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.

As soon as officials address one problem with prescription costs, another arises. It’s like the arcade game Whac-A-Mole, in which a toy mole pops his head up, and as soon as you whack it down, another pops up from a different hole, and then another and another.

New state comptroller’s statistics, obtained by Government Watch, show that taxpayers funded nearly $332 million in prescriptions for the 200,000 participants in the state health benefits program during the 12 months that ended June 30 — up about $53 million, or 18.8 percent, from the previous year’s $279 million.

Moreover, the cost per participant jumped by an even higher percentage — 24.7 percent — because there were fewer state employees, retirees and family members participating in the program during the more recent year.

Comptroller Kevin Lembo, the elected official in charge of running the state employees’ health plan, has been using the Whac-A-Mole analogy for the past year in conversations about the problems with prescription drug costs. He did it again in a phone interview Friday.

“Something else always pops up. You always feel like you’re chasing the next problem, and you’re battling people sitting in rooms thinking of how to take advantage of programs designed to support the health and life of others,” he said.

Tyrone’s comment:  This phenomenon, “Something else always pops up…” is referred to as ballooning.  In other words, when one loophole is closed the traditional PBM will look for another loophole to account for the lost revenue.  Traditional PBMs have internal staff whose sole purpose is to drive incremental revenue from client contracts.  To make matters worse, this process of hiding cash flows doesn’t begin until the ink is dry on the contract!  The only sure fire way to avoid this pitfall [overpayments] is to enter into a fiduciary agreement. 

He attributed the latest $53 million escalation to a general skyrocketing of costs in the national pharmaceutical market, something that he said the state government has little influence over and that Congress needs to fix.

“The factors behind rising pharmacy costs include market consolidation, new pricing models and outright profiteering. Projections indicate no future relief as pharmacy costs are expected to continue to rise at an exorbitant rate in the coming years. Meanwhile, pharmaceutical companies are recording historic profits,” Lembo said in written testimony he submitted this past week to the U.S. House Democratic Steering and Policy Committee. It’s an all-Democrat panel co-chaired by U.S. Rep. Rosa DeLauro, who represents Connecticut’s 3rd Congressional District.

Based on Congress’ record of dealing with major health care issues, any quick solution is doubtful. But it appears that a Connecticut problem that reared its head in the past few years has been pretty much whacked.

That $24 million problem was compounded drugs — mixtures of medicines, typically produced by big, out-of-state compounding pharmacies, often in the form of topical creams for pain. Costs to Connecticut taxpayers for those medicines had exploded from $800,000 in 2012 to an estimated $24 million this year, with charges as much as $18,000 per patient for a 30-day supply.

Those medicines, not approved by the U.S. Food and Drug Administration, also were straining the prescription drug budgets of many states as well as the U.S. military and Department of Veterans Affairs as the compounding pharmacies exploited the lack of regulation.

In mid-May, Lembo imposed a “prior authorization” requirement for compounded medicines under which a prescribing doctor must demonstrate “medical necessity” before payment is approved by CVS/Caremark, the state’s health benefits manager. A patient may appeal a denial.

Costs dropped from a peak of $3.1 million in April to $36,229 in July — and the average monthly savings on compounded drugs has been $2.2 million, according to a report to the comptroller by CVS/Caremark for the period from May 15 to Oct. 31.

The State Employees Bargaining Agent Coalition notified the state months ago that it was challenging the new policy on the grounds that it creates “too much interference in medical choices between a doctor and patient.” But a Sept. 23 binding arbitration hearing has been postponed indefinitely while union representatives watch how the new procedure is working.

There have been only a handful of patient appeals so far, and the high-cost, out-of-state compounding pharmacies have been pretty much supplanted by local, low-cost pharmacies, which have been mixing most of the compounded drugs still being used, Lembo said.

An investigation by the office of state Attorney General George Jepsen is “active and ongoing” into the recent spike in costs for compounded medicines, an office spokeswoman said Friday.

It’s hard to trumpet the cost-savings for those compounded medicines — not in the context of a $53 million increase in the prescription costs for which state employees, retirees and their dependents are responsible for only minimal co-payments.

Prescription co-payments for a 30-day supply of medicine range from $5 to a maximum of $35. That top co-payment of $35 is for a “non-preferred brand-name drug” that hasn’t been certified as medically necessary by a doctor; it drops to $20 with a physician’s certification.

Lembo said in his congressional testimony that prices for name-brand medications, as well as for long-established generic drugs, are rising at an alarming rate.

He gave as an example a recent huge increase in the price of Daraprim, a medicine that has been used for 62 years to treat a potentially fatal parasitic infection. Turing Pharmaceuticals, a startup company headed by the former manager of a hedge fund, acquired the drug recently and raised the price from $13.50 per tablet to $750.

“We applaud the profit motive in our free market society as a mechanism to efficiently distribute resources and drive innovation, but excessive profits can cause significant harm when applied unbridled to essential and lifesaving medicines in an uncompetitive marketplace,” Lembo said in his testimony. “High costs are pushing certain treatments out of reach for some.”

He asked that Congress strengthen anti-trust laws “to limit consolidation in the pharmaceutical industry and ensure that adequate competition remains to drive competitive pricing,” and to reduce a backlog in FDA approvals of generic drugs. He said the state employees’ health plan spent $8 million in the past year for the name-brand drug Nexium “as a result of a significant delay in the release of a generic version of the drug.”

by Jon Lender

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.

During the session, held on October 27, Tharaldson identified several specialty medications that are likely to be approved in 2016, and she spoke about how those medications could affect the managed care pharmacy industry.

[Click to Enlarge]

Here’s a closer look at four diseases and conditions that Tharaldson says are likely to be heavily impacted by newly approved specialty medications in late 2015 and 2016.

1. Non-Small Cell Lung Cancer (NSLC)

Genentech’s alectinib is an oral ALK inhibitor that is expected to be approved by March 4, 2016, for the treatment of ALK+ NSCLC who have progressed on, or are intolerant to, crizotinib (I would use generic name here). It will compete with Novartis’ Zykadia in this patient population.

AstraZeneca’s osimertinib and Clovis Oncology’s rociletinib are oral epidermal growth factor receptor (EGFR) inhibitors that are expected to be approved by February 2016 and March 30, 2016, respectively. They are pending approval for the treatment of EGFR and T790M mutation-positive NSCLC.

2. Multiple Myeloma

Bristol-Myers Squibb and AbbVie’s Empliciti (elotuzumab) is a biologic drug that may be approved by March 1, 2016, for use in combination with Revlimid (lenalidomide) and dexamethasone to treat relapsed or refractory multiple myeloma.

Janssen’s daratumumab is another biologic drug that could be initially approved by March 9, 2016, as monotherapy to treat patients with relapsed or refractory multiple myeloma.

Takeda’s ixazomib citrate is the first oral proteasome inhibitor that may be approved by March 10, 2016, to treat relapsed or refractory multiple myeloma in combination with Revlimid and dexamethasone (all-oral regimen).

3. Severe Asthma

GlaxoSmithKline’s Nucala (mepolizumab) is an interleukin-5 inhibitor that expected to be approved by November 4, 2015, for the treatment of patients with severe eosinophilic asthma.

Teva’s reslizumab is another interleukin-5 inhibitor that is expected to be approved by March 30, 2016, for severe eosinophilic asthma.

4. Duchenne Muscular Dystrophy (DMD)

BioMarin’s drisapersen is expected to be approved by December 27, 2015, for the treatment of DMD amenable to exon 51 skipping. Sarepta Therapeutic’s eteplirsen is expected to be approved by February 26, 2016, for the treatment of DMD amenable to exon 51 skipping. Both drugs treat the underlying cause of DMD by allowing the production of a functional dystrophin protein.

There are approximately 20,000 boys in the U.S. with DMD. This rare disease is caused by mutations in the dystrophin gene, resulting in the absence or defect of the dystrophin protein. Patients experience progressive loss of muscle function, often making them wheelchair bound before the age of 12.

Respiratory and cardiac muscle can also be affected by the disease. Few patients survived past the age of 30. Up to 13% of boys with DMD have dystrophin gene mutations/deletions amendable to an exon 51 skip. Approximately 2,600 boys in the U.S. have DMD with exon 51 skip. These drugs may cost approximately $300,000 per year.

by Aubrey Westgate

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.

Repatha (evolocumab) was approved by the Food and Drug Administration in August for use in certain patients whose high levels of LDL, or bad cholesterol, have not responded to dietary and drug interventions. At full price the drug costs $14,100 per year.

Harvard Pilgrim Health Care (HPHC), which serves New England, estimates that 1 percent of its members will be eligible to take the drug, Joan Fallon, HPHC spokeswoman, told Bloomberg BNA in an interview Nov. 10.

Three Types of Discounts

The health plan negotiated three types of discounts for Repatha, Fallon said. HPHC will receive a discount simply for “preferring” Repatha, Fallon said. The health plan also will receive a rebate if the drug fails to lower the cholesterol in members to the degree indicated by the drug’s clinical trials, Fallon said. Finally, if more members end up using the drug than was anticipated during negotiations, HPHC also will receive a rebate, Fallon said.

Tyrone’s comment:  The pay-for-performance (PFP) model is better for payers than the fee-for-service model, but traditional PBMs will still take advantage of loopholes in this pricing model in order to hide cash flow from third-party payers.  Download my white paper to better understand the flow of money and opaque tactics employed by PBMs to disguise rebates.

Fallon declined to say how much the discount and rebates are worth and described that information as confidential aspects of its contract with Amgen.

The pharmacy benefits manager Express Scripts Holding Co. estimated that Repatha and similar drugs could cost $100 billion a year retail, given its high price and that 10 million or more Americans would be eligible for the drug. The cost to Medicare would be $27 billion, the Department of Health and Human Services estimated.

Other Arrangements 

The promise and high price of Repatha and other drugs, including some gene therapies, has sparked much debate among public and private payers about alternative pricing arrangements, including pay-for-performance and paying in installments.

For example, Spark Therapeutics Inc., of Philadelphia, is considering installment payments for its proposed gene therapy to treat blindness, and Bluebird Bio Inc., of Cambridge, Mass. is in discussions with insurers about alternative payment plans.

“Agreeing to pricing models that align payment with appropriate outcomes is critical if we are to better manage increasing drug costs. We take very seriously our responsibility to ensure that the dollars we spend on health care are used wisely and give our members access to the highest quality care,” Michael Sherman, HPHC chief medical officer, said in the Nov. 9 announcement.

Novartis Discount 

Novartis AG announced July 8 that it would offer a pay-for-performance discount to all U.S. insurers for its new drug to treat heart failure, Entresto. An Entresto prescription costs about $4,500 per year. A Novartis official predicted at the time that the industry would move toward more pay-for-performance arrangements.

Repatha is one of a class of new cholesterol busters called PCSK9 inhibitors that work differently from previous cholesterol-lowering drugs. The PCSK9 drugs inhibit a protein that blocks the body’s ability to clear bad cholesterol from the blood. Repatha is given by injection, two to four times a month. Research has associated high levels of LDL cholesterol with a higher risk of stroke and heart attack.

By Adrianne Appel

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 insurers, prices for some commonly used generics have increased between 15 and 75 times their original prices.
• Insurers and others are concerned about rising generic drug prices, because of the reliance of these drugs in the U.S. (According to a recent report from the Generic Pharmaceutical Association, 88% of all prescriptions dispensed in the U.S. are generics.)
• Spending on prescription drugs is the fastest growing healthcare cost. In Massachusetts, spending on prescription drugs increased 13% in 2014, while overall healthcare spending increased by 4.8%.

Dive Insight:

Courtesy of American Action Forum

It’s true that some of the roughly 12,000 available generic drugs have increased in price within the last two years, including drugs such as amitriptyline, an antidepressant, which increased in price from four cents per pill in 2013 to $1.03 per pill in 2015, as well as captopril, a medication for hypertension, which increased from 11 cents for a 12.5-mg pill in 2013 to 91 cents for the same pill in 2015. And there are many other examples.

What’s driving the increases? According to experts, several factors, including increasing costs of chemical and other raw materials used to produce the drugs; lack of price regulation in the U.S.; and declining competition due to increased consolidation in the generics industry.

These factors need to be addressed—especially the issue related to lack of competition. But there is also another perspective: According to the 2014 Express Scripts Trend Report, since 2008 the cost of brand drugs has almost doubled, while generic drug prices have almost been cut in half. In a separate analysis, AARP reported that generic drug prices fell by 4% in 2013. According to that analysis, generic drug prices have declined steadily in the last 10 years.

One reason that payers are still feeling the pinch and complaining about price increases is that, while some of the hikes may be declining (or are modest in nature), use of these medications stretches so far across the market that winds up being a huge cost burden anyways.

By Nicole Gray

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

Much of the merger mania of the health care industry is driven by PBMs — those behind-the-scenes firms that handle prescription drug benefits for self-insured employers. They deal with drug claims information and processing and secure discounts and rebates by negotiating with retail pharmacies and pharmaceutical companies.

Tyrone’s comment:  PBMs also handle prescription drug benefits for fully-insured employers.

Usually, the larger the PBM, the more influence it wields in negotiating better prices and rebates and, in theory, passing those savings on to employer clients and plan members, experts say.

If the recent wave of consolidation is any indication, PBMs have taken the “bigger is better” mantra to heart.

In July, United Healthcare Inc.’s Optum Inc. closed its deal with Catamaran Corp., making Optum the third-largest PBM based on prescription volume. In August, CVS Health Corp., parent of second-largest PBM CVS/Caremark, bought Omnicare Inc. and in June, agreed to acquire Target Corp.’s nearly 1,700 pharmacies and 80 medical clinics.

More recently, Walgreens Boots Alliance Inc. announced plans in October to acquire Rite Aid Corp., effectively scooping up Rite Aid’s Envision Pharmaceutical Services, a small PBM doing business as EnvisionRx, in the process.

Consolidation among PBMs has been going on for years. Express Scripts Holding Co. secured its throne as the largest PBM after its 2012 acquisition of Medco Health Solutions Inc., and CVS bought Caremark L.L.C. in 2007.

Effects on employers

The implications for employer clients who work with a PBM that merges with or is acquired by another organization depends heavily on the type of deal, said Allan Zimmerman, national pharmacy practice leader at PricewaterhouseCoopers L.L.P. in Kansas City, Missouri.

A PBM that buys another PBM primarily gets scale and the potential for better deals with drugmakers, but improved service quality also is a possibility, Mr. Zimmerman said. For instance, the PBM being acquired may have a better technology platform that the parent PBM can utilize.

What’s most interesting to watch, however, is “when you see a PBM acquiring a vertical in their supply chain” or becoming a vertical component in another organization’s supply chain, he said.

“What that does is it really gives the PBM a unique opportunity to negotiate real aggressive discounts from their supply chain verticals beyond just the pharmaceutical companies,” such as at the retail stores, Mr. Zimmerman said. Those types of deals can “provide some leveragability for the PBMs to get the plan sponsor, the employer, greater discounts based on just a pure relationship of the entities.”

Examples include drugstore chain Walgreens buying Omnicare, which provides services to long-term care facilities, or Rite Aid buying EnvisionRx.

In such deals, cost savings for employers likely would be “incremental,” and employers should talk with their PBM about the possibility of a better deal, Mr. Zimmerman said.

For drugstore-owned PBMs, there’s also a chance that the retail stores could be an outlet for PBM services, enhancing convenience for plan members, said Craig Oberg, St. Paul, Minnesota-based managing consultant with pharmacy benefit consultant The Burchfield Group Inc.

If Walgreens chooses to invest in its newly acquired PBM, it could follow in CVS’ footsteps by allowing PBM members to pick up their 90-day supply of medication at their local store but still retain the mail-order discount.

With larger PBMs, there’s also the opportunity to push back against the pricing set by specialty drugmakers, said Josh Golden, practice leader of employer consulting at Pharmaceutical Strategies Group L.L.C. in Atlanta.

A major driver of health care costs, specialty drug spending increased 30.9% in 2014, according to Express Scripts.

“Size really does matter in this part of the pharmacy supply chain, and that’s because the pricing arrangements and the deals that are struck right now are really driven by targeted negotiation (by the PBM) with specific pharmaceutical companies … in particular in the specialty drugs space,” Mr. Golden said.

Much of the value is derived from rebates PBMs are able to secure, he said. Last year, for instance, Express Scripts led the charge to push back against the atmospheric pricing of hepatitis C drugs by choosing to cover only one hepatitis C treatment in exchange for a big discount. That pit drugmakers against each other and ultimately lowered costs for other payers.

Tyrone’s comment:  It’s always been the case PBMs negotiate better pricing from manufacturers. This is not the issue. The issue is the payers’ share of these savings which is only 10 cents on the dollar in many cases. The PBM “hides” the remaining 90% to increase their profit margin.

The same type of “formulary strategies” are occurring now with costly cholesterol drugs, called PCSK9 inhibitors, Mr. Golden said.

Of course, there are downsides to PBM consolidation. The more mergers and acquisitions that occur, the fewer PBM options employers have, Mr. Golden said.

Different PBMs have varying business models, whether traditional or transparent, so finding one to fit an employer’s philosophy might be more difficult.

Tyrone’s comment:  Despite what you’ve been told, traditional, transparent and pass-through business models are all the same. They are nothing more than a play on words. The only PBM business model which provides a client-comes-first standard of care is a fiduciary one.   

Experts say there often are service disruption and client experience issues while two firms integrate. When Express Scripts bought Medco, the disruptions “generated a lot of noise, and frankly it impacted Express Scripts’ retention rates for a period of time,” Mr. Golden said, adding that the industry is anxious to see if Optum and Catamaran can merge without some of those same issues.

On the other hand, Burchfield’s Mr. Oberg said his Optum clients have yet to notice any changes since the Catamaran merger, though “we’re still pretty young on that deal.”

Perhaps the M&A activity won’t significantly affect employers, said Randy Vogenberg, Greenville, South Carolina-based principal at the Institute for Integrated Healthcare and partner at Access Market Intelligence.

“When all is said and done, my sense is that it’s not going to make that much of a difference because we’re talking about drug pricing that’s controlled by the manufacturer and that hasn’t changed regardless of all the mergers and acquisitions,” Mr. Vogenberg said.

“As we continue to see more market consolidation, I think we’re going to have to really follow that to see which way it’s going to tip,” he said. “Would it end up being beneficial to an employer or have no impact or have a negative impact? It’s just too soon to tell right now.”

By Shelby Livingston