Tuesday Tip of the Week: Avoid “Bargain Basement” PBM Administration fees

Interest in spreads was heightened in June 2019 with a story in USA Todays’ network and allegations by Ohio Department of Medicaid, in part, over the spread taken by two well-known PBMs. Although these cash flows can accrue to some PBMs, there are others that do business on a full-disclosure arrangement with the plan sponsor.

These full-disclosure models avoid the “bargain basement” administration fees of 10 cents to 1 dollar per claim, for example, that give non-fiduciary PBMs the green light to generate cash flows that are not readily apparent to the sponsor. Some of these PBMs are so brazen (or plan sponsors indifferent) that they are even offering $0 dispensing fees on top of $0 admin fees! The plan sponsor should be prepared for a greater upfront PBM administration fee, north of $4 per claim, in exchange for total disclosure of cash flows.

How much money is your PBM making? Click to Learn More.

The full-disclosure model PBM may not actively promote a specialty pharmacy or mail-order facility, because with no manipulation of AWP and a fair MAC for both the pharmacist and sponsor, the PBM has no economic advantage. The perception of many plan sponsors is that “AWP minus discount” and the “minimum rebate guarantee” are the two key components in evaluating the PBM proposal.

From my experience, the plan sponsor should take the time to investigate the cash flows to the PBM. It is a variable rarely considered in the evaluation of PBM proposals yet has a profound impact on net costs. The time invested in PBM selection can return significant cost savings on future pharmacy benefit costs.

Given the competition in the PBM industry and the potential for undisclosed cash flows, I believe that plan sponsors can use the information in this week’s tip to their advantage in selecting and monitoring their PBM’s performance. 

PBM Evaluation Process: Is Yours Up to Par?

Figure 1

For many health benefit plan sponsors and their advisors, the evaluation process used to compare pharmacy benefits managers (PBMs) keeps drug costs higher than they should be by measuring their value with metrics that reward rebates rather than net costs.
For example (see Figure 1), a patient with nephrotic syndrome is part of a real-world, self-funded drug plan that switched from PBM 1 to PBM 2. If presented with this scenario during an RFP analysis, is your evaluation process set up to value the larger rebate associated with Acthar, or the overall lower costs associated with Rituxan?

Tyrone’s Commentary:

When monitoring PBM performance during the contract term, go beyond standard reports. These reports don’t usually uncover problem areas that if resolved cuts the PBM’s service fee 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

An RFP process that “spreadsheets” acquisition discounts, rebates per prescription, and administration costs typically lacks the information that plan sponsors need to recommend the option with the lowest overall costs and doesn’t account for utilization management or improved clinical outcomes.

Continue Reading >>

Gross-to-Net Bubble: Brand Drug List Prices Increase 159% and Net Prices 60% from 2007 to 2018

Facing Criticism, Drug Makers Keep Lid On Price Increases - WSJA paper by Hernandez et al. (2020) in JAMA examines trends in branded drug prices using data from SSR Health between 2007 and 2018. The authors find the following:

From 2007 to 2018:
  • List prices increased by 159% (95% CI, 137%-181%), or 9.1% per year
  • Net prices increased by 60% (95% CI, 36%-84%), or 4.5% per year
  • Between 2015 and 2018 with stable net prices, discounts increased from 40% to 76% in Medicaid and from 23% to 51% for other payers. 
  • Between 2015 and 2018 increases in discounts offset 62% of list price increases.

In short, the headline number for some is ‘drug prices increased by nearly 10% per year.’ However, the real story is that because rebates have been increasing by so much, branded drug net prices have only risen by 4.5% per year. The latter figure is above inflation, but not unreasonable. Further, this change in branded drug prices does not take into account the decreasing cost of drugs after they go generic.

Download JAMA Paper >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 306)

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.

Tuesday Tip of the Week: Maximize DUM Programs to Manage Costs of Specialty Pharmaceuticals

Clogged Artery

In 2020, spend will nearly double and specialty will represent half of all drug spend. The market estimated to grow from $336 billion in 2018 to a predicted $475 billion to $505 billion by 2023 across developed markets.

As the fastest growing, most expensive segment of pharmacy spend, specialty drug trend is driven by the number of units, or utilization, and the cost per unit. Both utilization and prices are increasing in specialty.

One strategy for mitigating and managing costs with specialty pharmaceuticals is drug utilization management or DUM. Drug utilization management programs can be broken down into several key categories:

  • Prior Authorization (PA), which requires select prescriptions meet defined criteria before they are covered by the plan. The clinical assessment may include a diagnosis/age review, safety review, lab data validation, and pharmacogenomic protocols. Prescriptions are flagged at point-of-sale and prescribers are required to confirm that the use of an affected drug is medically necessary.
  • Step edits, which promote safety and cost savings by encouraging patients to try a first-line agent, before coverage is provided for a second-line, more costly drug. This could include a non-specialty to specialty step edit in which the patient needs to try and fail with an appropriate non-specialty drug before accessing a specialty medication. 
  • Specialty generic step edits, which require the trial and failure of a lower-cost specialty drug option(s) before accessing the brand drug.
  • DURs or drug utilization reviews from the first day of drug launch. This will ensure safe, effective, and appropriate drug utilization in accordance with FDA-labeling for all new-to-market specialty drugs. New drugs would reject for PA upon launch and be reviewed in accordance with FDA-labeling, bridging the gap until drug-specific criteria are available.
  • Quantity management or short fill programs are aimed at reducing waste and apply to a defined list of specialty medications with a high prevalence of adverse events (AEs) and potentially poor tolerability, which can lead to high discontinuation rates at the initiation of therapy. The goal of the short fill program is to minimize medication waste, while managing patient adherence and AE management, thereby potentially improving care and providing savings for patients and payers. 

Drug utilization management is not created equally between pharmacy benefit managers. A PA program, for example, at one PBM often performs differently at another. Here are a few questions to consider:

1) Are your PAs properly enforced?
2) Are your current PAs effective?
3) Do you receive proper reporting on PA approvals and denials?
4) How often do you require PAs?

Once the prescription has been written, many specialty pharmacies primary objective is to get the product out the door. In other words, PAs often become a check-the-box exercise don’t allow that to happen in your plan.

American Pharmacist Association (APhA) Issues Prescription Drug Supply Guidance for Patients and Caregivers

Image result for medication supply
Click to Learn More

As part of its ongoing efforts to help patients and pharmacists cope with the COVID-19 pandemic, APhA has released guidance for patients and caregivers on how to ensure adequate supplies of medication if they become unable to get to the pharmacy.

The guidance recommends that:

  • Patients and caregivers talk to their pharmacist about medication supply concerns. Hoarding or stockpiling, APhA warns, is not necessary and could lead to drug shortages.
  • Patients and caregivers contact their health insurance plan, associated pharmacy benefit manager, or both to determine if benefits include early refills—normally the patient or pharmacy would contact the prescriber when refills are needed—or supply limits.
  • Patients and caregivers inquire about delivery options if picking up prescriptions at the pharmacy becomes prohibitive. Delivery options could include designating another person to pick up the prescription, getting home delivery, or receiving prescriptions by mail.

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 305)

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.

Tuesday Tip of the Week: Get Your Contract Definitions in Order

Non-fiduciary PBMs arbitrarily designate certain generic drugs as brand and non-specialty brand drugs as “specialty” medications. Subsequently, they jack up the price substantially and decree that these specialty drugs can be filled only at the parent-company pharmacy.

How can a PBM arbitrarily designate certain drugs as specialty medications you ask? The same way a non-fiduciary PBM might designate a generic drug as brand. It’s all about the contract definitions. In every scenario where a plan sponsor has shared their success with reducing pharmacy costs, they’ve mentioned the contract. The mention is usually very subtle unless of course you have a trained-eye then it sticks out like a sore thumb. Remove opaque definitions from your PBM contract.

Included above is a transparent definition of ‘Specialty Drug’ and one we use in our Certified Pharmacy Benefits Specialist curriculum.

Continue Reading >>

Non-Fiduciary PBMs Arbitrarily Designate Certain Drugs as “Specialty” Medications

Ohio has been working to rein in abusive practices by PBMs since mid-2018, after reporting by The Dispatch revealed that CVS Caremark and Optum Rx, two of the PBMs serving Ohio Medicaid, netted $224 million in a 12-month period by charging Medicaid one price for drugs and reimbursing pharmacies with amounts generally far lower.

Then-Gov. John Kasich’s administration responded by ordering greater transparency in the next round of contracts between PBMs and the managed-care companies handling Medicaid. And the General Assembly eventually barred “spread pricing,” requiring PBMs instead to be paid only a set fee per prescription filled.

But that didn’t end the flow of excess profits to PBMs, either. They still had wide latitude to set the terms of prescription coverage, and because most have parent companies that also own pharmacy chains, a new gambit emerged: arbitrarily designate certain drugs as “specialty” medications, jack up the price substantially and decree that they can be filled only at the parent-company pharmacy.

Tyrone’s Commentary:

Click to Enlarge

How can a PBM arbitrarily designate certain drugs as specialty medications you ask? The same way a non-fiduciary PBM might designate a generic drug as brand. It’s all about the contract definitions. In every scenario where a plan sponsor has shared their success with reducing pharmacy costs, they’ve mentioned the contract. The mention is usually very subtle unless of course you have a trained-eye then it sticks out like a sore thumb. Leave opaque definitions in your contract and you are bound to get screwed. I’ve supplied here a  transparent definition of ‘Specialty Drug’ and one we use in our Certified Pharmacy Benefits Specialist curriculum.

Continue Reading >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 304)

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.