Author: Tyrone Squires, MBA, CPBS

This author has written 1368 articles

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.   

Tip of the Week: What is spread pricing, and how does it affect a PBM’s revenues?

Knowing which factors influence revenues for commercial health plans and pharmacy benefit managers (PBMs) helps health insurance brokers and PBM consultants provide the right mix of solutions to their customers. But deciphering annual reports and financial statements can be tricky if you’re not a CFO. What’s more, these resources rarely provide a complete picture of a PBM’s revenue model.

How important are rebates to a health plan’s or PBM’s bottom line? How do commercial plans earn revenue on premiums? What is spread pricing, and how does it affect a PBM’s revenues? You can find the answers to these and other questions in our recent webinar, “Benefits of Working with a Fiduciary-Model PBM.” This off-the-shelf webinar recording explains the main sources of PBM revenue and key expenses for health plan sponsors. 

And for the short term, payer financials may be especially challenging to decipher, given the impact of COVID-19. For example, many health insurers have reported strong earnings because they have had to pay fewer claims, as patients have delayed care or canceled elective procedures. Whether this trend holds as the country faces additional surges is unclear.

Tip of the Week: How PBMs Help Rein in Drug Spending

Figure 1

Pharmacy benefit managers (PBMs) are hired by employers or organizations to act as the middleman between drug manufacturers and pharmacies. They essentially seek to bring together the entire pharmacy supply chain, while helping to improve patient outcomes through clinical and cost-saving programs. The United States spent an estimated sum of approximately $500 billion on medications in 2019. This number combines all insurance types as well as cash-paying patients. This is a $200 billion increase over the past 10 years. 

There is no telling what this number would be without PBMs. PBMs seek to control that spending while providing the most effective care to their members. These negotiation skills have the potential to provide significant value. There is nothing more a CEO from a drugmaker would love than to remove PBMs from the negotiating table. Point-of-sale rebates, for example, might reduce member cost share but any lost revenue, by non-fiduciary PBMs or health plans, will be shifted elsewhere. A CBO (Congressional Budget Office) report happens to agree. Reducing PBM purchasing power (negotiating rebates) would allow pharmaceutical companies to offer discounts 15% smaller than their current rebates. There are a few additional ways in which PBMs can help their clients (see figure 1):
1) Administer and process claims
2) Provide pharmacy networks
3) Provide mail order services
4) Negotiate with manufacturers
5) Optimize plan performance of clients
6) Ensure safe, cost-effective, appropriate medication utilization

Tyrone’s Commentary:

The primary goal of a PBM is to contain its clients’ cost. We do that by negotiating with drugmakers and pharmacies for better pricing, managing utilization and product mix. There is a direct correlation between transparency and value transfer in pharmacy benefits. To the extent a PBM’s cost-containment practices benefit commercial and public sector employers, unions, health plans and health systems, matters a great deal. When a PBM is successful in cutting costs and doesn’t transfer those savings to the client, it increases revenue for the PBM but in turn increases costs to employers and employees, for example.

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Tip of the Week: A Good Formulary is the Backbone of an Efficient Pharmacy Benefit Program

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A drug formulary is a continually updated list of medications and related information, representing the clinical judgment of pharmacists, physicians, and other experts in the diagnosis and/or treatment of disease and promotion of health. It is often described as a list of medications routinely stocked by the health care system. The formulary was developed by hospitals in the 1950s as a management tool. A key purpose of the formulary was to discourage the use of marginally effective drugs and treatments. 

Over time, the formulary has evolved beyond a simple list of medications. It is now one element of a system that includes medication use policies, a pharmacy and therapeutics committee, medication use evaluation, and formulary management. The formulary, today, can be more accurately defined as a continually updated list of medications and related information, representing the clinical judgment of pharmacists, physicians, and other experts in the diagnosis and/or treatment of disease and promotion of health.

  1. Closed formulary: A list of medications (formulary) which limits access of a practitioner to some medications. 
  2. Open formulary: A list of medications (formulary) which has no limitation to access to a medication by a practitioner.
  3. Tiered formulary: Plan sponsors offer different copays or other financial incentives to encourage participants to use preferred formulary drugs but pay a portion of the cost of non-preferred drugs. 

Formularies are fundamental to the formulary system—defined as an ongoing process which methodically evaluates medications on an ongoing basis for inclusion or exclusion, establishes guidelines for optimal medication use, and develops policies and procedures for prescribing, dispensing, and administering medications. The formulary system is managed by the pharmacy and therapeutics committee or equivalent group—made up of an organized team of medication system experts. 

When considering a formulary, access defines the basic aspects of a pharmacy benefit design which includes but is not limited to:

  • The products that will be covered
  • The products that will not be covered
  • The products that need prior approval
  • Plan cap or maximum dollar amount a plan will pay for outpatient drug benefits
  • Mail service benefits including specialty pharmacy, if any
  • Pharmacy network makeup 

There are advantages and disadvantages to a formulary system. The primary advantage is that it provides a systematic method to review scientific evidence on clinical effectiveness and cost effectiveness in drug selection decision, thus potentially improving health outcomes while reducing costs. A major disadvantage, however, is that an overly restrictive formulary system may potentially reduce the quality of care by limiting access to clinically indicated medications.

Managing a formulary and improving its efficiency involves an ongoing assessment of the drugs on the formulary as well as any new potential drug therapy treatments. Again, do not leave this responsibility solely in the hands of the PBM unless it has agreed to accept fiduciary responsibility. Rebates should never be the primary reason a drug is selected to be on the formulary. The purpose of your health plan’s formulary is to steer members to the least costly medications that are sufficiently effective for treating their health conditions.

Tip of the Week: How to Eliminate Huge PBM Markups and Reduce Pharmacy Costs by 50%

Generating more than $400 billion annually, the PBM industry offers a valuable service, providing pharmacy benefits to nearly 250 million Americans. Unfortunately, very few people outside of the industry fully understand how much money PBMs keep for themselves after the bills are paid.  

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PBM clients include, but are not limited to, commercial and public sector employers, unions, health plans and health systems just to name a few. All of the different PBM business models will profess how much money they can help plan sponsors save or that they are the most effective at improving your pharmacy benefit plan. However, very few of them share how much revenue they retain. Neither do they disclose their management fees. 

Only two PBM business models will share their management fee – fiduciary or radically transparent PBM models. I mean, who are we kidding? Traditional, pass-through, and transparent PBM business models are for the most part the same. Do any of them reveal how much money they are being paid for their services? Think about this for a second. Contracts between pharmacy benefit managers and pharmaceutical manufacturers and pharmacies are pretty much set in stone. Unless a PBM significantly outperforms its contract, the terms between the PBM and manufacturer or pharmacy network will not change until the contract ends. 

“The PBM’s Management Fee is the #1 metric in evaluating proposals and getting to the lowest net cost during an RFP.” 

PBM Management Fee = AF (Administrative Fees) + DF (Dispensing Fees) + IC (Ingredient Costs) + MR (Manufacturer Revenue) – CD (Cash Disbursements)

For a PBM to outperform a contract with a pharmaceutical manufacturer, would require a significant change in market share, for example. Given this reality, what health plan sponsors are really negotiating for during renewal is what part of the discounts a PBM has secured you will allow that same PBM to keep. The part a PBM retains is its management fee.

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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.   

Tip of the Week: Drugmakers circumvent health plan sponsor benefit designs, at the switch, to get high-cost brand drugs dispensed

Why aren’t more people up in arms about this? Brand drugmakers are circumventing pharmacy benefit plan designs by offering eVouchers or electronic vouchers for expensive drugs at the “Switch.” The switch is what routes the third-party prescription claim to the PBM or health plan associated with the prescription. Within seconds, the script leaves the pharmacy, goes to the switch and then is received at the relevant PBM.


When the benefit design has soft UM or no utilization management protocols, such as mandatory generic enforcement, it allows drugmakers to bypass a tier 1 drug for a tier 2-4 drug or even worse a non-formulary drug, with eVouchers (see process flow diagram below). The two largest switch companies are RelayHealth and Change Healthcare. As Relay Health tells the story, its electronic voucher program is a Win-Win-Win solution:
  • Doctors “set aside concerns over costs”
  • “Patients benefit from lower copays” and “increased adherence”
  • Manufacturers benefit from increased “scripts written”, “the likelihood patients will fill and adhere to them” and “increased brand loyalty”
But what about you the health plan sponsor? You are conveniently left out of the equation even though you cover most of the cost. I teach in our CPBS Certification course how plan sponsors fund the entire USA prescription drug system but know the least about how it works. Simply put, it is your checkbook they are after. The financial impact of switch operators’ eVoucher programs to health plan sponsors is significant and growing with each passing day.

Click to Enlarge

There are two ways to prevent the scenario above from happening:

(1) PBM puts language into its contract, with the Switch company, preventing the action.
(2) Benefit design maximizes the drug utilization management toolkit including step therapy and mandatory generic enforcement programs.

Number two is sticky as many plan sponsors are hellbent on employees getting the drug they want without any scrutiny (i.e. step therapy). I don’t agree but it’s not my checkbook. The point is to make people happy through better outcomes not for the sake of avoiding the pain that comes with running an efficient health plan. In a sense, drugmakers, and non-fiduciary PBMs for that matter, are leveraging HR’s desire to keep employees “happy.”

For TransparentRx the choice is simple, either you want an efficient pharmacy benefit program or you don’t. If you [health plan sponsors] don’t want an efficient pharmacy benefit program then expect to pay $1000 for a drug when a $100 drug would have provided the same level of efficacy, for example. eVouchers, especially when supported with direct-to-consumer TV ads for high-cost brand drugs and soft utilization management protocols, are an expensive proposition for health plan sponsors yet lucrative one for brand drugmakers.

Ohio awards contract worth billions to the same company it accused of fraud and was later paid $88 million as a result

Ohio is again in business with a company that only recently it was accusing of massive fraud. The state’s leaders seem reluctant to explain why. Two months ago, Ohio Attorney General Dave Yost announced that Centene, the largest Medicaid managed-care provider in the United States, would pay Ohio $88.3 million to settle a lawsuit claiming that Centene had defrauded taxpayers of tens of millions of dollars. 

In a regulatory filing, the company said its overall settlement of those and expected fraud claims was much bigger than that. It set aside $1.3 billion to settle such claims across the country, the filing said. An analysis commissioned by the Ohio Department of Medicaid showed that in 2017, drug middlemen owned by Centene was charging the state $20 million for services that it was already paying CVS for. It’s a claim they both denied.

Tyrone’s Commentary:

There are probably details the public is not privy to, but lets assume for a second that isn’t the case. If I had to do it all over again, I would pick up golf. It seems relationships matter more than results for some.

The suit AG Yost filed against Centene in March made a similar allegation. It said that Buckeye had defrauded taxpayers of tens of millions of dollars by working through a chain of middlemen to overcharge for prescription drugs. On Friday — a day when government entities are known to put out news they want to bury — Medicaid issued a brief press release. It touted the news that Centene’s Buckeye would become the state’s seventh managed care provider by saying it “will give customers more options.”

It didn’t make any mention of fraud; it just said the lawsuit was settled, so it’s time to get back into business with Centene.

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