Author: Tyrone Squires, MBA, CPBS

This author has written 1305 articles

Three surefire ways to know if your PBM is overcharging you

Pick anyone from HR, finance or procurement and they will tell you succinctly the pharmacy cost trend is not sustainable. Most have tried every trick in the book including increasing employee cost share, restricting access or reducing benefit levels. But, ask these same professionals how much money their PBM is making and you’ll likely get crickets. It is not uncommon for the non-fiduciary PBM’s take home to amount to more than the cost of the prescription drugs.

I’ll let the note Michael Critelli, former CEO at Pitney Bowes, sent to me address that point. “I am pleased that you wrote the particular essay I downloaded. Many corporate benefits departments do not understand that they are overmatched in negotiating with pharmacy benefit managers, as are the “independent consultants” who routinely advise them. The first step in being wise and insightful is admitting what we do not know, and you have humbled anyone who touches this field.” 


For those interested in improving their company’s pharmacy benefit management results and unafraid of unconventional concepts, here are three surefire ways to know if your PBM is overcharging you.

1) Contract definition for brand and generic drugs. Brand Drug means a prescription product identified as a “brand” by Acme PBM or its designee using indicators from reporting services such as First Databank or other third party reporting sources. If your definition for brand or generic drugs looks remotely close to the example above, then you are being overcharged.

2) Contract definition for rebates. The definition for rebates in your contract should not include any exclusions or limitations. Strike any language that reads similar to Rebates do not include administrative fees paid by Pharmaceutical Manufacturers, Rebates do not include purchase discounts paid by Pharmaceutical Manufacturers, or directly attributable to the utilization.

3) Low or no administrative fee. An artificially too low administrative fee is a dead giveaway for overpayments. This is especially true when the plan sponsor has no audit rights on pharmacy reimbursements, no ability to determine net costs through NDC claim level detail for rebates, or finally little input on benefit design beyond member cost share, for instance.

Managing the pharmacy benefit efficiently is no easy task. It requires quite a bit of time, effort and skill to do it right. Anyone with business training can look at a P&L statement and determine whether or not a company made a profit. However, understanding the story behind those numbers requires a certain set of skills only a certified public accountant can provide, for example. The same can be said for pharmacy benefits as it too requires a particular set of skills and values to achieve lowest net cost.

An attorney shares the warning signs of ‘self-serving’ PBMs [Weekly Roundup]

 News and notes from around the interweb:

  • An attorney shares the warning signs of ‘self-serving’ PBMs. PBMs are designed to manage prescription drug benefits on the behalf of health insurers, saving both insurers and consumers money on prescription drugs. However, as the pharmaceutical industry has ballooned and drug prices have increased 33% since 2014, questions have been raised over whether PBMs are acting in the interest of their clients.

The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Self-funded employers have a corporate responsibility to understand MAC lists

PBMs with a traditional business model typically allow for price spread in exchange for reduced or eliminated administrative fees. It can generate a significant percentage of its revenue by retaining the spread from the MAC list. In some cases, this may be disclosed; however, plan sponsors are often not aware of how much revenue the traditional PBM retains. Auditing of this process is often very difficult.

With this method, the traditional model PBM uses an aggressive MAC price list to buy from their contracted pharmacies and a different, less aggressive list of prices when they sell to their clients. In essence, these PBMs buy low, and they sell high with their MAC price lists, marking up what they buy. The money derived from using multiple MAC lists goes into the pocket of the traditional PBM.

In contrast, a PBM with a radically transparent, pass-through business model does not keep the spread. Instead, this type of PBM uses one MAC list for all purposes: buying from the pharmacies and selling to the client, and then passing through the same drug cost, without markup, to the client. All discounts accrue directly to the benefit of the client (and member).

MAC prices are the upper limits that a plan will pay for generic drugs and brand drugs that have generic versions available (multi-source brands). Generic drugs often have a huge range of Average Wholesale Prices (AWPs), and the MAC prices are needed to reconcile the differences between an inflated AWP and the price the pharmacy actually pays.

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No two MAC price lists are alike. In other words, every PBM tends to pick and choose products for their MAC lists, using different criteria to derive and apply prices to the lists. Common criteria for inclusion of products on MAC lists include:

  • It’s a balancing act. The PBM’s goal is to work on behalf of its clients and members, bringing the best value, without unduly creating unrest among pharmacies.
  • There are basically two ways the PBM can handle the MAC price list: 1) they can be self-serving and operate a MAC list to generate revenue for themselves or, 2) they can fully pass-through all MAC discounts directly to the client.

A radically transparent, pass-through PBM’s only revenue source is an administrative fee that is typically calculated on a per paid claim or per-member, per-month (PMPM) basis. Any gains in pricing negotiated with pharmacy networks or pharmaceutical manufacturers are passed directly on to the client, at the beginning and throughout the course of the contract.

Be careful, PBMs can be transparent and still keep a spread using their MAC lists. Generally, pass-through pricing means that the PBM passes the discounts, rebates, other revenues and actual costs charged by the pharmacy or paid by a pharmaceutical company (in the form of rebates) directly on to the plan sponsor. In actual use, it can have various definitions according to the understanding of the parties. 

The term “pass-through” must be carefully defined in the contract in every instance it is used since there is no industry standardized term. A PBM may tell you that it will be transparent and pass-through, however, when presented with strict terms, the PBM may not be willing to abide by those terms. In summary, “transparent” PBMs are not necessarily “transparent pass-through” PBMs. While it may seem like a trivial distinction, it really isn’t.

Average Specialty Drug Price Reached $84,442 in 2020, Rising More Than Three Times Faster Than the Prices of Other Goods and Services [Weekly Roundup]

 News and notes from around the interweb:

  • Increasing Patient Adherence to Oral Chemo. With more than 115 oral agents approved by the FDA to manage different types of cancer, oral oncolytics “have solidified their place in cancer treatment,” a pharmacist said at the virtual 2021 ASHP Specialty Pharmacy Conference.

The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Kansas audited its $80 million prescription plan, but it’s still shrouded in mystery [Weekly Roundup]

 News and notes from around the interweb:

  • Kansas audited its $80 million CVS prescription plan, but it’s still shrouded in mystery. Kansas paid auditors $100,000 to dig into the more than $160 million it spent in 2018 and 2019 on prescription drugs for state employees, retirees and their families. But experts who follow the pharmaceutical industry say the resulting 16-page report doesn’t tell Kansas whether the health plan — or rather, the taxpayers and public employees who fund it — got a bargain or got gouged.
  • PBM Settles Two Pharmacy Benefit Probes for $71 Million. The settlements, announced on Thursday in statements from the attorneys general in Illinois and Arkansas, are related to claims the pharmacy benefit management business inflated drug costs. The company has resolved similar disputes with Ohio and Mississippi and has reserved $1.1 billion to cover the claims.

The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Tip of the Week: Claims Repricings as the Primary Tool in Evaluating PBM Proposals is Like Buying a Used Car Without Ever Looking Under the Hood [Rerun]

I always stress the importance of PBM contract language. That the language (transparency or lack thereof) in the contract will have the biggest impact on PBM cost performance is clear. More specifically, whether or not a plan sponsor has entered into a fair deal or bad deal with a pharmacy benefits manager.

If you believe a claims repricing or spreadsheeting is the best way to evaluate PBM proposals, then I’ve probably lost you already. They have a place in the evaluation process but should not be the primary tool. Using spreadsheets as the primary tool in evaluating PBM proposals is like buying a car without ever looking under the hood! It is the equivalent of signing the sales agreement only to find out later the price didn’t include an engine.
Spreadsheets are just easy and what most evaluators of PBM proposals are most comfortable with. They are numbers so it is simple to rank the results. Far too often the “lowest” cost wins and the better or more transparent deal is left in the cold. The truth is non-fiduciary PBMs have learned how to leverage the purchasing power of unsophisticated plan sponsors to their financial advantage. In other words, they give you the optics or what you want to see in exchange for what essentially equates to a blank check.
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PBM contract language gives the purchaser a peek into the future as to what is really going to happen – after the plan goes live! A claims repricing, for example, provides a look into the past. Alone, a claims repricing is not a reliable indicator of what costs might be in the future. The contract dictates how a PBM should behave. A contract with radically transparent language prevents the PBM from taking a rent-seeking strategy. Proposals with opaque contract language should de discounted. 
Conversely, proposals with radically transparent contract language should be given a premium. Make sure your broker or consultant is an expert at scoring PBM contracts. Ask for samples of their contract scorecards and the methodology. That is step one. Step two is to make sure your consultant maintains a PBM contract management system. 
Many of those conversations I mentioned at the beginning, uncovered the broker or PBM consultant didn’t know where their clients’ contracts were located. Even more scary is they didn’t know if the PBM would give them a copy. In our personal lives contracts reign supreme but when it comes to pharmacy benefits some stakeholders can’t even find the darn thing. 
With so much at stake it belies professionalism. It’s no wonder 90% of plan sponsors are overpaying to provide a pharmacy benefit to their employees. The one thing which matters most is being placed at the back of the line. Review your PBM contract periodically and make notes for concessions you want during renewal.

How PBM “rebate walls” impact drug spending, patient care and competition [Weekly Roundup]

News and notes from around the interweb:
  • The Value of a Hub in a Limited Distribution Specialty Pharmacy Network. A hub can play an essential role in coordinating the specialty pharmacy limited distribution network. Although specialty pharmacies may be able to offer some of the services that a hub provider does, a hub can standardize patient and provider support across the network and coordinate referrals to ensure patients end up at their most appropriate destination.
  • PBM Settles Two Pharmacy Benefit Probes for $71 Million. The settlements, announced on Thursday in statements from the attorneys general in Illinois and Arkansas, are related to claims the pharmacy benefit management business inflated drug costs. The company has resolved similar disputes with Ohio and Mississippi and has reserved $1.1 billion to cover the claims.

The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Tip of the Week: Specialty Drugs Have Taken Over (Rerun)

Specialty drugs used to be the novelty part of the drug spend: expensive, yes, but unusual. Ten years ago, specialty accounted for 15% to 20% of the money spent on drugs, but the CVS Caremark 2020 Drug Trend Report shows that specialty drugs accounted for more than half (52%) of the pharmacy spend last year. 

 Evernorth 2020 Drug Trend Report

The 2020 drug trend report from Evernorth (the new Cigna entity that Express Scripts is now part of) also showed that the spend on specialty drugs edged ahead of the spending on traditional medications (50.8% versus 49.2%).

Tyrone’s Commentary:

1) It’s more important than ever to drive high generic drug utilization. A generic dispensing rate or GDR of 80% is not high, relatively speaking. It costs you as much as 2.5% net savings for each 1% below the national average of 90% GDR.

2) Manufacturer assistance programs are a temporary reprieve. First, a drug manufacturer could pull the plug on financial assistance at any moment. More importantly, as more and more new patients initiate a specialty drug therapy regimen, you will find your Rx costs returning back to pre-PAP and pre-CAP program PMPM costs. In a commercial plan, 20 new specialty drug treatments are started per 1000 members annually. Say it with me…cha-ching! Take full advantage of manufacturer derived assistance programs while you can. Restrict the non-fiduciary PBM’s ability to profit from them. The more the PBM benefits from these programs financially the more you and your members pay. 

3) Eliminate expanded drug lists or EDLs. If you choose to keep an EDL as part of the benefit design, restrict them. Are you paid formulary rebates for a drug listed on the EDL? Worse yet, these EDLs create an environment where the relationship between physician and patient becomes transactional. Circumvention of a really good formulary is likely to result in wasteful and/or duplicative spending. 

4)  Lowest net cost formularies, high adherence rates (> 80%) and radical transparency in PBM contracts are and will remain the backbone of an efficiently run pharmacy benefit management program. Be relentless in removing money leaks from employer-sponsored pharmacy benefit programs. That effort starts with achieving radical transparency in your PBM service contract.

5) Education is key to getting to lowest net cost in employer-sponsored pharmacy benefit plans. Only the most sophisticated purchasers of PBM services will have the knowledge and confidence to bind lowest net costs for prescription drugs into contract language and benefit design. Hence, your competitive advantage includes executing good analysis of the correct information then deciding what all of this suggests for your organization. Those who seize the chance and develop a good plan have a higher probability of getting to lowest net cost. 

Five therapeutic categories are driving 90% of the specialty trend for CVS Caremark. Autoimmune is the largest drive because of supplemental indications, which is driving more utilization. The other four were oncology, cystic fibrosis, atopic dermatitis and HIV. New oncology products continue to be a large driver of spending and that in cystic fibrosis you are starting to see patients take more drugs per patient.

Evernorth’s report says 17 of the top 25 drugs ranked by total pharmacy spend were specialty medications in 2020.

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The Untold Truth: How Pharmacy Benefit Managers Make Money [Free Webinar]

How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer a fiduciary standard and instead opt for hidden cash flow opportunities such as rebate masking. Want to learn more?

Here is what some participants have said about the webinar.

“Thank you Tyrone. Nice job, good information.” David Stoots, AVP

“Thank you! Awesome presentation.” Mallory Nelson, PharmD

“Thank you Tyrone for this informative meeting.” David Wachtel, VP

“…Great presentation! I had our two partners on the presentation as well. Very informative.” Nolan Waterfall, Agent/Benefits Specialist


A snapshot of what you will learn during this 30 minute webinar:

  • Hidden cash flows in the PBM Industry
  • Basic to intermediate level PBM terminologies
  • Specialty pharmacy cost-containment strategies
  • Examples of drugs that you might be covering that are costing you
  • The #1 metric to measure when evaluating PBM proposals

Sincerely,
TransparentRx
Tyrone D. Squires, MBA  
10845 Griffith Peak Drive, Suite 200  
Las Vegas, NV 89135 
Office: (866) 499-1940
Mobile: (702) 803-4154


P.S.  Yes, it’s recorded. I know you’re busy … so register now and we’ll send you the link to the session recording as soon as it’s ready.