Author: Tyrone Squires, MBA, CPBS

This author has written 1255 articles

Pressing for PBM Transparency

Pharmacy benefit managers generally provide pharmaceutical outpatient plans, which depend on all sorts of financial concessions the PBM extracts from drug manufacturers, pharmacies and other suppliers. Those forms of direct and indirect compensation help the PBMs to keep costs to company health plans low. But the companies are often unaware of whether promised discounts are fully forthcoming because of lack of transparency.
The Department of Labor’s Employee Retirement Income Security Act Advisory Committee recently approved two recommendations pushing for the department to require disclosure of both direct and indirect compensation. 
“We commend the ERISA Advisory Council on its action and we are also excited that U.S. Labor Secretary Thomas Perez has indicated his desire to ensure  those long-overdue changes are implemented,” says B. Douglas Hoey, CEO of the Alexandria, Va.-based National Community Pharmacists Association. The NCPA has been locked in numerous battles with the PBM industry over adequate participation of retail pharmacies in PBM networks.
“In the past, some council recommendations have led to regulatory projects,” says Michael Trupo, a Labor Department spokesman. “The department looks forward to reviewing the council’s final reports when they are submitted.”
James I. Singer, the issue chairman on PBM disclosure for the ERISA Advisory Committee, says the report should be available at the start of 2015.
Three PBMs control the lion’s share of the market: Express Scripts, CVS/Caremark and Catamaran. Health plans such as Aetna, Humana and United Healthcare also own PBMs. 
Allison Klausner, assistant general counsel for benefits at Honeywell International Inc., says that rebates PBMs receive from drug manufacturers for placing particular drugs on the most attractive formulary “tier” can create “conflicts of interest.” That placement, she says, may have nothing to do with a drug’s superior effectiveness and everything to do with a higher PBM profit margin.
In some instances, she says, plan sponsors may be fine with rebates obtained by the PBM, but may be denied access to auditing them to ensure they are getting the share they contracted for.
But Washington, D.C-based attorney William J. Kilberg, a partner at Gibson, Dunn & Crutcher who represents the Pharmaceutical Care Management Association—the PBM trade group—says the rebates PBMs obtain from manufacturers are not “compensation,” and should not be subject to DOL regulation.
Nor should there be any regulation of any kind of compensation PBMs receive, he adds, as employers have many PBMs to choose from, which gives them leverage to extract whatever information they need from whichever PBM they contract with.
Industry experts, such as Patricia M. Danzon, the Celia Moh Professor at the University of Pennsylvania’s Wharton School, say that manufacturer rebates to PBMs are generally disclosed and have become less of a profit maker for PBMs as plan sponsors heavily incent the use of generics, where rebates do not come into play ordinarily. 
But that trend, experts warn, may also account for the growth of another criticized, opaque practice: PBMs’ use of “spread pricing” to boost profits, by which a PBM reimburses pharmacies a lower amount than it charges a plan sponsor.

The Growing Turf War over Who Can Fill Prescriptions

Drug therapy is growing more complex and costly! So-called specialty drugs are gradually displacing traditional drugs as the primary component of drug spending. The market is expanding rapidly. Only about 10 such drugs were available 20 years ago but today there are more than 300.
These drugs typically treat medical conditions that are life-threatening, chronic and often rare. Cancer treatments are the most common type of specialty drugs, making up one-third of total. Drugs for autoimmune disorders, rheumatoid arthritis, and Crohn’s disease, medications for HIV and drugs for multiple sclerosis are responsible for another third of specialty drug spending.
Although only about 1 percent of drugs prescribed, specialty drugs now account for more than one-quarter prescription drug spending. This is expected to grow to 50 percent by 2020.
Specialty drug therapy costs from at least $15,000 per year, to as much as $750,000 per year. Most have no close substitutes, rendering health plans’ traditional efforts by to control costs by encouraging generic substitution largely ineffective.
Due to these medications’ high cost, health plans carefully manage the procurement and administering of these drugs. For instance, health plans are increasingly relying on exclusive preferred pharmacy networks to reduce costs and ensure the quality of specialty drug therapy.
When drug plans create preferred pharmacy networks they negotiate for the lowest possible prices. Negotiated prices are the result of bargaining power — the ability of the drug plan to deny business to a firm if their bid isn’t favorable. Bargaining power also strengthens the ability of drug plans to demand quality-enhancing safeguards and patient protections.
As you might expect, when a new market segment displaces an old one, stakeholders in the old market understandably don’t want to be shut out. As preferred pharmacy networks have become more common, so too have the calls for lawmakers to enact laws that restrict the ability of health plans to partner with exclusive pharmacy networks.
The less competitive drug providers lobby CMS, Congress and state legislatures to restrict the ability of drug plans to effectively negotiate for lower prices. This past January the Centers for Medicare and Medicaid Services (CMS) tried to ban preferred pharmacy networks in Medicare drug plans.
CMS had been under pressure from pharmacy interests shut out of Medicare Part D drug plans.  Click here to read the full article by Devon Herrick.

5 Strategies for Managing Specialty Prescription Drug Costs

Engineered to treat complex chronic conditions such as cancer, multiple sclerosis, rheumatoid arthritis, Parkinson’s disease, and hepatitis C, specialty prescription drugs represent less than 1% of all U.S. prescriptions yet are growing at an unsustainable rate—and employers are beginning to see their impact on healthcare costs.

The Centers for Medicare and Medicaid Services estimates that prescription drug spending was 9.4% of all healthcare spending in 2012, and a large portion of that spending was on specialty drugs. In their 2013 Specialty Drug Trend Insights report, independent pharmacy benefit manager (PBM) Prime Therapeutics places that figure at 30% of total drug costs and predicts it will reach 50% by 2018.

Express Scripts’ 2013 Drug Trend Report reveals that for the top traditional therapy classes, spending will likely climb 2% year-over-year for the next three years, whereas spending on specialty medications will increase 16.8% in 2014, 18.0% in 2015, and 18.2% by 2016.

It’s no surprise that employers are looking for ways to manage the employee benefit costs of their specialty drug coverage. To help them get a handle on their specialty drugs spend and ensure their employees receive appropriate and effective care, employers—along with their health plans and other healthcare benefits partners—are exploring a combination of tactics:

1.  Integrated Pharmacy and Medical Benefits

In their article, Employers Act to Control Prescription Drug Spending, the Society for Human Resource Management (SHRM) cites a 2013 survey by Buck Consultants finding that 71% of U.S. employers spent 16% or more of their total healthcare budget on pharmacy benefits.

It can be challenging for employers to estimate their spending on specialty drugs because these drugs are sometimes billed through medical benefits—and other times billed through prescription drug benefits. The inconsistency makes it difficult to get an accurate picture of how much is being spent on specialty medications.

When employers move the administration of specialty drugs from the medical plan to the pharmacy program, they can take advantage of better care coordination that’s easier to measure. For example, instead of a doctor ordering and dispensing a specialty drug in their office and billing it as a medical benefit, a prescription drug program can manage the drug’s cost and patient’s care. These tightly coordinated activities can lead to lower costs and easier reporting.

2.  Prior Authorizations

Employers may require a prior authorization from a provider before a pharmacy can fill a specialty drug prescription. This added level of control helps making certain that patients are using the most cost-efficient and appropriate therapies.

3.  Cost-Effective Pharmacy Plan Design

Many employers are adding a specialty drug tier to pass along at least some of the cost of more expensive drugs to employees and to help track the classes of drugs they’re utilizing. When benefits are tiered, different categories of drugs require different out-of-pocket costs, and categories may be broken up into preferred drugs and non-preferred drugs, generics, and specialty, depending on the needs of the plan sponsor or economics of the formulary.

Additionally, plans may include refill policies or step-therapy protocols. Refill policies use clinical evidence to limit doses, ensuring a patient tolerates a new drug or to avoid wasting expensive medicine; step therapy requires patients to start treatment with a lower-cost alternative drug, if available, and transition to a specialty drug if the medication at the first step isn’t effective.

4.  Pharmacy Benefit Managers and Specialty Pharmacies

Many employer groups and health plans rely on pharmacy experts to help them manage their prescription drug benefit design, administration, and clinical needs, resulting in greater cost control. These companies can provide employers with the best “buys” for certain high-cost drugs thanks to their ability to leverage costs across networks and providers while providing a wide range of value-added services that can make a big impact on a company’s overall healthcare benefits costs.

5.  Utilization Management

More and more employers consider their employees’ care coordination a key element in containing costs, improving quality, and creating better outcomes, especially for those being treated for chronic illnesses.

Utilization management performed by medical professionals effectively intertwines a patient with their healthcare benefits to ensure they are maximizing their coverage and receiving medically necessary care.

By following an individual’s progress, coordinating their care, and ensuring that treatments such as prescribed drugs are appropriate, a case manager can play an important role in assuring treatment compliance, minimizing health risks, and reducing waste in healthcare spending.

Source:  Healthcare Trends Institute

Illustrative Example of Supply Chain Pricing for Brand Name Prescription Drugs

Notes:

(1) Prices are based on a composite of several commonly prescribed brand-name drugs for a typical quantity of pills. For some cells in the table, the relative relationships have been calculated based upon our mail pharmacy and PBM operations and on other relationships widely reported by industry sources.

(2) These prices are used for illustrative purposes only and do not represent any type of overall average.

(3) Prices reported in this table include both amounts paid by third-party payers and amounts paid by the consumer as cost sharing.

(4) Manufacturers generate up to 85% gross margins on brand pharmaceuticals.

(5) The HMO column refers only to HMOs that buy directly from manufacturers.

Plan Controls Respond to PBM Spreads, Generic Cost Spikes

If a pharmacy benefits manager promises a group health plan that there will be no administrative fee for drugs, it actually could be a red flag and not a cause for celebration. It could mean the PBM is “gaming the spread” or not passing rebates through to the plan.

Plans can prevent this kind of leakage and contain costs much better if they take more active roles in managing drug benefits, according to Susan Hayes, who founded Pharmacy Outcomes Specialists of Lake Zurich, Ill. If a health plan abdicates all authority, it may end up losing influence and its ability to duck unreasonable price spikes, Hayes told attendees at the International Foundation of Employee Benefit Plans’ Annual Employee Benefits Conference in Boston on Oct. 14.

Contracting out drug benefit administration can make it difficult for plans to act in the sole interest of plan participants in certain ways, she said.

PBM Rebate Shifts Can Hurt Plans

Rebates and discounts between PBMs and  drug makers can reduce drug prices for plans. Several kinds of rebates exist: (1) the drug maker rewards the PBM for putting its product on formulary; (2) the drug maker rewards the PBM for allotting a certain percentage of market share to the product in relation to comparable agents produced by competing manufacturers; and (3) the drug maker pays the PBM for market intelligence on prescribing patterns, Hayes said.

But when rebates disappear trouble can start.

PBMs might say the sole reasons they rescind preferred status is because: (1) a drug has become a source of wasteful spending; or (2) clinically appropriate alternatives exist. But a drug’s removal from preferred status may be just because the manufacturer stopped paying the PBM rebates, leaving plans wondering what happened, she said.

The Spread Is No Game

A big source of potential plan waste is “spread pricing.”

The “spread” is the difference in what PBMs charge plan sponsors for prescriptions and what they in turn pay pharmacies to dispense those prescriptions. This difference often leads to greater profits for the PBM at the expense of employers. The spread is a prime contributor to why one pharmacy may charge your plan very little and another may charge very much for the same generic medication.

According to reporting by Fortune magazine reporter Katherine Eban, Meridian Health System audited its spending on employee medications to learn the scope of spread pricing. For the antibiotic amoxicillin, Meridian was billed $92.53 when an employee filled the prescription, but its PBM paid only $26.91 to the pharmacy to fill the same prescription. That amounted to a spread of $65.62 for only one prescription.

In another instance, Meridian was billed $26.87 for a prescription of azithromycin. The PBM paid the pharmacy $5.19 to dispense the prescription, creating a spread of $21.68. While the PBM continually promised savings, Meridian paid $1.3 million in unnecessary prescription benefits costs to this vendor due to the spread, Eban alleged.

Dramatic Generic Price Increases

But bigger drug cost problems may not be the PBM’s fault: generics can be the subject of dramatic inexplicable year-to-year price variations, which the plan might not be able escape. Hayes gave the example of tetracycline 500 mg capsules, which shot up in price 177-fold from 2013 to 2014.

The problem of selected generic drugs becoming wildly expensive for unknown reasons has drawn the attention of Members of Congress.

Sen. Bernie Sanders, I-Vt. and Sen. Elijah Cummings, D-Md., on Oct. 2 sent letters to 14 generic drug manufacturers asking why dramatic price increases had occurred in just the past few months for: Doxycycline Hyclate, an antibiotic; Pravastatin Sodium, a high cholesterol drug; Divalproex Sodium, a treatment for migraines; Albuterol Sulfate, a treatment for asthma; and several others. These drugs leapt in price five- to 50-fold in as little as six months.

Greater Plan Control

Plans can achieve savings by accepting fiduciary responsibility, Hayes told the IFEBP attendees; for example, by writing cost-savings drug management provisions into the plan document and managing drug spending in accord with that document. That way they can limit plan expenses to what’s reasonable and what can be defended. For example, many plans are finding savings by using more than three tiers of coverage, to steer utilization toward generics, or toward the most clinically appropriate brand-name medication.

A health plan that has accepted fiduciary responsibility may use tougher step-therapy rules by requiring a less expensive therapy be tried before authorizing an expensive one. In other example, plans may be able to apply coverage criteria for expensive therapies that authorize coverage at a later disease stage than the company’s PBM does.

Also, a plan may want to use a closed formulary under which it can laser out for non-covered drugs that suddenly become prohibitively expensive.

A plan may want to use a “new-to-market” exclusion that slaps a temporary moratorium on brand new therapies to allow plan committees to review them and to allow some price stability to emerge. This gives the plan time to seek out a distribution challenge, study the cost impact and seek out its own drug strategy. This could be a strategy for new specialty drugs.

If a plan takes more control, it can enact strict plan provisions against physician off-label use and then in detect such ineligible claims and preventing payment for them, she suggested.

But it is important for plans not to take drug cost-cutting in isolation, Hayes said. Limiting the cost of medications can trigger increased physician and hospital costs down the line. One study found that the “achievement” of reducing spending on outpatient drugs by 79 percent was offset by a 3-percent increase in physician and a 23-percent increase in hospital costs.

Fiduciary responsibility can cut both ways. Fiduciaries are expected to act on behalf of participants with the exclusive purpose of providing benefits to them. If plans accept ERISA fiduciary status, they might be obliged to cover medications that are expensive, and that might sometimes involve having to override a PBM exclusion, she noted. If invoking fiduciary authority to override PBM decisions goes only in one direction; that is, for plan cost savings and never for better clinical care for the patient, the plan could run into trouble down the road.

By Todd Leeuwenburgh

Click here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]

We Need More Transparency on the Cost of Specialty Drugs

The economics principle “The more you concentrate your buying power, the better your pricing” applies in health care, too. That’s why health insurance companies can offer customers lower premiums by restricting the size of provider networks. They send more patients to fewer hospitals — and get a better deal per patient, passing on at least some of the savings to you.
Next up for restrictions: specialty drugs. These expensive medicines treat diseases, such as specific cancers or multiple sclerosis, that affect relatively small populations. That means you may not get the drug your doctor wants to prescribe — or if you do, it will cost you a lot more money.
Theoretically, there’s nothing wrong with this. If the choices are medically appropriate, the savings to the system should justify the restrictions. But that’s a big “if.” We don’t know how a payer decides to give one specialty medicine preference over another. The drug formulary is a giant black box.
If this opaque process yielded good decisions, you could stop reading now. But it doesn’t. Brian Bresnahan and colleagues have found that pharmacy and therapeutics (P&T) committees sometimes favor the wrong drugs. In effect, more cost-effective medicines may be ranked lower in a formulary while less cost-effective drugs earn better slots. Somewhere between 600 and 1,000 P&T committees are making these kinds of decisions today.
The Current Process
To understand how all of this works, you first have to see the payer’s point of view. The fastest-growing costs in health care today are for specialty drugs. Take Sovaldi, launched by Gilead Sciences in late 2013 as a treatment for hepatitis C virus (HCV) infection and recently superseded by Gilead’s newest drug, Harvoni.
Sovaldi represented a true medical breakthrough relative to previous HCV treatments — much shorter duration of therapy, dramatically reduced side effects, and very often a cure. But Sovaldi, Harvoni, and a raft of coming competitors also represent a staggering new economic reality. Sovaldi itself costs about $84,000. Harvoni costs $95,000 for 12 weeks of therapy (roughly equivalent to the cost of Sovaldi and the other drugs that must be taken with it), although Harvoni will cost $63,000 for patients who need only eight weeks of treatment.
In a July 2014 JAMA article, Troyen Brennan and William Shrank, respectively the chief medical and scientific officers at CVS Caremark, a major pharmacy benefit manager (PBM), estimated that with as many as 3 million eligible HCV patients in the U.S., “treatment of patients with HCV could add $200 to $300 per year to every insured American’s health insurance premium for each of the next 5 years.” Meanwhile, analysts’ predictions of total 2018 U.S. sales for Sovaldi, Harvoni, and their competitors cluster between $11 billion and $13 billion.
Sovaldi and Harvoni are just two examples of the explosion in spending on specialty drugs — 20% a year, according to the PBM Express Scripts. That is roughly four times the percentage rise in the cost of health care overall. Given current trends, specialty drugs will account for about half of the U.S. total drug bill within a few years.
That’s precisely why insurance companies and PBMs, largely at the behest of their employer customers, are narrowing their specialty-drug formularies. This practice encourages patients and physicians to choose from a more restricted list of options. And not all the choices are easy — a plan may no longer pay for, say, a rheumatoid arthritis medicine on which a patient is doing well, forcing her to self-experiment with the plan’s other (cheaper) preferred agents.
How to Crack Open the Box
Arguing that payers should not restrict drug formularies would be naive. As costs rise, there’s no other choice. But we contend that, as the stakes of these decisions grow, the transparency and the rigor of the decision-making process must increase proportionately.
To illustrate the problem, let’s start with an example from October 2013, when Express Scripts decided to exclude 46 drugs from its formulary. Several press reports noted that the PBM wouldn’t disclose its rationale, other than to say that its independent P&T committee had found that the excluded drugs offered no additional value over that of existing, lower-cost drugs. To continue reading click here.
by Robert Galvin, MD and Roger Longman

Friction Between Health Plans, Pharma Grows Over Specialty Drugs

The war of words between managed care and pharmaceutical manufacturers, which began when Gilead set the price for its drug to treat the hepatitis C virus (HCV), has taken off in October with the reclassification of a trio of cancer drugs from Genentech.

Growth in the “specialty pharma” sector, where prices are rising much faster than drug prices generally, has drawn concern from payers and the umbrella group that represents them, while the trade group that represents drugmakers is pushing back against critics, saying that it faces challenges in bringing life-saving therapies to market.

All this is playing out against the backdrop of the Affordable Care Act (ACA), which professes to rein in the nation’s escalating healthcare costs, including drug prices. As the second year of open enrollment on the exchanges gets underway, a series of events in the healthcare sector have spilled into the public arena, just in time for the November 4 midterm elections:

  • America’s Health Insurance Plans (AHIP) took aim at the $1000-per-pill cost of Gilead’s Sovaldi, the breakthrough treatment for HCV as a symbol of the rising challenge of the specialty pharma sector, which AHIP says accounts for an “unsustainable” share of health plans. An AHIP issue brief from February 2014 stated that in 2012, specialty drugs accounted for 1% of all prescriptions but 25% of the drug costs.
  • On September 18, 2014, Genentech announced that 3 mainstay cancer therapies – Avastin, Herceptin, and Rituxan – would no longer be available to hospitals from wholesale distributors and would instead be sold through a select group of specialty distributors, increasing their costs. The change took effect October 1, 2014, giving the hospitals little time to absorb the change.
  • On October 5, 2014, leading oncologists took aim at pharmaceutical prices in a 60 Minutes segment in which one clinician said that, “High cancer drug prices are harming patients, because either you come up with the money, or you die.”

In recent days, the Pharmaceutical Research and Manufacturers of America, or PhRMA, has countered with its Access Better Coverage initiative, which is designed to guide consumers shopping for coverage on the exchanges as they select health plans based on what out-of-pocket expenses they would face for prescription drugs.

But the broader message of the campaign is to point out instances in which plans have assigned all patients with conditions such as HIV into higher-price drug tiers, which was the topic of a well-read editorial in The American Journal of Managed Care by Gerry Oster, PhD, and A. Mark Fendrick, MD.

by Mary K. Caffrey

Pharmacy Carve-Out: 7 Benefits for Self-Funded or Fully Insured Employers

PBM programs typically function in two ways. They are either “carved in”, provided by the health insurance company or “carved out”, provided independent of insurance. Whether the pharmacy benefit plan is self-funded or fully insured, any employer with more than 100 active employees should consider and investigate a carve-out strategy for their pharmacy benefits.

A carved out program provides better cost control and transparency, technology and services, as well as information and reporting. Health insurers may bundle the two programs and subsidize some of the pricing from one service with that of another.

For companies with a carved in program, there may be concerns about changing to a carved out program due to a perception that additional time and resources will be needed, but I have seen that on a day to day basis, there is little difference in having a separate PBM program. The functions are the same.

Over the course of a year, there are separate review meetings for companies with carved out programs, but overall, the time spent should be roughly the same as meetings taking place with carved in providers.

From the employees point of view there is virtually no change besides possibly another card in their wallet. They will have continued access to the full range of services offered by a PBM. In fact, many carved in programs use third party PBM companies to provide the pharmacy services.

Believe it or not, as companies get through the open enrollment season for benefits, the planning cycle starts for the next year – in this case 2016. The first quarter of the year is the time for benefits teams to review contracts and benefits plans, including pharmacy benefit plans.

What are the Benefits of a Pharmacy Carve-out?

There are significant advantages to pursuing a carve-out strategy, both for the plan sponsor and plan participants. Among the advantages are the following:

1.  Better Contract Terms – Carved-in plans are based on a single, pre-determined contract that does not allow a plan sponsor or its advisor to negotiate non-pricing terms critical to managing cost trends. For example, carved-in Rx plans seldom have audit rights and, if they do, they are frequently toothless. Detailed clinical programs are also usually missing. Conversely, a carved-out PBM contract, if correctly negotiated by the plan sponsor or an advisor specializing in pharmacy benefit contracting, will clearly outline all of the important non-pricing terms.

2.  Carved-out Specialty Rx – A carved-out PBM also permits the plan sponsor to install a carved-out specialty pharmacy benefit. Because specialty pharmacy is the fastest growing and most expensive portion of any pharmacy benefit plan, carving-out specialty drugs provides all of the advantages listed above.

3.  Customized Clinical Programs – Better data management and detailed analytics enable clinical licensed pharmacists, whether at the PBM or within a specialized advisory firm, to recommend, implement, and manage customized clinical programs based on the plan sponsors unique population. Examples of this include opioid management, diabetes management, and oncology programs.

4.  Lower Pharmacy Costs – A carved-out PBM contract allows for aggressive price negotiations and more competitive Request For Proposals (RFPs). Separating the medical and prescription drug benefits enables a plan sponsor to compare pricing for both benefits on an apples-to-apples basis. A direct PBM contract will also include the critical terms that govern pricing, including discounts, rebates and soft dollar programs. In addition, administrative costs are not hidden within the healthcare benefits fee. Carved-in plans have increased fees and costs that reflect the health plan receiving compensation from their PBM arrangement.

Click here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]

5.  Improved Data Management – Stand-alone PBMs with carved-out plans and direct contracts with plan sponsors capture and report all claims elements, allowing for accurate modeling, forecasting, and strategic planning. Data feeds and FTP interfaces between the PBM and the medical claims administrator allow automated delivery of pharmacy benefit claims and integration with medical claims. Plan sponsors and advisors can use the combined analytics to track trends and make informed benefit decisions.

6.  More Detailed Analytics – The enhanced data management described above means more detailed reporting capabilities, more sophisticated analytical tools, and more accurate forecasting and modeling. All of these contribute to lower annual drug spend and better long-term planning.

7.  Transparency – A carved-in plan has little or no transparency for the cost of the prescription drugs, the size of the mark-up, the rebates earned by the health plan, the contract volume pricing concessions negotiated by the health plan, or other financial incentives, all of which drive up cost to the plan sponsor. The health plan administrator provides none of the details critical to lowering cost, managing risk, and creating better clinical outcomes.

Medical and prescription benefits are completely different. The core strength of health plans and medical carriers is managing discounts with hospital chains and building provider networks. These skills are not transferable to managing prescription drug benefits, which are very different and, in many ways, more complex and more dynamic.

Driven principally by specialty pharmaceuticals, pharmacy benefit costs are forecast to increase between 15 and 18% per year for the foreseeable future. By carving out pharmacy benefits, plan sponsors create the potential to save up to 50% per year on pharmacy benefits service costs.

Repackaging: A “Traditional” Pharmacy Benefit Manager’s Black Box Tactic [Video]

Repackaging typically occurs when a company buys a large bottle of a prescription medication such as Lisinopril, and makes it into smaller bottle sizes. So, if a company buys a 1000 count bottle of Lisinopril and simply divides it into 10 bottles of 100, this is repackaging.
The new bottle of 100 is given a new NDC or national drug code and a new price. The new price is at the discretion of the re-packager and most likely higher than the original price. Watch the video below for a detailed illustration.
An even bigger problem (as if the repackaging wasn’t enough) is that most drug pricing for consumer plans are based upon AWP minus a certain percentage. When drugs are purchased, especially through mail order, the payer will not know if the AWP used in the cost formula was derived from an AWP reporting service such as Medispan or newly created as a result of repackaging.
The best means to determine if a medication was repackaged is to compare the NDC from the resulting claim to the manufacturer or distributor NDC. Traditional PBMs will not share this information with you. Fiduciary PBMs such as TransparentRx, LLC, will.

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document 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 healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC.  The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders. 

Note: This document is updated weekly to reflect changing prices and new products.

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 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 here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]