Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits [Weekly Roundup]

Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits and other notes from around the interweb:

  • PBM Drug Pricing Practices Layer $7 Million in Excess Charges to State Medicaid Plans Nationwide. While Medicaid is a unique program that enables us to make comparisons between our study pharmacies and the aggregate payer experience, the data from our study pharmacies can highlight payment disparities within how people obtain medications. The pharmacy market is broadly divided into three payer types: Medicaid, Medicare, and Commercial. Each of these segments is setting potentially different incentives for pharmacies. As our study pharmacies demonstrated, Oregon Medicaid reimbursements were associated with the lowest margin experience in our pharmacies, whereas Medicare was the most profitable. This is despite many of the medications used overlapping between the payers.
  • Drug companies favor biotech meds over pills, citing new U.S. law. Drugmakers are prioritizing complex biotech medicines over treatments that can be given as pills because recent U.S. legislation gives biologics a longer runway before becoming subject to government price limits, top industry executives said this week. The Inflation Reduction Act (IRA), which Democrats passed last August, for the first time allows the government’s Medicare health plan for people aged sixty-five and over to negotiate the prices it is willing to pay for certain medications. The law sets a nine-year exemption period for “small molecule” drugs, which are mainly pills, while “large molecule” biologics, generally injections or infusions, are protected from negotiation for 13 years. “The difference between a nine- and 13-year product line is about 50 or 60% of the value,” Eli Lilly Chief Executive Officer Dave Ricks said in an interview. “In 10 years, we’ll have far fewer small molecules being developed than we do today.”
  • Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits. It’s worth belaboring the point: PBMs are under the watchful eye of state and federal governments. The PBM of the future isn’t a gas-guzzling, polluting SUV, for example, it is an efficient, state-of-the-art, fully customizable electric vehicle. It is regulatory compliant and uses the best technology to ensure equitable pricing methodology, financial value, and great member experience. Instead of shrouding drug pricing in secrecy, new PBM business models rely on transparency. The best way to create an efficient and fair market is to allow both the buy and sell sides of the transaction to communicate freely about how drug prices are set, rebates, and other essential information. On the compliance side, plan sponsors must recognize and understand how their health plan drives revenue for their benefits brokers and consultants (e.g., are they compensated for recommendations on pharmacy benefits or any other aspect of health benefits?). The Consolidated Appropriations Act of 2021 places new fiduciary responsibilities on entities that provide health benefits, and plan sponsors must ask their broker or consultant to disclose how they’re compensated.
Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits with Certified Pharmacy Benefit Specialist.
Register for CPBS today!
  • Summit County sues pharmacy benefits managers over opioid crisis. Governments, insurers, or employers typically hire pharmacy benefit managers to facilitate prescription drug programs, with the goal of reducing costs for the insured. The lawsuit, however, accuses the companies of doing the opposite. It alleges the businesses colluded with manufacturers to make opioids more available for pain treatment and by ignoring clear warning signs of addiction in patients. The companies did so to increase profits, the lawsuit said. “Whether by colluding with manufacturers to make opioids more available as a form of pain treatment or by ignoring the mounting evidence of addiction and misuse in their own claims data, [pharmacy benefits managers’] role in creating and sustaining the opioid epidemic is largely hidden from public scrutiny but nevertheless facilitated the reckless promotion of opioids by manufacturers, the oversupply of opioid shipments by distributors and the irresponsible dispensing of prescription opioids by numerous pharmacies,” the lawsuit said.

10 Benchmarks of PBM Pricing

A price source refers to a data source that provides information on prices of goods or services. In the context of the prescription drugs, a price source would be a database or other source of information that provides pricing data on pharmaceutical drugs. This data is used to calculate the AMP, which is a key metric used by the US government to determine reimbursement rates for drugs covered under the Medicaid program, for example. Price sources can be private or public, and may include data from manufacturers, wholesalers, or other entities such as Elsevier, First Databank, Medispan, and Merative. Listed below are 10 benchmarks of PBM pricing aggregated by price sources.

Learn the 10 Benchmarks of PBM Pricing at Certified Pharmacy Benefit Specialist.
Register for CPBS today!
  1. The Average Wholesale Price (AWP) is a measure of the average cost of a medication to a wholesaler, which typically includes the cost of the drug, plus a markup. This markup can vary depending on the specific drug and the manufacturer, but it is around 25% to 30%. The AWP is used by some insurance companies, pharmacy benefit managers (PBMs), and government programs to set reimbursement rates for drugs. However, it should be noted that the AWP is not an actual price that is paid by any one entity, and it is not necessarily reflective of the actual cost of a drug. It is important to notice that the AWP is different from the wholesale acquisition cost (WAC) which is the price a wholesaler pays to acquire a drug from the manufacturer and is typically lower than the AWP.
  2. Wholesale Acquisition Cost (WAC) is the price at which a pharmaceutical manufacturer sells a drug to a wholesaler or distributor. It is the price that a wholesaler pays to acquire a drug from the manufacturer, and it is typically lower than the Average Wholesale Price (AWP). The WAC is an important metric in the pharmaceutical industry, as it is used to set reimbursement rates for drugs covered by insurance companies, pharmacy benefit managers (PBMs), and government programs. It can also be used as a benchmark for determining the price of a drug at the pharmacy level. However, it should be noted that the WAC is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers. WAC can be considered a published catalog or “list price” of a drug, and it’s important to note that the final cost of a drug to a patient can be different than the WAC, and it can be affected by factors such as insurance coverage, rebates, or negotiations with pharmacy benefit managers.
  3. Direct Price (DP) refers to the price that a pharmaceutical manufacturer charges for their products when they are sold directly to a pharmacy, hospital, or other healthcare provider, as opposed to through a wholesaler or distributor. Direct Price can be considered as the “net price” after any rebates, discounts or other price reductions have been applied. Pharmaceutical manufacturers may offer DP to certain customers, such as hospitals, to increase sales or gain market share. These prices are usually lower than the wholesale acquisition cost (WAC) of a drug, but higher than the prices paid by large pharmacy benefit managers (PBMs) or government programs. PMDPs can vary widely between manufacturers, and they are not always publicly available. Additionally, it should be noticed that the DP does not always reflect the final cost to the patient as it can be affected by insurance coverage, deductibles, or copays. It is also worth noting that DPs are different from the prices set by the manufacturer for the drug when it is sold to the government, which are usually incredibly low, and are set under the Medicaid Drug Rebate Program.
  4. Average Acquisition Cost (AAC) rate schedules are based on the premise that chemically equivalent drug products in the same strength and dosage should be reimbursed similarly. AAC rates are designed to maximize the cost-effectiveness of pharmacy services by setting reimbursement amounts for therapeutically equivalent drug products at the same price, based on the cost of the products. The Centers for Medicare & Medicaid Services (CMS) uses this same premise to establish federal upper limits (FULs) for drug products. AAC rates are state Medicaid programs version of CMS FULs.
  5. The average invoice cost a pharmacy spends to purchase a medication is represented by the National Average Drug Acquisition Cost (NADAC) survey. The purpose of NADAC was to “create a national reference file to help State Medicaid programs in the pricing of Covered Outpatient Drug claims to reflect the Actual Acquisition Cost (AAC) of medications,” according to the Centers for Medicare and Medicaid Services (CMS). The most thorough public measurement of market-based retail pharmacy acquisition costs is what NADAC seeks to achieve. For the benefit of CMS, Myers & Stauffer, an accounting firm that focuses on public healthcare and social service organizations, compiles NADAC. It is created from data collected from 2,500 randomly chosen retail pharmacies in a voluntary monthly invoice cost survey with 450 to 600 respondents.
  6. Maximum Allowable Cost (MAC) is a term used in the pharmaceutical industry to describe the highest price that a pharmacy benefit manager (PBM) or another payer will reimburse for a specific drug. It is a type of reimbursement method where the payer sets a maximum price that they will pay for a drug, regardless of the price charged by the pharmacy or the manufacturer. PBMs and other payers use MACs to control costs and ensure that they are paying a fair price for drugs. They typically establish MACs for generic drugs, which are usually less expensive than brand-name drugs. The MAC for a specific drug is based on the prices of other drugs in the same therapeutic class and the prices of the same drug from different manufacturers. The MACs are updated regularly to reflect changes in drug prices. PBMs and other payers may also use a MAC pricing strategy to negotiate lower prices from manufacturers and pharmacies. When a pharmacy or manufacturer charges a price that is higher than the MAC, the payer will only reimburse the pharmacy or manufacturer for the lower MAC price. This can incentivize pharmacies and manufacturers to offer lower prices to be reimbursed fully. It’s important to note that this pricing strategy is used primarily for prescription drugs covered by public and private insurance plans, and it is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers.
  7. Pharmacies are reimbursed by the PBMs (as a pass through from clients) for the ingredient cost of the drug dispensed plus a dispensing fee, less the member’s co-pay or co-insurance. Ingredient cost is usually [but not always] based on the lessor of methodology, which is the lowest of four calculations, depending on the drug dispensed: AWP, maximum allowable cost (MAC), usual and customary (U&C), or copayment. Reimbursement rates vary depending on the network. To ensure their clients receive the lowest possible price for drugs, pharmacies are contractually obligated to limit their reimbursement to the price they would charge a cash-paying customer. This price is called Usual and Customary (U&C) and is determined by the pharmacy. For example, if a retail pharmacy charges a cash-paying customer $20 for a drug, the retail pharmacy cannot invoice the PBM for an ingredient cost greater than $20, regardless of the AWP discount or MAC price in effect for that drug.
  8. The 340B Drug Pricing Program, also known as the 340B program, is a federal program that requires drug manufacturers to provide certain outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. The program is named after Section 340B of the Public Health Service Act, which established the program in 1992. The 340B program is intended to help safety-net providers such as Federally Qualified Health Centers (FQHCs), Ryan White HIV/AIDS Program grantees, and certain children’s hospitals, to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. These providers use the savings from the 340B program to expand access to care and provide more comprehensive services to vulnerable patient populations. The 340B price is the price at which manufacturers are required to sell their drugs to 340B covered entities, it is significantly lower than the average wholesale price (AWP) or the wholesale acquisition cost (WAC) of the drug. The 340B price is set by the manufacturer and the Department of Health and Human Services (HHS). It is important to note that the 340B program is not a reimbursement program, 340B covered entities are responsible for purchasing and dispensing the drugs, and they are not reimbursed by the government for the drugs they purchase at the 340B price. Overall, the 340B program is intended to help safety-net providers stretch their resources further, reach more patients, and provide more comprehensive services, while also helping to reduce the cost of drugs for uninsured, low-income, and other vulnerable patients.
  9. Average Sales Price (ASP) is the manufacturer’s revenue from sales of a drug to all customers in the U.S. during a calendar quarter divided by the total quantity of the drug the manufacturer sold during that same quarter. Any discounts are taken out of the ASP. The Centers for Medicare & Medicaid Services has been using an ASP-based payment system to cover the majority of Medicare Part B-covered medications since January 2005.
  10. Average Manufacturer Price (AMP) is a metric used primarily by the US government to calculate reimbursement for drugs covered under the Medicaid program. AMP is defined as the average price paid to the manufacturer by wholesalers for a drug, net of all discounts and rebates. The AMP is used to determine the reimbursement rate for the drug under Medicaid. It is also used to calculate the Medicaid Drug Rebate Program (MDRP) which requires drug manufacturers to pay rebates to states for drugs covered by Medicaid.

The 10 benchmarks of PBM pricing are standards or reference points used to measure and compare prices of prescription drugs. In many cases, a price benchmark is used to determine if a price is fair or reasonable. In the context of the Average Manufacturer Price (AMP), a price benchmark would be a standard or reference point used to measure and compare the prices of pharmaceutical drugs, for instance. This benchmark can be used as a starting point to determine if a drug’s price is fair and reasonable, and if it is in line with prices of similar drugs. Price benchmarks can be used for various purposes such as setting prices for prescription drugs, evaluating price changes over time, determining reimbursement rates, and identifying price disparities between different pharmacy benefit managers. Finally, the price benchmark matters less when the PBM doesn’t take a spread.

Drug companies favor biotech meds over pills, citing new U.S. law [Weekly Roundup]

Drug companies favor biotech meds over pills, citing new U.S. law other notes from around the interweb:

  • Drug companies favor biotech meds over pills, citing new U.S. law. Drugmakers are prioritizing complex biotech medicines over treatments that can be given as pills because recent U.S. legislation gives biologics a longer runway before becoming subject to government price limits, top industry executives said this week. The Inflation Reduction Act (IRA), which Democrats passed last August, for the first time allows the government’s Medicare health plan for people aged sixty-five and over to negotiate the prices it is willing to pay for certain medications. The law sets a nine-year exemption period for “small molecule” drugs, which are mainly pills, while “large molecule” biologics, generally injections or infusions, are protected from negotiation for 13 years. “The difference between a nine- and 13-year product line is about 50 or 60% of the value,” Eli Lilly Chief Executive Officer Dave Ricks said in an interview. “In 10 years, we’ll have far fewer small molecules being developed than we do today.”
  • FTC action on PBMs could be just what the doctor ordered to improve patient outcomes. The stated purpose of PBMs is to alleviate some of the administrative burden related to processing prescription drug claims and optimizing drug utilization to help manage costs for plan sponsors. Unfortunately, most PBMs have evolved to become vertically integrated pharmacies and adopt opaque business practices that mostly benefit only themselves. For example, pharmaceutical rebates have become a cash cow for PBMs. Paid out by drug manufacturers, these rebates are designed to help lower the price burden of new drugs by reimbursing plan sponsors a portion of the cost each time they’re filled at the pharmacy. The problem is, PBMs are under no obligation to pay the full rebate back to the plan sponsor, and many PBMs pocket a substantial portion, if not all, of these rebates, often with plan sponsors completely unaware.
Certified Pharmacy Benefit Specialist
Register for CPBS today!
  • California sues largest US insulin manufacturers and PBMs for overpricing. Eli Lilly, Novo Nordisk, and Sanofi produce over 90% of the global insulin supply and the PBMs CVS Caremark, Express Scripts and OptumRx administer pharmacy benefits for around 80% of prescription claims managed. The lawsuit, filed in the California Superior Court in Los Angeles, argues that because competition is highly limited in both their markets, these six companies can keep ‘aggressively hiking’ the list price of insulin at the expense of patients, violating the state’s Unfair Competition Law. According to a 2021 Congressional report, Eli Lilly, Novo Nordisk, and Sanofi have raised the price of their insulin by 1,219%, 627% and 715%, respectively, since they were first launched.
  • How Coupons Keep Drugs Costly. An economist who holds a joint appointment at the Harvard Kennedy School, began studying this topic more than a decade ago, prompted by the growing number of pharmaceutical ads that included coupons. Such coupons offer consumers a discount on the co-pay for the advertised drug and have grown increasingly popular; the share of brand-name prescription drug spending that included a coupon rose from 26 percent in 2007 to 90 percent in 2017, Leemore S. Dafny reports. And the number of drugs with available coupons rose from about 200 in 2008 to more than 800 in 2018. Not everyone is eligible for coupons; Medicare enrollees are prohibited by law from using them. “The coupons are considered kickbacks or financial inducements to consume a product that is reimbursed by the federal government,” Dafny explains, and are therefore banned in that context. But pharmaceutical companies are permitted to donate to independent charities that subsidize co-pay assistance for patients, even those on Medicare, and to earmark those donations for conditions treated by drugs they make.

8 Reasons You Need a Fiduciary PBM

One of the main advantages of using a fiduciary to manage your pharmacy benefits is that they are required to put the interests of their clients before their own financial gain. For instance, it has been reported that insurance professionals who are not obligated to uphold a fiduciary standard will recommend insurance products to their clients solely based on which ones come with the highest commissions, not necessarily because the recommendations are in their clients’ best interests. Here are 8 reasons you need a fiduciary PBM.

  1. Conflicts of interest are minimized: A fiduciary pharmacy benefit manager must disclose any conflicts of interest and cannot profit from recommending certain products or investments.
  2. Professionalism and expertise: A fiduciary pharmacy benefit manager is held to a high standard of professionalism and is required to have a certain level of expertise.
  3. Transparency: Fiduciary pharmacy benefit managers must provide full disclosure of all fees, including their take rate, and costs associated with the pharmacy benefit management services they recommend and offer.
  4. Customized advice: A fiduciary pharmacy benefit manager takes the time to understand their client’s unique financial situation and goals and provides customized advice accordingly.
  5. Fiduciary duty to act in client’s best interest: A fiduciary pharmacy benefit manager is legally bound to act in the best interest of the clients, not their own or their firm’s interest.
  6. To the best of their knowledge, ensure that all pharmacy benefit advice is accurate and comprehensive.
  7. Refrain from engaging in any potential conflicts of interest; and
  8. Make pharmaceutical benefit suggestions that are consistent with the goals, objectives, and risk tolerance of their clients.

As stated above, a fiduciary pharmacy benefit manager (PBM) is required by law to act in the best interests of their clients. Along with these instances, the “suitability standard” that is applied to brokers, insurance agents, and other financial professionals is far less stringent than the fiduciary requirement. The only requirement of the suitability criteria is that recommendations to clients are appropriate if a coverage objective fulfills their needs and goals (the last bullet point in the list). Since the fiduciary standard would cost them money in the form of fees as well as the additional expense of adhering to the new standard of care, many pharmacy benefit managers would prefer to be held to a suitability standard than live up to the 8 reasons you need a fiduciary PBM.

Lawsuit accuses former executives of failing in fiduciary duty to oversee PBM operations [Weekly Roundup]

Lawsuit accuses former executives of failing in fiduciary duty to oversee PBM operations and other notes from around the interweb:

  • Lawsuit accuses former executives of failing in fiduciary duty to oversee PBM operations. A lawsuit from a pension fund holding Centene stock accused former executives of conspiring to defraud state Medicaid programs, the St. Louis Business Journal reported Dec. 21. The lawsuit accuses the former execs of violating its Medicaid managed care contracts and federal and state law. When Centene acquired Health Net in 2016, the company received favorable reimbursements and discounts for prescription drugs because of Health Net’s contract with CVS Caremark, the lawsuit alleges. The payer did not disclose its arrangements with CVS Caremark, and instead reported “inflated expenditures” to state Medicaid agencies, thereby overcharging them, the plaintiffs allege. The suit alleges five former executives breached their fiduciary duties, and names several members of the board of directors.
  • FTC action on PBMs could be just what the doctor ordered to improve patient outcomes. The stated purpose of PBMs is to alleviate some of the administrative burden related to processing prescription drug claims and optimizing drug utilization to help manage costs for plan sponsors. Unfortunately, most PBMs have evolved to become vertically integrated pharmacies and adopt opaque business practices that mostly benefit only themselves. For example, pharmaceutical rebates have become a cash cow for PBMs. Paid out by drug manufacturers, these rebates are designed to help lower the price burden of new drugs by reimbursing plan sponsors a portion of the cost each time they’re filled at the pharmacy. The problem is, PBMs are under no obligation to pay the full rebate back to the plan sponsor, and many PBMs pocket a substantial portion, if not all, of these rebates, often with plan sponsors completely unaware.
Certified Pharmacy Benefit Specialist
Register for CPBS today!
  • Getting off the PBM Merry-go-Round: How Late-stage Offer Tricks Take Employers for a Ride. Monies offered by PBMs come in many forms – a general allowance credit that the client can use to pay for claims and expenses during open enrollment and implementation, an administrative credit that the client can use to pay back to the PBM for administrative fees, a clinical credit that the client can use to pay for voluntary clinical programs administered by the PBM or, at times, slightly improved pricing. If it seems odd that two of these credits go towards paying back the PBM for additional services, that’s because it is. Employers should think of these credits like getting tokens at a carnival – the tokens are valuable, but only if the employer uses them at the proverbial PBM carnival (i.e., invests them back into the PBM). If PBMs would manage their costs appropriately to begin with, employers wouldn’t be taken for this ride.
  • How Coupons Keep Drugs Costly. An economist who holds a joint appointment at the Harvard Kennedy School, began studying this topic more than a decade ago, prompted by the growing number of pharmaceutical ads that included coupons. Such coupons offer consumers a discount on the co-pay for the advertised drug and have grown increasingly popular; the share of brand-name prescription drug spending that included a coupon rose from 26 percent in 2007 to 90 percent in 2017, Leemore S. Dafny reports. And the number of drugs with available coupons rose from about 200 in 2008 to more than 800 in 2018. Not everyone is eligible for coupons; Medicare enrollees are prohibited by law from using them. “The coupons are considered kickbacks or financial inducements to consume a product that is reimbursed by the federal government,” Dafny explains, and are therefore banned in that context. But pharmaceutical companies are permitted to donate to independent charities that subsidize co-pay assistance for patients, even those on Medicare, and to earmark those donations for conditions treated by drugs they make.