The White House Yanks Proposed Drug Rebate Overhaul

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The White House abandoned a push to end rebates paid to middlemen who negotiate drug prices on behalf of health insurers, a move that could turn scrutiny back on how drugmakers themselves set prices. President Donald Trump has made lowering prescription-drug costs a top priority of his administration, and ending rebates was seen as a vital part of that effort.

The president’s proposal would have prohibited drugmakers from paying rebates to PBMs in government programs such as Medicare. The move could have upended a complex system that influences tens of billions of dollars of pharmaceutical spending.

“Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule,” said Judd Deere, a White House spokesman. He said that the administration was encouraged by bipartisan discussion on legislation to control drug costs.

Tyrone’s Commentary:

It never made much sense to me in the first place that rebates be abandoned. All the numbers pointed to drugmakers as being the primary winner not patients. Now that this has been put to bed let’s get back to pushing for radical transparency. It is the lack of disclosure demanded by purchasers of PBM services which is the main culprit of overpayments not rebates.

Rebates had become a popular target of criticism in Washington after drug companies lobbied aggressively to cast them as the reason for high prices. Pharmacy-benefit managers negotiate drug discounts in the form of rebates, often keeping some of that money for themselves.

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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 275)

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.

Largest pharmacy benefits manager in the U.S. accused of costing the New York City Transit Authority tens of millions of dollars

A complaint filed in Manhattan Supreme Court charges that Express Scripts Inc. — which was No. 25 on last year’s Fortune 500 list — breached its contract with the Transit Authority, by failing to stop a surge in fraudulent claims filed by transit workers, retirees and others covered by the benefits plan.

New York City Transit staff first noticed a spike in claims for pricey compounded medications as claims surged from less than $500,000 a month in 2015 to $8.8 million in March 2017. In June 2016, Transit officials noticed one of those claims was $405,326 for three months of compounded medication for erectile dysfunction, according to the lawsuit.

“The $400,000 erectile dysfunction claim proved non-fraudulent,” the suit notes. “Yet, compound medication costs continued to rise for suspicious reasons that should have provoked an aggressive response from ESI.”

Tyrone’s Commentary:

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Non-fiduciary PBMs generate most of their profit from three sources:

1) Spread Pricing

2) Rebate Spreads
3) Benefit Design

If a plan sponsor closes or limits #1 and #2 during contract negotiations, a non-fiduciary PBM will shift that lost revenue to #3. The NYC Transit Authority didn’t realize this fact until it was too late. That $400,000 claim, much of it went to ESI. Even worse, the NYC Transit Authority had to sign off on the plan design allowing these claims to get adjudicated. 


You are probably thinking this couldn’t happen to me and you would be wrong. It is happening you just don’t know how to uncover it or have turned a blind eye. Continuous Monitoring or CM would have identified this problem before it got out of hand. Audits occur 12 months after the fact which is too late to claw back overpayments. Continuous Monitoring on the other hand, catches and resolves overpayments or other issues much much faster. 


A word to the wise, stop using claims re-pricings as the holy grail for evaluating a PBM’s service cost. Just as important, if not more so, is how well a PBM manages product mix and utilization. If a PBM manages product mix poorly, you are asking another PBM to compare prices for those same poorly managed Rx’s. 


There is potentially significant savings between a pharmacy plan that is managed efficiently compared to one that is inefficient. That can’t be uncovered in a claims dump alone. Ignore this and you will overpay just like the NYC Transit Authority.

According to the lawsuit, NYCTA paid $20 million in 2016 for compounded medication prescribed by a single California orthopedic surgeon who, in the previous year, was snared in a workers’ compensation kickback scheme. And in 2017, the suit says, one Utah pharmacy was responsible for $20 million of New York City Transit’s compounded medication tab.

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Court Declines to Enforce Indemnification Provision Against Negligent Pharmacy Benefits Manager

This contractual dispute arose between Bon Secours Health System Inc. (BSHSI), a self-insured prescription plan, and its pharmacy benefits manager, Express Scripts, because the PBM failed to auto-enroll BSHSI in its program designed to combat pharmacy fraud and abuse. After BSHSI filed a claim with its insurer and was reimbursed for over $4.5 million of fraudulent prescription claims, it sued the allegedly negligent PBM for indemnification.

Figure 1: Fiduciary PBM Contract Language

BSHSI argued that, under the indemnification provisions in their agreement, the PBM was obligated to reimburse it for every cost resulting from the PBM’s negligence. The PBM asked the court to dismiss the claim, contending that it was obligated to, at most, defend the plan sponsor from claims brought against it by third parties, which did not apply here since no third party had brought a claim.

Tyrone’s Commentary:


Long story short, the court agreed with the PBM and dismissed the claim. After reviewing the specific contractual language and applying the applicable state contract construction laws required by the agreement, even viewing the situation in the light most favorable to the plan sponsor, the court held that the PBM’s interpretation was objectively plausible, as compared to the overly broad reading argued by the plan sponsor.

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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.

Image result for pbm size by revenue

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.
 

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 273)

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.

Help is on the way: Federal lawsuit accuses generic drug makers of using “code” to fix price increases

U.S. and Canadian Prices of Some Generic Drugs with U.S. Prices That Recently Increased by 1000% or MoreRepresentatives of some of the nation’s largest generic drug manufacturers used code words to collude with competitors to divvy up market share and coordinate price increases according to a federal lawsuit.

The code words were used in internal emails highlighted in the lawsuit filed last month by attorneys general from 43 states and Puerto Rico. The 510-page federal lawsuit was released in full Monday. The lawsuit says the representatives used phrases like “playing nice in the sandbox” and “fluff pricing” in emails to one another.

Tyrone’s Commentary:

This is good news for self-funded employers. It’s already difficult enough to run a cost-effective pharmacy benefit plan, but doubly so when the cost for 85% of those prescriptions have been unfairly manipulated. This is a slam dunk for the feds and will bring welcomed cost-relief for self-funded employers. That is if self-funded employers take more control over plan design and achieve 89% or better GDR (generic dispense rate). 

89% is the national average GDR when both public and commercial plans are considered. For every 1% increase in GDR,  a plan should realize a 2.5% drop in gross pharmacy costs. When your plan’s GDR is 81%, 82% 83%…you are not running a cost-effective pharmacy benefit. Instead, you are paying for the non-fiduciary PBM’s bloated payroll, dividends and corporate jets.

Michigan Attorney General Dana Nessel said unredacted emails included in the lawsuit shows proof the manufacturers knew what they were doing in an effort to inflate prices. “This evidence demonstrates that these drug manufacturers knew exactly what they were doing, knew their actions were illegal, and deliberately and methodically conspired to fix prices and allocate market shares for drugs that our residents rely on every day,” Nessel said in a statement.

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AARP Report: Specialty Drug Prices Soar to Nearly $79,000 per Year

“If these trends continue, older Americans will be unable to afford the specialty prescription drugs that they need, leading to poorer health outcomes and higher health care costs in the future,” says the report, authored by Leigh Purvis, director of health services research at the AARP Public Policy Institute, and Stephen W. Schondelmeyer of the University of Minnesota’s PRIME Institute.

Source: AARP/Health Affairs, July 2018

The report on 2017 specialty drug prices is the latest in a series of AARP studies tracking the changes in prescription drug price changes that began in 2004. These findings come as AARP continues its Stop Rx Greed campaign, which calls on state and federal lawmakers to lower prescription drug prices.

Seven Ways to Bend the Specialty Rx Cost Trend:

1) Carve-Out Specialty Pharmacy
2) Carve-Out Manufacturer Revenue
3) Institute a Partial-Fill Program
4) Negotiate Better Contracts
5) Outsource Prior Authorization
6) Restrict Access
7) Address Poor Medication Adherence 

Patients generally have either a flat copay as their portion of prescription drug costs or coinsurance, where they pay a percentage of the retail price of the medication. Out-of-pocket costs for specialty drugs, Purvis says, typically require coinsurance and that can mean thousands of dollars. “Medicare Part D coinsurance can get as high as 33 percent,” Purvis adds.

The $78,781 annual average cost for one of these medicines is more than three times the median income for Medicare beneficiaries ($26,200), the report found, and $20,000 more than the median income for all U.S. households ($60,336). “As you look at these prices and they are higher than what people make in a year, how in any way, shape or form is that affordable?” Purvis says.

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