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.

Keys to Success: Click to Learn More

Pharmacy costs is one of the fastest-growing components of health care expense and is expected to increase by 15% per annum with no end in sight. It is estimated that 75% of employers plan to increase prescription drug spend year-over-year. Unfortunately, most organizations are unaware of their excessive remuneration for PBM services. While there is no magic pill to managing the pharmacy benefit, the following five key performance indicators can help to identify a path to lower pharmacy costs while still improving member outcomes.

Dump the Legacy RFP (Request for Proposal) Process. Employers must instead create their own airtight fiduciary contract and put it out for bid vis-à-vis reverse auction. How is it that a plan sponsor, regardless of size, can sign a deal which doesn’t hold its PBM accountable to a client-comes-first standard of care?

from Wikipedia…

“A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.”

Case closed.

Promote Limited (Preferred) Pharmacy Networks. Most plans offer access to more than 60,000 retail pharmacies nationwide. The reality is that at any given street intersection 3 of the 4 corners are filled with pharmacies including CVS, Rite-Aid, Walgreens or others. Instead of allowing access to countless options, an employer can save 2 percent or more by narrowing the number of network pharmacies.

After cost-sharing, establishing preferred pharmacy networks has been a popular approach to cost management. Limited pharmacy networks, not talked of much before 2010, are much more of a consideration after the contract dispute between Walgreens and Express Scripts.

Providing the broadest access to members may no longer trump the more favorable pricing of a narrowed pharmacy network. A large and growing supply of retail pharmacies makes the limited pharmacy network approach possible.

Caveat emptor. Ballooning is a black box tactic whereby one PBM profit center drives an unusual amount of fees when another is being squeezed. It turns out payers’ cost for mail pharmacy services may increase, when a limited pharmacy network is selected, to offset the negotiated retail pharmacy network.

Implement Specialty Therapy Management. We know specialty therapies improve outcomes but we also know patients do not take medications the way they should, or in the way it was studied to produce published results. Disease specific algorithms enable us to:

• Ensure standards of care are consistently followed thereby reducing waste
• Monitor therapy to detect and resolve problems; identify opportunities for referral to MTM, PFA or clinics
• Pro-actively identify opportunities to keep patients on therapy
• Help patients become better informed about their therapy so they can more actively take charge of it

All of these initiatives either improve outcomes, reduce re-admissions or prevent emergency room visits which in turn lowers overall medical costs.

Keep Two Sets of Eyes on Your PBM. A key strategy to controlling prescription drug benefit costs is to understand and better manage the relationship with your pharmacy benefits manager (PBM). Given the complexity of prescription drug benefit programs, it is an attractive option to simply turn over management of the employee prescription drug benefit to a consultant, ASO, PBM or TPA.

However, it is important to realize that while they are serving clients’ needs, PBMs and TPAs are also in business to make a profit. Therefore, the actions that they take may not always be in the best interest of an employer. For that reason and others, employers are increasingly attempting to better understand the prescription drug benefit in order to develop new strategies to control costs and to maintain an affordable, quality drug plan for their employees.

Because more benefit dollars are shifting from medical to prescription drugs every year, payers whom have internal expertise in pharmacy are in a better position to assume greater control of their prescription drug benefit thereby reducing costs while improving patient outcomes.

Utilization of Internal Pharmacies or Reference Pricing. To illustrate this point I use the story of Meridian Health Systems, a former customer of Express Scripts, to show the sometimes drastic difference in what PBMs charge payers to fill prescriptions and what they in turn pay pharmacies to dispense those same prescriptions. This difference often leads to greater profits for the PBM and increased costs for the employer.

Robert Schenk, who oversees Meridian’s spending on employee medications, dug through the employer’s bills to discover just how pervasive the practice was. One such example he found were charges for generic amoxicillin — Meridian was billed $92.53 when an employee filled the prescription, but Express Scripts paid only $26.91 to the pharmacy to fill the same prescription.

That amounts to a “spread” of $65.62 for only one prescription. In another instance, Meridian was billed $26.87 for a prescription of the antibiotic azithromycin. Express Scripts paid the pharmacy $5.19 to dispense the prescription, creating a spread of $21.68.

As this practice persisted, Meridian’s health benefits costs skyrocketed, all while Express Scripts continually promised savings. In the first year alone, Meridian’s prescription benefits costs increased by $1.3 million. It wasn’t long before Meridian switched to a more transparent PBM to handle their prescription benefits.

The only reason Meridian Health was able to identify the spread is due to the reference pricing or pharmacy it owned. In this case, Meridian Health acted as the middle man and was able to see both sides of the transaction. Imagine for a moment, as a payer, how powerful this tool can be. There are fiduciary PBMs willing to give clients access to the same information from which Meridian Health was able to benefit. I suggest you locate one.

To read more of Meridian Health System’s story click here.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

[Click to Enlarge]

A brand name medication, also known as “pioneer” or “branded” medication, is made by one manufacturer (single source) under a patent issued by the United States Patent Office. The manufacturer of the branded medication has a 20-year exclusive patent during which no other manufacturer is allowed to produce the exact same product. Examples of brand name medications include Lipitor, Exubera, and Humira.

A generic medication, or multi-source medication, is a medication produced by multiple manufacturers. Generic products are allowed to be marketed after the brand-name medication loses patent protection. Generic manufacturers vie to be the first one on the market, as they are given a six-month exclusivity period to regain development costs.

After six months, any manufacturer may apply for a license to market a generic version of the pioneer product. Pricing discounts, which are typically 10 to 15 percent in the first six months, drop to 50 to 70 percent or more after the six-month exclusivity period.

Multi-source simply means that multiple manufacturers produce the same medication. Some payers refer to a multisource medication as the first generic on the market after the pioneering brand name medication loses patent protection. Within the industry, the terms generic medication and multi-source medication are used interchangeably.

Authorized generics are considered brand drugs under a generic label. Put simply, a brand drug manufacturer supplies its drug to a generic firm and allows the firm to market the product under a different label for royalties. Brand companies also can create their own companies or subsidiaries to manufacture these authorized generics.

By taking either route, these authorized generics can compete with the first generic drug maker during their 180-day exclusivity period. The implications of such actions create a price war that reduces the price of both generics in the 180-day period, thereby reducing the market share and profitability for the generic manufacturer.

The pharmaceutical industry may not face government price regulations, but it is subject to heavy safety regulations, which makes it difficult for competitors to enter the market. Because of regulations that are ofttimes correctly established for safety and efficacy, it results in extremely high barriers to entry. It could take four or five years for a generic manufacturer to develop a competing product.  A lack of competition inevitably leads to higher prices in a capitalist society.

In summary, there are at least five scenarios which lead to generic medications costing nearly as much as their brand name equivalents:

1.  Rent-Seeking
2.  Lack of Competition
3.  High Barriers to Entry
4.  Limited Distribution
5.  Intellectual Rights

In order to minimize the sting from rising drug costs, payers must do two things. First, require a fiduciary standard from their pharmacy benefit managers. It it the highest standard of care and leaves little open for interpretation or arbitrage.  Second, implement hyper-aggressive strategies to control drug costs. These include but are not limited to:  utilization management, step therapy, quantity limits, cost sharing, and carve-out.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

As one of the largest employers in the healthcare industry, the challenges for hospitals are no different. More and more hospitals and health systems are considering building in-house outpatient pharmacies to combat rising costs, adherence issues and management issues surrounding their employee benefit programs while improving care, convenience and cost for employees as well. And while health systems are finding significant benefits when it comes to offering the ambulatory pharmacy benefit, success depends on proper planning in three important areas.

Cost/benefit analysis.
Building an in-house pharmacy is a big commitment with a potentially bigger payoff. Doing so could help hospitals save 8 to 12 percent on the buy side, and employees are more likely to adhere to therapy plans if they have a convenient and cost-effective place to fill their prescriptions. The health and wellness of employees correlates directly to how much employers spend on healthcare. Plus, less sick time means happier, more productive employees – and the indirect costs of decreased productivity due to illness can significantly impact a company’s bottom line.

Build strategy and benefits planning.
Of course, building an outpatient pharmacy isn’t easy. In addition to determining cost, location, size and profitability, hospitals and health systems will need to identify the patient populations they want to target and then develop a business plan to maximize opportunities. A critical component of that business plan should be the integration of the hospital’s employee benefits into pharmacy operations.

Pharmacy benefit managers (PBMs) can play a central role in administering pharmacy benefits on behalf of employer-sponsored plans. PBMs provide pharmacy benefits to about 200 million Americans.  Traditionally, PBMs are responsible for prescription processing, claims filling, benefit plan design, drug formulary management, rebate and reimbursement administration and more. Given the prevalence and unique role of PBMs, most hospitals have an existing relationship with a PBM to administer their pharmacy benefit. The health system’s pharmacy business plan should account for partnering with a PBM to drive formulary compliance while promoting medication adherence.

Delivering value for employees.
In order for a hospital to leverage its in-house pharmacy to gain the greatest value for its employees, it is important to establish the pharmacy as the provider of choice. Considerations for positioning the health system as a healthcare destination for its employees include:

• How will the qualified, professional staff of pharmacists and pharmacy technicians thrive as part of the hospital’s team and the employee’s healthcare team?
• What collaborative care initiatives will the in-house pharmacy pursue to differentiate it as a preferred offering?
• How will the health system highlight and promote the excellent customer service and convenience of the in-house pharmacy?
• What is the best way to combine existing expertise with new resources to improve employee wellness?
• What other services (on-site delivery, education, OTC products, etc.) will the pharmacy offer?
• How will the HR/benefits team and pharmacy staff partner to position the pharmacy for success? Which team has ownership of various strategic initiatives?

Health systems are uniquely positioned to leverage their knowledge and resources to improve the health of employees. And though employee benefit costs are on the rise, building an in-house pharmacy can pay off for both the hospital and its employees. Implementing an in-house pharmacy is a significant undertaking. But it’s also a strategic investment that can save precious healthcare dollars.

By Amy Flowers

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Not a problem for its manufacturer. US revenue from the drug HAS more than doubled in That Time, up to $ 2 billion last year.

The key: Increases repeated price. The multiple sclerosis drug’s maker, Biogen Inc. raised its price an average of 16% a year Throughout the decade-21 times in all.

It is an example of drug companies’ unusual ability to boost prices beyond the inflation rate to Drive Their revenue, Even When demand for the drugs does not cooperate.

A result of this pricing power across That’s 30 top-selling drugs sold by pharmacies, US revenue growth HAS far outpaced demand in the past five years, accordion thing to a Wall Street Journal analysis of corporate filings and industry data. Revenue growth averaged 61% , three times the increasement in prescriptions.

HAS attention focused lately on new drugs with eye-popping prices and on a few Whose price a new owner abruptly raised several-fold. But what many drug companies Rely on for sales growth is a pattern of steady Increases, year in and year out, on older medicines. Wholesale Price Increases for the 30 drugs Analyzed by the Journal averaged 76% over the five-year stretch from 2010 through 2014. That was more than eight times general inflation.

For 20 leading global drug companies last year, 80% growth in net profits stemmed from price Increases in the US, According to a May report by Credit Suisse.  Pricing power helps some in the pharmaceutical industry to Compensate for sluggish demand, new competition or weak product pipelines. “Pricing HAS covered up a multitude of other disappointments over the past 15 years” in the sector, Said Geoffrey Porges, a biotech analyst at AllianceBernstein LP.

This is no cause for cheer, of course, to certainement other market participants, notably the many large companies That pick up the tab for Their employees’ prescriptions. Drug pricing HAS Helped drive up spending on benefits at Lowe’s Cos., Said Bob Ihrie, a senior vice president at the home-improvement retailer.

“It’s one thing When you read about a new drug in the newspaper, and all the costs of launching it. But when it’s drugs thathave put on the market and you see price Increases thesis, you go, ‘Why would this be?” ‘Mr. Ihrie said. “I feel like we’re really being taken advantage of.”

Pharmaceutical companies defend their pricing as helping to finance development of innovative medicines, an expensive and risky enterprise They Say would not attract investment without the potential for large returns When a new drug succeeds.

Many in the industry also say a focus on drug prices is shortsighted Because It overlooks drugs’ role in helping to contain overall health-care costs by Preventing disease complications.

Robert Zirkelbach, a spokesman for Pharmaceutical Research and Manufacturers of America, a trade group, Said That Eventually, prices for all drugs will decline sharply whenthey lose patent protection and go generic.

Avonex maker Biogen HAS Noted the central role of price boosts in the drug’s success. “For 2014 Compared to 2013, in the increasement US Avonex revenues were Primarily due to price Increases, partially offset by a decrease in unit sales volume of 10%,” Biogen Said in its 2014 financial report. A similar note HAS Appeared in its annual reports since 2005.

But Biogen points to the way this revenue funds its quest for new medicines. The company spent an average of $ 1.19 Billion Annually on R & D from 2005 through 2014, or 24% of total revenue. Besides Avonex, the company HAS brought` out two other multiple sclerosis drugs and is studying a treatment to repair nerve damage from the disease.

“Over the past two decades, All-which is the life of Avonex, we’ve done more than any other company to Improve the treatment of multiple sclerosis, as as as as” said Daniel McIntyre, a senior vice president of Biogen. “The Reality Is that revenues from therapies available today make this possible.”

Users and payers

What gives the pharmaceutical industry so much pricing power? Part of the reason is the patent protection drugmakers have on new products, competitors from offering-which keeps copies for up to two decades. “It’s Easier for Consumers to substitute a car That Meets Their Needs than it is to substitute a patented drug Because no one else can make it, as as as as “said Fiona M. Scott Morton, an economics professor at Yale University.

Another part of the answer is the insurance-based health system, in-which Consumers rarely feel the full brunt of price Increases. Click here to read more.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.