Author: Tyrone Squires, MBA, CPBS

This author has written 1311 articles

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.

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.

Lawmakers seek more pricing info from PBMs

Legislation is pending in 14 states that would require more pricing disclosures from pharmacy benefit managers, such as Express Scripts.

Pharmacy benefit managers, or PBMs, negotiate deals with drugmakers that set maximum amounts they will reimburse drugstores for generic drugs and what they will then charge their clients for the drugs. The difference between these two numbers is labeled as “spread pricing” and can be very profitable for PBMs, USA Today reports.

Brian Henry, Express Scripts spokesman, told USA Today that Express Scripts’ clients can decide whether or not to include spread pricing in their contracts and that the pricing mechanism earns the PBM money when its clients save money.

A recent report by consulting firm Visante found that PBMs will save Medicare, companies and consumers nearly $2 trillion on prescription drugs between 2012 and 2021. Visante was hired by the Pharmaceutical Care Management Association to complete the study.

However, consumer advocates are questioning how much value PBMs are actually adding to the process. PBMs “essentially are middlemen who also add costs to the system,” Wendell Potter, a consumer advocate and former spokesman for Cigna insurance, told USA Today.

A Department of Health and Human Services rule that went into effect last year requires PBMs to report to the government the rebates and discounts they get from drugmakers when they are processing Medicare benefits, but that information does not have to be shared with the public.

Read more at USA Today.

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.

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.

Eight Reasons Employers Overpay For PBM Services

8.  Job Preservation (as opposed to Job Innovation) – Managers are overwhelmed with work. They stick with what’s “working” rather than create even more work by evaluating alternatives.  As a result, some managers often make decisions to avoid pain rather than doing what is in the best interest of the company for which they work.  Because they’re usually the individuals most concerned with profitability, a CEO or CFO actively involved early in the process may alleviate this problem. 

7. Lack of Accountability – Usually it is a cross-functional team which agrees upon a pharmacy benefits management provider.  In my opinion, this sort of consensus building is the correct approach but may ultimately lead to passing the buck.  If things go south who takes responsibility and rights the ship?  Typically, no one thus the overpayments or poor service problems fester for years. 

6. Macro approach rather than Micro – Employers don’t evaluate at the micro level or intensely supervise PBMs.  As a result, they leave themselves open for excessive overpayments.  In the words of Ronald Reagan, “Trust but Verify.”

5. Hired the Wrong PBM – Traditional PBMs profit from overpayments. These hidden costs are typically extracted from spreads, manufacturer revenue (more than just rebates) and dispensing fees.  Fiduciary PBMs, on the other hand, profit from only an administration fee whether PMPM or per claim.  True transparency leads to a reduction of overall plan costs.

 
4. Hired the Wrong Consultant or Broker – This scenario plays out year after year…a self-insured employer hires a large benefits consultant firm to manage the RFP process. The employer thinks great we receive all this expertise at little to no cost. There are two problems here:  1) benefits consultants are not necessarily experts in the PBM industry.  In fact, they often know little more than the employer  2)  the benefits consultant will, based upon an agreement with the PBM, TPA or ASO, select and/or recommend the bid which provides it the most fees. Experts utilize their knowledge, skills and resources to generate extraordinary results not psychobabble. 
3. Flawed Evaluation Process – Dump the pharmacy benefits RFP process! Employers must instead create their own airtight fiduciary contract and put it out for bid.
2. Repurposed PowerPoint Slides – “You’re a regifter!” You’ve seen this episode of Seinfeld right? When working within a limited frame of reference anyone can be wowed, mislead or just flat out wrong. Traditional PBMs have done a great job influencing decision-makers, across varying verticals, with repurposed PowerPoint slides; making only subtle changes to “customize” the presentation. Most payers are clueless to the hidden costs that are not clearly apparent in these presentations.

1. Ignorance – Defined in the Merriam-Webster dictionary as lacking knowledge or comprehension of the thing specified; unaware or uninformed. When dealing with PBMs it’s not what you know, but instead what you don’t know that subjects plan sponsors to excessive overpayments.

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

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.

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.

What is the True Cost of PBM Services?

True Cost of PBM Service = MR + SP + AF

MR –  Manufacturer Revenue retained by the pharmacy benefits manager NOT passed through to the payer. More than just rebates!  Plan sponsors should be getting 100% of attributable manufacturer revenue.

SP –  Spread or the difference between pharmacy network reimbursement and what plan sponsors pay.  For mail-order pharmacies the spread is calculated using acquisition costs instead of network reimbursement. There is potential for payers to save really big on mail-order dispensed prescription medications.

AF –  Administrative Fee is often artificially too low (e.g. $.50 per claim); augmented with manufacturer revenue and spreads.

Payers complain incessantly about the rising costs of PBM services yet can’t calculate how much revenue the incumbent PBM pockets from their contract.  Payers able to accurately calculate the true costs of their PBM services eliminate overcharges thereby freeing up cash flow.

A 21% savings here all because the payer is able to accurately determine how much revenue the incumbent PBM is generating from the contract.

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.

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.

Do drug benefit managers reduce health costs?

While all the cutting goes on in health care, one of the biggest and least understood players is getting bigger and richer. Pharmacy benefit managers, which include CVS Caremark and Express Scripts, are little known to consumers except as names on the drug cards in our wallets. 

The roles of PBMs have expanded from simply handling prescription billing about 15 years ago to deciding which drugs insurers cover, what they cost and how much pharmacies are reimbursed for them.


Now some lawmakers are trying to rein them in. Legislation is pending in 14 states that would require more pricing disclosure by these companies, which process the drug benefits for virtually every American with insurance. 

PBMs cut private deals with drug makers and then set maximum amounts they’ll reimburse drugstores for generic drugs and what they’ll charge companies, insurers or other clients for the drugs. The difference between these two numbers is often called “spread pricing,” and remains a murky but highly profitable area.  To continue reading click here…

by Jayne O’Donnell, USA TODAY

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.

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.

CMS Proposed Rules on Medicare Part D

Preferred Networks and Preferred Cost Sharing (p 1974)
CMS has found that in some cases, sponsors actually charge greater negotiated prices in preferred networks which also may lead to increased costs to the government and taxpayers. This situation also makes beneficiaries make choices that are aligned with plan interests and not the best interest of the Medicare program. CMS also proposes that it eliminate the term “preferred networks” and rather use “preferred cost sharing.” CMS believes that this will eliminate the connotation that some network pharmacies are considered “non-preferred pharmacies” without the opportunity to meet the terms and conditions to qualify for preferred cost sharing.
 
Any Willing Pharmacy Terms and Conditions (p 1978)

CMS proposes that plans offer a single contract with standard terms for any wiling pharmacy that includes all potential preferred cost combinations and negotiated prices possible for retail settings. This would be a new alternative to current market practice where plans offer different contracts for preferred and non-preferred pharmacies. CMS finds that preferred networks do not always result in consistent savings across medication classes and that some non-preferred pharmacies may offer better rates than network pharmacies. CMS believes a change will level the playing field for small independent community pharmacies.
 
Mail Order Pharmacy (p 1980)

CMS is concerned that beneficiaries who choose mail order pharmacy may experience unnecessary and extended delays in receiving prescriptions because they must wait between 7-10 days for a regular delivery but if problems occur, then this waiting time could be extended. CMS contrasts this to the experience in the community pharmacy setting where a prescription is presented and filled on the same day and any problems with the prescription are resolved in real time also limiting mail order copay incentives.
 
Prescription Drug Pricing Standards and Maximum Allowable Cost (MAC) (p 2040)

CMS proposes an updated definition of “prescription drug pricing standard” for purposes of reporting Medicare Part D drug prices to CMS to include MAC prices and other formulas that rely on varying prices and not a fixed, published price. CMS supports plan reporting that allows pharmacies to have current data on the amount of reimbursement expected. MACs would need to be updated at least every 7 days.
 
Proposed Expansion of MTM and Reduction in Plan Variability (p 1947)

Proposed expansion of the MTM program by reducing the number of multiple chronic diseases eligible for coverage from 4 to 2 and reducing the number of medications required to meet “multiple Part D medications” to 2 or more. CMS proposes lowering the cost threshold from the existing $3,144 to $620.