This position paper was drafted by the Health and Public Policy Committee of the American College of Physicians or ACP, which is charged with addressing issues that affect the health care of the U.S. public and the practice of internal medicine and its subspecialties. The ACP believes that transparency is an important component of the efforts to lower the cost of prescription drugs and can contribute to ongoing efforts to address the cost of the U.S. health care system.

The authors reviewed available studies, reports, and surveys related to health plans and PBMs from PubMed, Google Scholar, relevant news articles, policy documents, and Web sites and primarily looked at costs and spending associated with PBMs, PBM rebates and negotiations, and transparency.

Pharmacy benefit managers originated for the purposes of claims processing, mail order pharmacy services, and retail pharmacy network management and started to evolve as employers began including broad prescription drug coverage in their employee benefit packages. Their role increased in subsequent decades, particularly after passage of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003.

After passage of the act, PBMs generally represented Part D plans in negotiations with pharmaceutical manufacturers because the federal government was prohibited from negotiating prices directly with drug manufacturers. The function of a PBM is to negotiate rebates with pharmaceutical manufacturers in exchange for favorable placement of drugs on tiered formularies. The PBM then passes those rebates on to employers or plan sponsors, who in turn pass the savings from rebates on to employees or beneficiaries through lower premiums.

Tyrone’s Commentary:

Pass-through and Transparent PBM business models are often the same in name and performance. Watch the YouTube video above. 

PBMs have been criticized for a lack of transparency, and there can be confusion or misinformation about how they work, how they contract with employers or purchasers, how they make decisions about formularies, how much money they take in, and how much money is actually passed on to consumers. At the state and federal level, policymakers are attempting to improve transparency for PBMs and other parts of the supply chain.

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The State of California, under a directive from Governor Gavin Newsom, is “carving out” the pharmacy benefit for Medi-Cal beneficiaries from managed-care plans and transitioning to a fee-for-service (FFS) program, moving 13 million Medi-Cal beneficiaries to a new pharmacy program by January 2021.

The California Department of Health Care Services (DHCS) cites that transitioning pharmacy services from managed care to FFS will standardize the Medi-Cal pharmacy benefit statewide; improve access to pharmacy services with a pharmacy network that includes approximately 97% of the state’s pharmacies; and strengthen California’s ability to negotiate state supplemental drug rebates with drug manufacturers.

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Under managed-care plans, DHCS, which administers Medi-Cal, pays managed care plans capitated payments, a portion of which cover the costs of prescription drugs. These payments are determined by the negotiated prices between the managed care plans and the pharmacies. Medi-cal beneficiaries can only obtain prescription drugs within their managed care plans’ pharmacy network.

Anh Nguyen, assistant professor of economics at Carnegie Mellon University’s Tepper School of Business, explains under the fee-for-service program, DHCS will directly reimburse pharmacies at their actual cost of acquiring prescription drugs (plus other predetermined fees). Additionally, Medi-cal beneficiaries will no longer be dependent on the pharmacy network of the managed care plan and can obtain prescription drugs to almost all pharmacies in California.

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The AARP Public Policy Institute (PPI) has released a new Rx Price Watch report showing that, last year, the retail prices of 267 brand-name drugs that are commonly used by older Americans rose by an average of 5.8%—more than twice the general rate of inflation, which was 2.4%.

In 2018, retail prices for 267 widely used brand name prescription drugs increased by 5.8 percent,
contrasting with the general inflation rate of 2.4 percent over the same period. Despite being more than twice as high as inflation, this was the slowest average annual price increase for widely used brand name prescription drugs since at least 2006.

For over a decade, annual brand name drug price increases have exceeded the general inflation rate by 2-fold to more than 100-fold. The average annual cost for one brand name medication used on a chronic basis was more than $7,200 in 2018, almost four times higher than in 2006.

Tyrone’s Commentary:

When monitoring PBM performance, go beyond standard reports. These reports don’t usually uncover problem areas that if resolved cost the PBM money but saves you [plan sponsor] money. How do you go beyond standard reports you might ask? For starters, download a copy of my 18 pt. PBM Performance Evaluation Questionnaire. Work with the PBM account manager on a corrective action plan when problems are uncovered. Some problems might include:

1. MAC list performance
2. Performance guarantee true ups
3. PA and ST rubber-stamping
4. Poor product mix
5. Improper utilization

Complete the questionnaire every month and discuss the results with your PBM account manager as part of a continuous monitoring program. Don’t wait until an annual audit it is often too late by then to mitigate overspending for the previous year. Drug cost trends aren’t going to bend themselves. It is proactive programs like CM or continuous monitoring which aid in controlling drug costs.  

“To put this into perspective: If gasoline prices had grown at the same rate as these widely-used brand-name drugs over the past 12 years, gas would cost $8.34 per gallon at the pump today,” said Debra Whitman, MA, PhD, executive vice president and chief public policy officer of AARP, in a statement. “Imagine how outraged Americans would be if they were forced to pay those kinds of prices.”

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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.

Diplomat Pharmacy, which sells medications to people with complex conditions and acts as a drug benefit middleman, is a shell of itself. The company was worth more than $3 billion in its heyday in 2015, but is now worth a little more than $200 million after a disastrous third quarter.

The bottom line: Larger specialty drug players — owned by Cigna, CVS Health and UnitedHealth Group — have crushed Diplomat with their size. Now, Diplomat is running out of cash and is being forced to sell assets, or the entire company, because it has “substantial doubt surrounding our ability to continue,” the company said in its earnings report.

The pharmacy benefit manager business, which Diplomat just got into a couple years ago, has been a mess. Health insurers continue to drop Diplomat’s PBM, including one of Diplomat’s largest clients. Executives were not allowed to name the new insurer that is leaving due to a gag clause, but it likely is one of the big insurers that also owns its own specialty PBM.

Tyrone’s Commentary:

You can’t beat an oligopoly at their own game. You must change the game and then have them compete on your terms or die. Here are three examples of companies who died because the enemy (competition) changed the game: Kodak, Blockbuster and Blackberry. 

Blockbuster was so complacent so arrogant that when the founders of Netflix needed cash in the early stages they offered to sell for $50 million to Blockbuster. The CEO of Blockbuster at the time, John Antioco, laughed them out of the meeting room. His thought was the price tag was way too high. Blockbuster is dead and Netflix’s market cap now sits north of $150 billion! 

If anyone from within Diplomat’s leadership team is reading this please pick up “The Prince” and “Art of War” two books written by philosopher Niccolo Machiavelli. Here is one takeaway from Machiavelli’s Art of War.

History is wrought with similar stories WHI and Anthem, for example. Anthem originally sold its PBM to Express Scripts several years ago and decided to re-enter with IngenioRx last year. Walgreen’s (WHI) looks like it is slowly re-entering with a recent stake in RxAdvance. I hear all the time, “I could start a PBM its not that difficult to do.” Diplomat Pharmacy is a case study for how anyone can start a PBM but executing and surviving is another story.

By the numbers: Diplomat’s main business, which distributes high-cost infusion drugs and other medicines that you don’t find at your typical pharmacy, is still lucrative. Diplomat made a gross profit of $268 per prescription last quarter.

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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.

Drug manufacturers offer copay coupons on certain expensive drugs. A participant can present a copay coupon to a pharmacy and the copay coupon is applied against the participant’s cost share. A drug manufacturer’s goal in offering a copay coupon is to reduce a participant’s cost share on the drug so that the cost to the patient is comparable to less-expensive generic and/or therapeutic alternatives.

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Even if the drug manufacturer has to fund the majority of the participant’s share of the cost, the drug manufacturer can profit from the transaction because the plan would pay its share of the cost of the drug. We note that, while this trend started with drug manufacturer coupons, other medical providers have started issuing discount or copay coupons as well. The analysis in this alert applies equally to coupons for any medical services.

A copay coupon often has an annual dollar limit aimed at covering a significant portion of the participant’s cost sharing up to a typical participant’s out-of-pocket maximum. The out-of-pocket maximum is the point where the plan pays 100% of the cost of the drug with no further participant cost sharing.

Copay coupon accumulator program timeline

Pre-2018 – copay coupons were undetectable

Prior to 2018, the pharmacy benefit manager (PBM) systems did not distinguish copay coupons from other forms of payment (like cash or a credit card). When a participant filled a prescription at a pharmacy, the coupon was identified as a participant payment. The value of a copay coupon would have been credited against a participant’s deductible and out-of-pocket maximum along with any amounts the participant paid by cash or credit card. The electronic data generated from the transaction did not support any other treatment. Then, leading up to 2018, the PBMs began to implement systems to separately track coupons.

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I try and call it how I see it sometimes this gets me into trouble oh well. Today, I will speak highly of a competitor. In this industry, competitors rarely speak highly of one another. It is cutthroat but I wouldn’t have it any other way. I love the competition. From everything I’ve seen not heard, Benecard is one of the good actors. It’s president, Michael A. Perry, wrote this recently about our own industry kudos to him.

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“Without a universal standard for transparency in PBM operations, pharmacy benefit managers can continue to play financial games and mask income streams, which makes accurately comparing PBMs via today’s standard spreadsheets virtually impossible. Some PBMs may not charge an administrative fee, but instead profit from spread–the difference between what the pharmacy benefit manager pays for a drug and what it charges your client. These expenses, along with other difficult-to-track fees and excessive or even dangerous drug utilization, can add up to significant expenses over time for plan sponsors and their members.”

Where do I begin? Let’s start with a universal standard for transparency. I’m not sure we need a universal standard for transparency. I propose instead sophisticated purchasers defining for themselves what transparency means to them then hold PBMs competing for their business accountable to this proprietary definition. It’s a lot easier said than done which leads me to the second point.

Not only are some PBMs not charging an administrative fee they have begun to also “waive” the dispensing fee. What you give up in these exchanges is exactly the same thing Michael is suggesting we need more of – transparency. The hidden cash flows (see image above) opaque PBMs generate are service fees. The problem is that the service fees are hidden in the final plan costs through complex benefit design strategies which lead to poor product mix and wasteful utilization.

Price is an important factor in final plan cost but so too are utilization and product mix. The latter two make forecasting future costs practically impossible within any reasonable confidence level. If that is true, then any claims repricing done retrospectively should include those cost drivers. Without them performance is only partially measured.

In other words, the radically transparent PBMs focused on eliminating wasteful spending in utilization and product mix with computerized clinical management programs are being left in the cold when the focus is price. This is exactly what opaque PBMs want you to do focus on the front door while they sneak in through the back door. So while radically transparent PBMs might be left in the cold plan sponsors are left holding the bag.

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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.

 

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.