Author: Transparent Rx

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Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 346)

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.

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.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 345)

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.

 
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. 

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 344)

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.

 

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.

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.

A Closer Look into the Popular Pricing Benchmark: Average Wholesale Price (AWP)

Average Wholesale Price (AWP) is a list price that is used as a basis for reimbursement to pharmacies for drug ingredient cost.  AWP as a drug pricing benchmark has come under scrutiny as it doesn’t reflect what is actually paid for drugs and is often referred to as a “sticker price.”1  Wolters Kluwer Clinical Drug Information (WKCDI) publishes AWP prices via its Medi-Span® Price Rx® drug pricing tool and makes the following assessment2:
“Despite its name or possible use as an index, the AWP published by WKCDI is not an “average” of actual wholesale prices. It is not derived from, does not reflect, and should not be assumed to represent, either (i) the actual prices paid for drug products in transactions between wholesalers (meant to include any party that buys drug products directly from a manufacturer) and their customers, or (ii) any discounts, rebates or other price reductions that wholesalers may offer to their customers in connection with those transactions. In fact, a wholesaler or other direct purchaser from a pharmaceutical manufacturer may agree to sell its drug product to one or more of its customers at a price that is on its face or effectively different than the AWP published by WKCDI. “
The 2018 PBMI Trends in Drug Benefit Design Report, based on a survey of drug benefit leaders responsible for managing the prescription drug benefit for their organization, provided the Average AWP discount based on dispensing channel (e.g. Retail 30, Retail 90, Mail Order and Specialty).  The survey results showed that “for generic drugs average AWP discounts ranged from 56% 
at retail 30 to 63% for mail order. Discounts on brand-name drugs were much lower with averages between 19% and 25% depending on channel.” 3

This data provides valuable insight into recent trends in AWP discount averages and ranges amongst stakeholders across the industry.  Although AWP isn’t the only pricing benchmark available, it is currently the most widely utilized for price discounts for brand drugs and generic drugs until generics are eligible for MAC pricing.  

A Chart of Common Drug Pricing Terms4
Click to Enlarge
1.AMCP Guide to Pharmaceutical Payment Methods, 2009 Update (Version 2.0). (2009). Journal of Managed Care Pharmacy,15(6 Supp A), 1-62. doi:10.18553/jmcp.2009.15.s6-a.1
3.  PBMI 2018 Trends in Drug Benefit Design Report
4. https://www.kff.org/medicaid/issue-brief/paying-for-prescribed-drugs-in-medicaid-current-policy-and-upcoming-changes/

Access to Drug Cost Data Before Leaving the Doctor’s Office

On January 3, 2019, Cerner and CoverMyMeds formed a partnership “to integrate patient-specific information into the electronichealth record (EHR) for providers to review prescription pricing information with their patients at the point of care.” Cerner is a major EHR vendor for health systems across the country. CoverMyMeds offers a software platform in which providers can submit electronic drug prior authorization requests.
Get Price Information Here

This new functionality is designed to assist physicians in having a conscientious conversation about drug costs with their patients. The intent is to empower the patient to understand drug costs relative to their care. This represents a shift in practice for providers, as the old paradigm was based on prescribing without the knowledge or understanding of drug cost. High prescription costs can be a barrier to patients obtaining medications which leads to adherence issues.

This effort signifies a movement towards greater price transparency which is gaining momentum within the healthcare industry due to the continuous rise of prescription drug costs. Although the clinical merits of a drug are paramount, price and economics are essential components of overall drug therapy and can’t be left out of the equation. The chief client officer of Cerner,  John Peterzalek, states that “as health care spending increases, the need for prescription price transparency is becoming as important as ever.


Access to valuable pricing information gives health care providers the opportunity to provide their patients with up-to-date information on the most appropriate and cost-effective medications before they reach the pharmacy.” Now, at the point of prescribing rather than at the pharmacy point of sale, providers have access to vital patient-specific drug cost information. A drug’s clinical efficacy in tandem with its cost-effectiveness should exist in a symbiotic relationship leading to optimal therapeutic outcomes.

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