Before the price hike that made him infamous, the former CEO of Turing Pharmaceuticals had to ensure that no competitor would be able to launch a cheaper version of Daraprim, the 60-year-old anti-infection pill that is no longer under patent.

Shkreli had the perfect weapon: a tightly-controlled distribution system which would make it virtually impossible for a competitor to obtain enough Daraprim to develop their own version.

Many larger drugmakers have also turned drug distribution into a powerful tool against competition. The strategy takes advantage of a simple fact: If generic drugmakers can’t get their hands on the original product, they cannot perform the tests needed to develop a generic version. Typically generic drugmakers purchase drugs in bulk from third-party suppliers. But when the original drugmaker controls the drug’s distribution, they can simply refuse to sell.

The effect on patients is higher prices for drugs that would otherwise be available as low-cost generics. Doctors say these tactics continue to stand in the way of patients’ access. “The most effective way to improve access and lower prices is to ensure that generic drugs get to market as quickly as possible,” says Dr. Ameet Sarpatwari, of Harvard Medical School, who has studied the issue.

At least 40 drugs worth an estimated $5.4 billion are sheltered from competition by distribution hurdles, according to a study commissioned by the Generic Pharmaceutical Association, an industry trade group.

The Food and Drug Administration is aware of the misuse of distribution programs. The agency said in a statement it has received 100 letters from companies that say they have been blocked from obtaining drugs for testing purposes. The agency’s own regulations prohibit drugmakers from using certain types of distribution plans to block generic access, but the agency does not penalize companies for the practice.

Daraprim is an example of a drug that has no major safety risks and was previously available through various wholesalers and distributors. But last June — three months before its sale to Turing — Daraprim was moved into a closed distribution program, allowing the manufacturer to refuse sales to competitors.

The effect for patients was jarring. The drug — which treats an infection mainly found in people with HIV and cancer — had previously been available through local pharmacies. Now it is distributed through a specialty division of Walgreen’s, which sells the drug at Turing’s list price of $750 per pill. In the months after the price hike, some patients faced co-pays as high as $16,000 when trying to fill a prescription.

“Mr. Shkreli set up a very complicated system to ensure profits and patients have really suffered,” says Sean Dickson, of the National Alliance of State and Territorial AIDS Directors. Turing says it has improved access to Daraprim, including making it available through a patient assistance program for those that can’t afford it.

Drugmakers argue that closed distribution simply protects their interests, making sure drugs are shipped and handled appropriately. But generic drugmakers say the tactics threaten their business model. “It undermines the whole generic drug approval process,” said Steve Giuli, an executive with generics firm Apotex Corp.

Apotex has repeatedly tried to purchase two specialty cancer drugs sold by drugmaker Celgene. Together the drugs, Thalomid and Revlimid, account for $5.2 billion in sales, more than two-thirds of Celgene’s revenue for 2014. That’s despite the fact that Thalomid is a 1950s-era drug whose key ingredient is no longer under patent. Because the drug can cause severe birth defects, it is subject to a rigorous distribution program controlled by Celgene.

“They will never freely sell you the product, even if you negotiate with them for weeks, months, and perhaps years to satisfy all of their onerous concerns,” says Omar Jabri, another Apotex executive. A Celgene spokesman did not return calls and emails seeking comment on the risk-management program.

In one case, New Jersey-based Celgene went on the offensive, suing Barr Laboratories for attempting to introduce a generic version of Thalomid. Celgene said Barr’s effort would infringe on its intellectual property, since it had patented Thalomid’s risk-management plan.

When generic drugmaker Lannett sued Celgene in 2012, alleging that the company’s tactics illegally blocked competition, the companies reached an out-of-court settlement. Details of the agreement were not disclosed but Thalomid remains unavailable as a generic. Meanwhile, the FDA has remained on the sidelines. Click here to read more.

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 pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

According to a December 2015 report by Towers Watson & Co., now Willis Towers Watson, 53 percent of employers have added new coverage and usage restrictions for specialty prescription drugs, including prior authorization or limiting quantities based on clinical evidence. And another 32 percent are expected to add restrictions by 2018.

Among those companies is 84 Lumber Co. in Eighty Four, Pennsylvania, which launched a prior authorization requirement for compound drugs. Mark Mollico, vice president of human resources said in an email that his company also raised its copayments on specialty drugs and is limiting quantities to a 30-day supply.

[Click to Enlarge]

84 Lumber, which employs 4,200 people in 250 stores across 30 states, saw its specialty drug spending skyrocket by 94 percent between 2013 and 2014 because of hepatitis C medications. Mollico said specialty drug spending in 2015 accounted for 26 percent of the company’s prescription drug costs, up from 22 percent the previous year.

The 20th annual Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey also found that more employers plan to exclude certain compound medications from their benefit coverage, with 39 percent having already done so and another 24 percent expected to by 2018. Compounds are drugs that have been mixed or altered, most often by a pharmacist, to customize a medication for a specific patient. The process leads to higher costs, and the U.S. Food and Drug Administration might not approve the resulting medication, according to the report.

“In the past five years, you’ve seen almost all employers embrace prior authorization and step therapy, which is a first-line approach,” said Eric Michael, a pharmacy practice leader at Willis Towers Watson in Minneapolis. “Now you are seeing the next evolution with the exclusion of certain compound medications. You can cut costs by 30 percent this way. It’s a much more heavy-handed approach than what you were seeing five years ago, but employers’ bank accounts are only so big.”

With specialty drug costs expected to grow by 22.3 percent in 2016 compared with 3.9 percent for traditional medications, employers are finding a variety of ways to manage their specialty drug costs, according to a recent report by the NBGH.

In addition to the more common practices of requiring prior authorization under the pharmacy plan, step therapy, which requires patients to try cheaper medications before being approved for costlier options, and limiting quantities based on clinical evidence, employers are also trying other approaches. More than half are using freestanding specialty pharmacies to fill prescriptions and requiring prior authorization under the medical plan in addition to the pharmacy plan, and 35 percent are using price transparency tools for specialty drugs, according to the 2016 NBGH plan design survey report of large employers.

More aggressive tactics are necessary as employers brace for the next wave of blockbuster drugs to hit the market, according to Shari Davidson, the NBGH’s vice president. The most recent class of blockbuster drugs approved by the FDA is PCSK9 inhibitors, which are injectable drugs that treat high cholesterol. A treatment course costs more than $14,000 a year per patient, dwarfing the cost of statins, which are $4 per month, according to the NBGH.

“With each new category of drug that comes out, employers are looking to see which approach makes the most sense,” Davidson said. “Is it prior authorization? Should we work with the PBM [pharmacy benefit manager] or negotiate directly with the manufacturer? As these drugs come out, employers are trying to help employees. There are a ton of oncology drugs that are expected to come out in a year or two. This is what’s keeping benefits managers up at night.”

By Rita Pyrillis

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With the availability of expensive new specialty drugs and a rise in the use of compound drugs, employers are facing a rapid increase in prescription drug spend that makes it more difficult to control rising health care costs. In response, employers are taking specific action now and over the next three years to rein in prescription drug spending, according to experts at global professional services company Towers Watson (NASDAQ:TW).

“Although pharmacy represents approximately 20% of employer-sponsored medical benefits** costs, it is increasing at a rate that accounts for roughly half of medical cost inflation*** and should be a top priority for employers,” according to Eric Michael, U.S. central division pharmacy leader for Towers Watson. “The price, utilization and delivery of specialty prescription drugs, many of which require special handling or delivery, are a top pain point for employers. Frustrated by their lack of success in controlling these growing costs, employers are beginning to consider new aggressive approaches.” Examples of specialty drugs that are driving up cost include treatments for Hepatitis C, cancer and arthritis.

The 20th Annual Towers Watson/NBGH Best Practices in Health Care Employer Survey of 487 large U.S. employers confirms more than one-quarter (26%) of employers are addressing specialty drug cost and utilization in their medical plan today, in addition to the variety of tactics focused on the pharmacy benefit directly. This number is expected to triple in three years. Significantly, 53% of employers have added new coverage and utilization restrictions for specialty pharmacy, such as requiring prior authorization or limiting quantities based on clinical evidence; another 32% are expected to add the restrictions by 2018.

“Because of the complexity involved in delivering specialty drugs, related costs are often paid through the medical benefit, rather than the pharmacy benefit. When this is the case, employers look for data and reporting from the health plan to determine usage patterns to help them estimate their financial exposure,” added Michael.

The survey also found more employers plan to exclude inappropriate compounds from their benefit coverage, with 39% having done so and another 24% expecting to do so by 2018. According to Carmelina Rivera, U.S. west division pharmacy leader for Towers Watson, “compounds are prescribed by physicians, but prepared by pharmacists who mix or adjust drug ingredients to customize a medication for a specific patient. Given that the compounding process results in higher cost and their use may not be FDA-approved in compound form, health insurers increasingly will not cover them.

“Left unchecked, pharmacy costs will continue to soar, creating an urgent need for employers to reevaluate their pharmacy plans and benefits to include maximizing use of generic drugs, and develop clear policies on the use of specialty and compound drugs. The challenge is to prudently manage pharmacy costs while enabling employees to access effective and affordable treatment,” said Rivera.

About the Survey

The 20th Annual Towers Watson/NBGH Best Practices in Health Care Employer Survey tracks employers’ best practices and the results of their efforts to provide and manage health benefits for their workforce. The report identifies the actions of high-performing companies, as well as current trends in the health care benefit programs of U.S. employers with at least 1,000 employees. The survey was completed by 487 employers in June and July 2015. Respondents collectively employ 15.1 million full-time employees, have 12.0 million employees enrolled in their health care programs and represent all major industry sectors.

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 pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

[Click to Enlarge]

Rising drug prices, the effect on the healthcare system, consumer push-back, and possible solutions were hotly debated during a panel at the 2016 National Health Policy Conference hosted by AcademyHealth in Washington, DC.

The discussion, High Cost Drugs: Where Regulations Meet Opportunities, was moderated by Tricia Neuman, PhD, senior vice president of the Kaiser Family Foundation (KFF) and director of the Foundation’s Program on Medicare Policy and its Project on Medicare’s Future. She was joined by 2 health economists and Lynn Quincy, director, Health Care Value Hub, a policy group at ConsumersUnion, funded by the Robert Wood Johnson Foundation.

“Drug costs are projected to rise at a fairly rapid pace, with a steep cliff,” said Neuman. Sharing research data generated by the KFF for the period 2013-2014, she said that drug prices are the fastest growing portion of health spending, with specialty medications leading the way. The Foundation’s study showed a 9-10% rise in the annual health spending on drugs, with a 10% increase in retail drugs as a share of the national health spending and 19% increase in spending by employer-based national health plans.

But what has most caught people’s attention, Newman said, is Medicare outpatient drug spending, which till 2014 was steady, but has been on the rise of late. “Sovaldi had an unanticipated impact on Medicare Part D spending rather than the projected Medicaid spending,” she said. “Agreed that the drug has long-term benefits, but we have a short-term issue at hand,” Newman added.

These high prices translate into increases in health plan deductibles and premiums. A consumer survey conducted by the Foundation found that 73% of the population deem prescription drug prices unreasonable and 74% of the surveyed population primarily blame the drug manufacturers for the high costs, ignoring the other players in the game.

The Consumer Expectation

Agreeing with the statistic, Quincy said that while consumers have faith in the value of pharmaceutical innovations, “The fact that more than 50% of Americans take prescription drugs regularly…so prices are top-of-mind for consumers.”

She listed a number of downstream effects of the high drug prices:

1. Patients do not follow the doctor’s prescription
2. Patients procrastinate seeking care
3. Patients avoid filling out or refilling prescriptions
4. Patients cut back on daily requirements to afford taking medications

Quincy offered a few solutions to help ease some of the issues:

1. Immediate financial solutions for patients. A few states are already in the process of adopting these changes:
a. Cap monthly out-of-pocket cost and avoid front-loading by spreading the overall cost of care across the entire year. This, however, does not address the underlying reason of high drug cost.

2. Increase pricing transparency. Make data available on what payers negotiate for drug prices with manufacturers, as is common practice in Europe. Price justification bills, Quincy said, are being explored around the country.

3. Increase payer’s ability to negotiate. Medicare should be allowed to negotiate on drug prices with manufacturers. She also suggested that private health payers should band together to negotiate. In case of a single manufacturer, however, state-set limits on drug prices would be the path to follow.

Quincy said that while the general population may not understand the nuances of these policies, they do expect changes that would impact the bottom line.

See more at: http://www.ajmc.com/newsroom/fight-with-or-adapt-to-the-rising-drug-prices-economists-investigate-at-the-academyhealth-policy-conference#sthash.KHMA3NUj.dpuf

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 pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

Pharmacy benefit manager (PBM) tools that have successfully controlled costs in the traditional small-molecule drug categories will be critical to manage the increasing costs and requirements of the specialty drug category, according to a study published by sPCMA, a division of the Pharmaceutical Care Management Association.

Financial Impact of Specialty Drugs: Current and Projected
In 2014, more than 500,000 Americans filled prescriptions with a value of at least $50,000. This data represents a 63% increase from 2013.

Specialty drugs, primarily biologic agents—such as adalimumab (Humira), sofosbuvir (Sovaldi), and glatiramer (Copaxone)—that treat inflammatory conditions, hepatitis C, and multiple sclerosis (respectively), among others, increasingly account for a significant proportion of overall health care spending.

It’s been estimated that by 2020, 9 of the 10 best-selling drugs (by revenue) will be specialty drugs that treat conditions such as those illustrated in Figure 1. The estimates also indicated that specialty drug spending could reach $400 billion, or 9.1% of national health spending.

However, revised estimates point to the increasing prevalence of biosimilars in the market. Biosimilars are anticipated to curtail the overall biologic market value growth by reducing specialty drug spending to $262 billion by 2019, according to sPCMA.

Specialty benefit design and management tools employed by PBMs will also play a significant role in controlling specialty drug spending, as well as ensuring optimal patient care and support.

[Click to Enlarge]

Specialty Benefit Design and Management
Specialty drugs frequently have unique shipping and storage needs, as a result specialty pharmacies are better equipped to procure, store, and dispense these treatments than traditional retail pharmacies. Furthermore, pharmacists and personnel at specialty pharmacies provide patient education and clinical support beyond the capabilities of a retail pharmacy.

The tools in the PBM arsenal are critical to ensure appropriate care for patients needing specialty drugs while managing the often extraordinary costs. A brief sampling of key tools follows:

• Formulary management: Effective use of formularies can minimize overall medical costs, improve patient access to more affordable care, and provide patients improved quality of life.
• Access and utilization management: Drug utilization review, prior authorization, step therapy, quantity or dose limits, and comparative effectiveness reviews can limit a patient’s exposure to inappropriate drugs and lower the high cost of treatment by favoring clinically effective, lower price products.
• Adherence and compliance: PBMs use these programs to improve patient outcomes and reduce the overall cost of care.
• Site of care optimization: Hospital outpatient is one of the most costly settings for the infusion of specialty injectable products.
• Alternative sites of care: Site-of-care management, such as strategies to direct patients to more convenient and less costly sites of service, are critical and can save between 12% and 34% percent — up to $1.7 billion nationally per year.
• Preferred specialty pharmacy networks: PBMs optimize drug distribution via specialty pharmacy networks to reduce inappropriate utilization, improve patient adherence, improve clinical outcomes, and reduce non-drug medical costs.

Summary
Comprehensive management approaches that monitor and balance patient care outcomes and costs will help PBMs ensure that new, innovative medications are readily available and affordable to the patients who need them most.

See more at http://www.ajpb.com/articles/pharmacy-benefit-manager-tools-play-key-role-in-managing-specialty-drug-costs.

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 pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

Health systems say those pharmacies help them better manage outpatient drug costs. A growing number of insurance contracts and Medicare initiatives tie payments to quality metrics that reach beyond hospital stays to hold providers accountable for patients’ total medical costs, including drugs.

It’s also a robust business for those systems that can successfully negotiate with manufacturers and health plans so they can compete with the bigger players.

“It you want us to be responsible for the cost of care, allow us to be able to care comprehensively for these patients,” said Dick Schirber, a spokesman for ExceleraRx Corp., a for-profit specialty pharmacy services company owned by six health systems. Comprehensive care, Schirber said, includes managing the very expensive prescriptions that patients take at home for cancer or chronic diseases, so that providers have more control over waste as well as complications.

ExceleraRx provides services to system-owned specialty pharmacies, such as negotiating with drugmakers and handling data reporting.

Phoenix-based Banner Health started its own specialty pharmacy last year, taking its business away from Premier, which acquired Commcare Specialty Pharmacy in 2010 for $35.9 million. Banner employees enrolled in the system’s health plan were the pharmacy’s first customers.

“For everyone, everywhere, the pharmacy expense is increasing,” said Pam Nenaber, Banner’s CEO of pharmaceutical operations.

Banner Health hired three clinical pharmacists, three patient advocates and three staff members to support operations. The system also spent $1 million on a drug-dispensing robot for the specialty pharmacy’s new home-delivery service. The robot fills pill bottles, which are verified by a pharmacist before being shipped. Clinical pharmacists also talk to patients at home to answer prescription questions.

In the first year, Banner shaved about 1% off its specialty drug spending for about 1,200 workers and their families covered by the system’s employee health plan.

Health systems that own specialty pharmacies argue they can do a better job overseeing the use of the drugs they dispense. That’s because their pharmacies can easily access medical records, laboratory results and physician notes, allowing pharmacists to closely monitor the effectiveness of the drugs prescribed and react quickly when something goes wrong or patients need help.

“They know if the patient is getting the value for the high-cost drug,” said Steven Rough, director of pharmacy for the University of Wisconsin Hospital and Clinics, which began handling transplant drugs in 2006 and expanded its specialty pharmacy in 2011.

Launching a specialty pharmacy does not require significant capital investment, and the high prices of the drugs—even sold at slim margins—make it possible to quickly see a return on that investment.

“It’s a quite viable business,” said Scott Knoer, chief pharmacy officer at the Cleveland Clinic, which opened its specialty pharmacy roughly a year ago, and advises other systems to do the same. “Get on it and get on it fast,” he said.

That’s true even as the Ohio health system expands its operations. The pharmacy is hiring more staff because the volume of prescriptions has increased about 10% a month. It now employs 25 workers, and that number is expected to reach 66 employees within three years.

New drugs last year boosted spending for specialty pharmaceuticals 25% over the prior year, IMS Health reported in April. Specialty drugs to treat diseases such as cancer, multiple sclerosis and hepatitis C now account for one-third of drug spending. Sovaldi and other new treatments for hepatitis C boosted spending by $12.3 billion, IMS said.

Pharmaceuticals still account for just 10% of U.S. healthcare spending, but a 12.3% surge in 2014—including $12.6 billion spent on new specialty drugs to treat hepatitis C—contributed to the year’s uptick from the record-slow health spending that started with the Great Recession.

That growth makes dispensing specialty drugs an increasingly important piece of healthcare delivery, as well as an attractive business line, said John Ransom, a managing director of healthcare research at Raymond James. “It’s riding the wave of where the innovation is,” he said.

But systems will face fierce competition as they try to ride that wave, Ransom said. “It can be a tough business.”

They will have to vie with national pharmacies like CVS Health, Express Scripts and Diplomat Pharmacy to be included in health insurance networks. CVS and Express Scripts also own pharmacy benefit-management companies, so they “have a vested interest in limiting the network of specialty pharmacies because they are specialty pharmacies,” Ransom said.

Pharmaceutical manufacturers also limit shipping of some of their drugs to a handful of pharmacies, in what are called limited-distribution networks.

Getting a spot in drug manufacturers’ limited networks requires intense negotiation, and the capacity to report quality and use data back to drugmakers.

ExceleraRx, launched in 2012 with investment from Minneapolis-based Fairview Health Services, helps its owners and clients with those tasks. Englewood, Colo.-based Catholic Health Initiatives, which opened its own specialty pharmacies in Kentucky and Nebraska last year, invested in ExceleraRx to “supercharge” the new business line, said Nick Barto, the health system’s senior vice president for capital finance.

However, another danger for providers is that patients may begin to see them as “the organization that’s providing the drugs that you can’t afford,” said Benjamin Isgur, director of thought leadership at PriceWaterhouseCoopers’ Health Research Institute.

But health system executives say they’ve hired staff to help patients identify discounts, coupons and other financial aid for drug costs not covered by insurance. And health systems can further market their independence from shareholders and the pharmaceutical industry.