Yearly Archives: 2019

Understanding the Complexity of DIR Fees

The Centers for Medicare and Medicaid Services (CMS) describe DIR fees as “fees, payments, or payment adjustments made after the point-of-sale that change the cost of Part D covered drugs for Part D sponsors or PBMs must be reported to CMS as Direct or Indirect Remuneration (DIR).”1  

Source: Diplomat Pharmacy

DIR fees originated in Medicare Part D, however, these fees are now utilized for commercial plans. Pharmacies are charged DIR fees by PBMS after the point of sale.  DIR fees may be based on pharmacy performance, ability to participate in a preferred network or as reconciliation between negotiated price and a claim.2  DIR fees have come under scrutiny by pharmacies.  According to the White Paper: DIR Fees Simply Explained, DIR fees “create losses in revenue that, at times, may surpass the acquisition cost of the drug itself.” Moreover, certain pharmacy organizations have advocated for DIR fee reform. 3    

Based on a survey by the National Community Pharmacy Association (NCPA), a large majority of independent community pharmacy owners do not know what their final reimbursement will be at the point of sale and that it takes 4 to 12 months before they know the final reimbursement figure. 4 
For plan sponsors and patients the financial impact of DIR fees are even less transparent. Two big issues surrounding DIR fees for plan sponsors and members, who to a large extent are unaware DIR fees even exist, are:

1) DIR fees hide the true cost of the drug, from the plan sponsor, to the PBMs financial benefit. For example, PBMs might break-even on retail pharamcy network discounts on the front-end only to make up for it on the back-end through DIR fees. PBMs should be negotiating these discounts on behalf of the client then passing these savings onto plan sponsors. At the very least, PBMs should be disclosing their take home on these fees to plan sponsors.

2) Members cost share (i.e. coinsurance) too doesn’t take into account the PBM’s true cost when DIR fees are collected. If these fees were applied at the point-of-sale these plan participants would pay less and in some cases significantly so.

As a first proactive step to manage DIR fees, pharmacies should understand their contract and the various conditions therein. The NCPA DIR Fee FAQ guidance document asserts that pharmacy owners should manage these fees by performing “due diligence when evaluating contracts and make sure you are aware of and understand all of the different terms and conditions contained in your contract including network pharmacy manuals when incorporated by reference into a contract.

Alternately, make sure any contracting entity that might negotiate on your behalf (PSAO) explains to you the parameters of all of your contractual terms.”5

1) https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir
2) https://www.specialtypharmacytimes.com/news/white-paper-dir-fees-simply-explained/P-1
3) https://www.nacds.org/news/pharmacy-groups-praise-cms-progress-on-dir-fee-reform-to-lower-patients-out-of-pocket-drug-costs/
4) https://www.ncpanet.org/newsroom/news-releases/2018/02/09/ncpa-survey-pharmacy-dir-fees-plague-both-community-pharmacies-and-their-patients
5) http://www.ncpa.co/pdf/dir-faq.pdf

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 263)

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.

Robbing Peter to Pay Paul: Co-Pay Accumulator Programs Could be Doing More Harm Than Good

Click to Enlarge
Some experts say co-pay accumulators drive down drug prices as patients seek cheaper drugs. But the programs also add value for people who are ill and dealing with health issues.
Co-pay accumulator programs began appearing in 2016 in employer-provided private health plans and in Affordable Care Act marketplace plans. The programs change the way out-of-pocket costs are calculated if members use a manufacturer’s discount card or coupon to reduce prescription costs.

Members can download discount coupons or cards from a drug company’s website or get them from their doctors. They are used with their insurance; in some cases, members pay as little as $5 or $10 for their medication. But the total cost for the medicine counts toward your deductible, substantially lowering your out-of-pocket costs for future refills.

If a plan has a co-pay accumulator adjustment program, members can use a co-pay assistance card or coupon. But the drug’s full cost won’t count against the deductible. And most assistance cards have a dollar limit on how much they will pay.

Tyrone’s Commentary:

A co-pay accumulator program which focuses only on employer cost share without consideration for patient outcomes or satisfaction can be a disaster. Consider these three points:

1) Plan sponsor Rx costs will decrease. As a result, medication adherence will also decline. 
2) Expect higher hospital costs due to lower adherence of critical medications.
3) Members might become disconnected from their employer so look for low moral or higher absenteeism.

I’m not suggesting that these programs are bad. What I am saying is that before implementing a co-pay accumulator program to evaluate the overall impact first or it could turn out to be a case of robbing Peter to pay Paul (see #2 and #3 in this list).

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Smaller independent pharmacies consistently offer cheaper options than chain pharmacies

The price of the same prescription drug can vary by hundreds or even thousands of dollars, depending on where you buy it, according to a new report by the U.S. Public Interest Research Group which surveyed hundreds of pharmacies and found large price differences for identical medications.

Adam Garber is the consumer watchdog for the U.S. PIRG. The group surveyed more than 250 pharmacies across the country for the cash prices of common medications, the price someone pays if they don’t have insurance or are under-insured and do not qualify for coupons or savings programs sometimes offered by drug manufacturers.

Tyrone’s Commentary:

While the study looked at only cash transactions, the premise is consistent with insured persons. The difference is that the employer picks up most of the tab. For many employers, there is a huge opportunity to cut costs by nudging members to smaller independent pharmacies. Those limited networks being pitched by large chains can be a trap. It’s a popular tactic in the pharmaceutical supply chain; that is bait and switch.

When I was an operator, a mail-order pharmacy owner, we had a wholesale contract with one of the Big Three wholesalers. You know who they are; Mckesson, Cardinal Health and AmerisourceBergen. Like most independent pharmacies, options were limited in terms of where to buy brand drugs. For generics competition was/is much more fierce. 

But, when entering into an agreement with one of these big wholesalers they can require pharmacies to purchase as much as 80% of their inventory from them to remain compliant. Because secondary wholesalers don’t carry nearly enough inventory, it’s a catch 22. The big three wholesalers overcharge, especially for generics, now that the independent pharmacy can’t shop anywhere else. Sound familiar?

Ex. Employer Cost Savings Analysis

The limited or preferred networks offered by large pharmacy chains, in conjuntion with coalitions and non-fiduciary PBMs alike, often employ similar tactics they’re just not as conspicuous. A PBM or coalition could meet its performance guarantee on the front-end but that performance can be distorted hiding the true cost. 

NDC upcharging, repackaging, DAW rules or DIR fees are just a few of the hidden cash flow tactics which make network performance look much better than it really is. Take my word for it, we run pharmacy switch analyses and aren’t surprised when we find $1 million savings on a $15 million annual Rx spend just by nudging members to lower cost pharmacies. 

The study found consumers could save anywhere from $100 to $5,400 a year just by price shopping. In Ohio, they found the same inhaler being sold for $11.99 at one pharmacy and $1,136 at a different pharmacy. In North Carolina, a generic medicine to lower cholesterol could cost $7 or $393 depending on where it was purchased.

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Don’t look now but things are getting even more complicated: Point-of-sale discounts (rebates) to consumers as part of employer-sponsored plan design

Building on the introduction of its point-of-sale (POS) discount program, OptumRx and UnitedHealthcare are expanding their POS prescription drug discount programs to apply to all new employer-sponsored plans. The idea behind the expansion is to make medications more affordable and to improve health outcomes.

Tyrone’s Commentary:

Education is the leading market driver of transparency
in the PBM space. Employers click here to learn more.

1) The POS discount program alone doesn’t change the rebate share Optum keeps for itself which is the biggest problem. Optum’s POS rebates may reallocate part of the plan sponsor’s share to another participant (patient) in the US Pharmacy Reimbursement and Distribution System, for example.

2) Patients should be able to benefit from lower costs so I agree with the premise. However, how is the POS rebate calculated and is it consistent? A patient with a 20% coinsurance should receive a larger rebate than a patient with a lower flat copay especially when that flat copay is significantly lower than the OOP for coinsurance. POS discounts or rebates can make the process of getting to true cost or eliminating overpayments challenging to say the least.

3) Reporting. This adds another layer which OptumRx or any non-fiduciary PBM could make it difficult for the plan sponsor to ascertain the patient’s financial benefit, at the POS, which can lead to an increase of opacity.

Bottom line plan sponsors now more than ever need to win radical transparency from their PBM. Now that one additional beneficiary [patient] has been added to the financial flow of money, from rebates, the US Pharmacy Reimbursement and Distribution System is even more complicated.

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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 262)

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.

A Lack of Competition Leads to Brand Drug Price Increases

Image result for brand drug price increase 2018Inmaculada Hernandez, PhD, assistant professor at the Pitt School of Pharmacy, and colleagues, studied pricing data from the First Databank, along with pharmacy claims from the UPMC Health Plan. Some 19,000 new and existing oral and injectable drugs used in the outpatient setting between 2008 and 2016 underwent analysis. The group aimed to quantify which therapies were the most significant contributors to changes in cost.

“One of the important reasons we conducted this study is to increase transparency in the drug pricing process,” Hernandez said in an interview with Healio Rheumatology. “The prices of new drugs make headlines, but when you look at all of the drugs available on the market, and where the health care dollars are going, it is not just the entry of these new products that is causing the overall increases.”

In their study, Hernandez and colleagues presented results in a number of ways, including a breakdown of brand name and generic drugs. For brand name drugs, the group reported a 9.2% increase for oral drugs and a 15% increase in injectables; the researchers reported that existing drugs largely drove this increase. For generics, oral drug costs increased by 4.4%, while injectable drug costs rose 7.3%. New drug entry drove these increases, according to the findings.

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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 261)

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.

Uncovering Hidden Specialty Drug Spend Outside of the Pharmacy Benefit

When reviewing overall drug trend, specialty drugs represent a small volume of prescription utilization although specialty drug spend represents a large share of drug costs.  As an example, when comparing branded specialty vs. branded non-specialty drugs, branded specialty accounted for only 3% of total prescriptions in comparison to 34% of the share of spending based on the November 2018 BlueCross BlueShield Prescription Drug Costs Trend Update Report.1 Therefore, the appropriate management of specialty drugs continues to be an area of focus for those involved in administering the pharmacy benefit.
 
Furthermore, payers should have oversight of both pharmacy and medical spend, particularly when managing specialty drugs.  A large portion of specialty drug spend occurs under the medical benefit.  According to a 2017 CVS Health  report, 45% of specialty spend occurs under the medical benefit with the remaining 55% under the pharmacy benefit:2
Moreover, there are many unique differences within each benefit. One notable difference is that medical claims are billed utilizing HCPS codes (commonly referred to as J-codes) vs. NDC codes for pharmacy claims.  J-codes present various challenges which include issues with certain drugs billed under a miscellaneous code if a specific code doesn’t exist, utilizing one j-code for several different drugs and inaccurate billing.  
Payers will need to analyze specialty drug data from the medical and pharmacy benefit.  In addition to the standard reporting available for drugs paid under the pharmacy benefit,  obtaining medical side specialty drug reporting is essential.  The 2018 PBMI Specialty Drug Trends Report stated that “the majority (89%) of respondents reported that their PBM or other healthcare vendor tracks specialty and non-specialty drug spend separately for drugs covered under the pharmacy benefit. 

However, less than half (48%) reported that their PBM or healthcare vendor tracks specialty drug spend under the medical benefit……For the subset of respondents reporting that specialty spend under the medical benefit is tracked, the source of these reports is most often their health plan.”3

Key next steps towards appropriate management of specialty drugs would start with the understanding that a large portion ofthe spend exists under the medical benefit and then to obtain pharmacy reporting from the medical side in order to have a complete view of the total specialty drug spend under both benefits.
3)    Pharmacy Benefit Management Institute. 2018. Trends in Specialty Drug Benefits. Plano, TX: PBMI. Available from www.pbmi.com/specialtyreports.

Eli Lilly and Company to Offer Generic Insulin at 50% Off Brand Name Humalog

Humalog rapid-acting insulin my introduction into the pharmaceutical industry

First things first, get this product on your formulary yesterday! It shouldn’t take six months for a P&T committee review. Now, the primary reason for this blog post.

My career in the pharmaceutical industry began in 2002 with Eli Lilly and Co. I started out as a sales representative in the diabetes care division before electronic prescribing. I don’t know why I added the part about electronic prescribing other than to reflect back on how fast time flies. Not too many employees speak highly of a company once they leave. I do, however, of Eli Lilly and Co. every chance I get.

Before going any further, I need to preempt any attempts to downplay what I’m about to write. Much like Eminem when he battle raps, I know what my competition is going to say before they utter a single word.

Eli Lilly is a great pharmaceutical company who puts patients first. I know, I know…it is a public drugmaker, with shareholders, and generates gargantuan margins from its product portfolio. Hear me out.

1) Back then, in 2002, and still today the sales culture was about putting the patient first always. Of course, the company has to keep shareholders happy but it didn’t do it at the expense of patients. I truly believe this and have more street smarts than most so no I’m not drinking the Kool-aid.

2) In a team meeting, my manager called me into a private room during a break. He handed me a folder and inside was a letter explaining my salary was going from $65,000/yr to $85,000/yr. I got light-headed and nearly passed out. It wasn’t so much about the money instead it was the recognition I appreciated most of all. There are two things of note. First, I had not asked for a raise. Second, I was less than one year into my tenure with Eli Lilly still they cut the check!

3) Less than a year later, I was promoted way ahead of schedule. I’m talking six or seven years ahead of schedule. They recognized my results and rewarded me for them. No red tape, business case, or performance review just you deserve it so here you go.

I write all of this to say I’m not surprised Eli Lilly and Co. announced plans on Monday to sell a half-price version of its popular insulin injection Humalog. True, it is fending off criticism about rising drug prices, especially insulin, yet like my pay raise it didn’t have to do this.

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