases are won or lost based upon jury selection alone. 

The same can be said for pharmacy benefit management services. Whether or not you run an efficient pharmacy benefit plan depends not only on your formulary, discounts or rebates but on the PBM you choose to do business. Select the wrong PBM and you will overpay no matter what. You see, overpayments in this industry come at a heavy cost beyond just dollars and cents.

While Optum may face heightened competition this year after Aetna and Cigna scored deals with large benefit managers, Piper Jaffray analyst Sarah James told Reuters: “We view [the Optum results] as a positive sign given the increasingly competitive nature of the pharmacy benefits management market. We believe 2019 could be a big year at OptumHealth … and see potential for specialty [drugs] to double earnings by 2021.”

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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 274)

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 more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

State’s attempt to curb pharmacy benefit manager service fees mostly futile

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The analysis of more than 400,000 prescriptions from about three dozen pharmacies across the state in the first quarters of 2018 and 2019 produced four major conclusions:

1) Ohio’s largest Medicaid pharmacy benefit manager, CVS Caremark, increased its rates for specialty drugs at the beginning of this year, even though the cost of many of them was dropping nationally. Along with raising the price for Ohio taxpayers, CVS benefits from the inflated cost because its PBM directs many of these prescriptions to CVS specialty-drug pharmacies. The price increases took effect as Ohio eliminated the old “spread pricing” system in which pharmacy benefit managers, a middlemen in the drug supply chain, walked away with as much as $200 million a year in profit.

2) The state’s new “pass through” system has generated better results for Ohio pharmacists. The amounts they are receiving from PBMs above the pharmacies’ costs to buy Medicaid drugs more than tripled after the sweeping changes this year. The bad news: That $6.25 margin per prescription still falls well short of the standard $9.48 deemed by pharmacies as their break-even point.

3) CVS Caremark’s reimbursements to Ohio pharmacies for Medicaid prescriptions are well under half those of the other pharmacy benefit manager handling Ohio Medicaid money, UnitedHealth Group’s OptumRx. Many of CVS’ reimbursements fluctuated wildly from year to year for the same drug, seemingly without relation to the actual cost of that drug.

4) A plan added to the proposed state budget by the Ohio Senate last week that would earmark $100 million to ailing Ohio pharmacies might end up enriching the PBMs instead.

 
Tyrone’s Commentary:
 
Antonio Ciaccia, Director of Government & Public Affairs for the Ohio Pharmacists Association, describes what CVS did this way: “The state slapped their hand and said, ‘Stop taking money from us this way.’ They say, ‘OK, we’ll take it another way.” 

There is a formal name for the tactic so accurately described above by Antonio. The name for this tactic is ballooning. It occurs when one revenue stream is cut off only for the PBM to shift that lost revenue to a different source. Some readers might mistake my position on transparency to mean lower costs across the board. 

It is true lower costs are often the result of better transparency. However, if a PBM is radically transparent by revealing its “take home” to clients, no matter the cost, and the purchaser accepts I’m okay with that. Maybe the purchaser believes a premium is deserved for brand recognition, for example.
 
If all the cards are on the table and a purchaser of PBM services selects the highest cost option, so be it. The key is getting all the cards on the table which is driven on the buy-side by eliminating information asymmetry. Information asymmetry occurs when one party has significantly more information than another or is better at interpreting that information. More important, the party with more information takes advantage of its position. 
 
In business, asymmetric information often leads to a lack of transparency and abhorrent price disadvantages for purchasers. It is asymmetric information and the ability to interpret the information that is causing overpayments from state governments and self-funded employer groups alike. 

The solution to eliminating asymmetric information starts with education. As long as NFPBMs or non-fiduciary pharmacy benefit managers have better information and are more adept at interpreting that information, I’m afraid you will always overpay.