Author: Tyrone Squires, MBA, CPBS

This author has written 1305 articles

Tuesday Tip of the Week: 3 Ways Savings Could be Achieved by Improving Pharmacy Benefit Design and Management

PBMs or pharmacy benefit managers have large scale, highly automated operations to process claims and provide customer (client and member) service. The services a PBM provides can be categorized as administrative or clinical. Administrative services include benefit administration, enrollment and eligibility administration, pharmacy network administration, mail pharmacy service, claims adjudication, and manufacturer contracting and rebate administration. Clinical services range from formulary management to sophisticated utilization and disease management programs.
PBM services revolve around the drug benefit designed by the client. The benefit design determines the drugs that are covered, and the extent to which generics and formulary drugs are mandated. As a part of the drug benefit, a co-pay structure is developed which determines the cost sharing between the client and its employees or members. PBMs receive enrollment information from their clients and maintain the pharmacy benefit eligibility files.
Plan sponsors could lower drug spending and out-of-pocket costs for enrollees by reducing the use of high-cost, low-value drugs on formularies. PBMs provide a range of services including formulary development, clinical care management, utilization management (including preauthorization), negotiations with pharmacies for drug price discounts, negotiations with manufacturers for rebates, and claims adjudication and payment.
Plan sponsors use services depending on their individual models and preferences; administrative fees are assessed accordingly. Services with the potential to increase revenue streams to the PBM may lower administrative fees; for example, formulary design that allows PBMs to select “profitable” drugs in terms of rebates and pharmacy spread might be accompanied by reduced administrative fees. Plan sponsors have made unfavorable and often uninformed trade-offs for reduced administrative fees to PBMs. Here are three ways savings could be achieved by improving pharmacy benefit design and management.
1) Eliminate wasteful or low-value drugs which includes me-too drugs (immaterial tweaking of a particular ingredient results in a “new” drug that adds no clinical value and often extends patent protection), combination drugs or drugs that combine two active ingredients into one pill resulting in costs substantially higher than the costs of the individual ingredients, prescription drugs offered when over-the-counter alternatives are available, and brand-name or higher-priced generic drugs offered when lesser-cost generics are available
2) Compare reduced per-member per-month drug spend that can result from an appropriate drug mix instead of the current conventional procurement processes involving consultants comparing administrative fees, rebates, and discounts.
3) Make the PBM’s management fee the #1 metric when evaluating PBM proposals and performance. The revenue a PBM keeps for itself is referred to as its management fee. In other words, it is the fee a PBM charges a client for the services it was hired to perform. PBM management fees are a hidden driver of pharmacy costs. While discount guarantees, rebates and clinical management are very important, they are also being used to distract purchasers from a key driver of their final plan costs – PBM management fees.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 333)

This document is updated weekly, but why is it 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 health care reform.
 
 
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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

Tuesday Tip of the Week: PBMs can be Fiduciaries

It’s not important to me who is right or wrong. I’m focused on making sure plan sponsors get the right information. Ohio’s Attorney General in 2019 called for PBMs to be fiduciaries. Still there is doubt among commercial and public sector employers, unions, health plans and health systems whether a PBM can act as a fiduciary. Very few purchasers of PBM services are asking for a fiduciary model in their pharmacy benefits management request for proposals, for instance.

Pass-through and transparent PBM business models don’t inherently eliminate wasteful and duplicative spending. Because these models thrive on optics and not delivering lowest net cost, they can leave plan sponsors mired in the status quo. In their middleman role, PBMs have used secrecy and subterfuge to pad their own profits instead of passing savings along to customers. John Paul Jones wrote, “It seems to be a law of nature, inflexible and inexorable, that those who will not risk cannot win.” 

 
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“When state agencies entered into these nebulous deals with PBMs, they unknowingly hired a fox to guard the henhouse,” Yost said. “But he was a smart fox. He didn’t kill the chickens; he helped himself to the eggs.” The attorney general recommended “a solution based on market principles” identifying four objectives that should be met:

1) State drug purchases should go through a master PBM contract that is administered through a single point of contact.

2) The Ohio Auditor of State should have unrestricted authority to review all PBM drug contracts, purchases and payments.

3) PBMs must be fiduciaries.

4) Nondisclosure agreements (NDAs) on drug pricing with the state must be prohibited.

What was the broker or consultant’s role in that situation? There are situations where you have someone who is trying to prove that they’re valuable by trying to play hardball with people and spin it as if they are looking out for you. On March 15, 2019 AG Yost filed suit against OptumRx on behalf of the Ohio Bureau of Workers’ Compensation seeking to recover nearly $16 million in overcharges to the fund intended to protect injured workers. 

 
A fiduciary standard cannot be forced upon PBMs at least not yet but AG Yost acknowledges, albeit implicitly, PBMs can be fiduciaries if we so choose to put our clients’ interests above our own.

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Drugmakers Push Back on the Use of Contract Pharmacies by 340B Covered Entities

With October deadlines in the rear-view, hospitals and health systems that participate in the 340B drug pricing program are scrambling to respond to a flurry of new audit demands from drug manufacturers, as well as manufacturer limitations on the number of contract pharmacies that these covered entities are allowed to use under 340B. Manufacturers and providers participating in the 340B Drug Pricing Program have entered into a new phase of tensions this summer, as manufacturers push back on the use of contract pharmacies by providers. 

Additionally, beginning in June, some manufacturers sent letters to providers, directing them to upload contract pharmacy claims data for 340B-eligible prescriptions to the vendor 340B ESP to minimize duplicate discounts for claims that are submitted to Medicaid, Medicare Part D, and commercial payors. 340B administrator entities responded by sending communications to the same providers, reminding them of the confidentiality and data privacy obligations governing the claims data, and refusing to provide authorization to disclose data for payors other than Medicaid.

One manufacturer’s announced refusal to sell drugs for shipment to contract pharmacies is the strongest stance on this issue so far. This announcement will require a response from HRSA (the agency endorsed the use of contract pharmacies in a 2010 regulatory notice), which may ultimately lead to a court battle on the question whether the use of contract pharmacies is permissible under the 340B Program.

Drug companies have become more emboldened in recent weeks to restrict sales to contract pharmacies as legal experts say the Trump administration lacks authority to crack down on the drug companies. Merck, Sanofi and Novartis have called for contract pharmacies to submit claims in order to avoid duplicative discounts. Back in July, Lilly restricted sales to contract pharmacies of three formulations of the erectile dysfunction drug Cialis.

Tyrone’s Commentary:

That pharmaceutical companies would incorporate more compliance initiatives into the 340B program should come as no surprise. Some hospitals were pocketing the savings from 340B discounts instead of offsetting patient out-of-pocket costs, for example. This is only the beginning. First, drug manufacturers clamped down on rebate aggregators and their submission of duplicate or unqualified claims for rebates. Now, the focus has shifted to the use of contract pharmacies by 340B covered entities. Next, I presume drug manufacturers will shift their focus to the abuse of copay maximizer and manufacturer assistance programs. There is no long-term substitute for being an astute caretaker of your employer-sponsored pharmacy benefit plan. 

Pharmaceutical companies are targeting a popular tool used by hospitals in the 340B program, which requires drug companies to provide discounts to safety-net hospitals in exchange for participation in Medicaid. Roughly one-third of the more than 12,000 340B hospitals use a contract pharmacy to dispense the discounted drugs, according to a 2018 report from the Government Accountability Office. 

The GAO report found that the Health Resources and Services Administration, which oversees the 340B program, does not fully assess compliance with the program’s prohibition on duplicate discounts for drugs prescribed to both Medicaid and 340B. Pharmaceutical manufacturers have also charged that the discount program has gotten too large and unwieldy.

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Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 332)

This document is updated weekly, but why is it 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 health care reform.
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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

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

The reason so many PBMs are reluctant to offer radical transparency is in doing so their revenues would be cut in half! How many businesses do you know will voluntarily cut their revenues in half? Instead, non-fiduciary PBMs seek out arbitrage opportunities to foster top-line growth. 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 flow streams in the PBM Industry
  • Basic to intermediate level PBM terminologies
  • Examples of drugs that you might be covering that are costing you
  • The #1 metric to measure when evaluating PBM proposals
  • Strategies to significantly reduce costs and improve member health

Sincerely,
TransparentRx
Tyrone D. Squires, MBA
10845 Griffith Peak Drive, Suite 200
Las Vegas, NV 89135
866-499-1940 Ext. 201

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.

Tuesday Tip of the Week: Focus on Lowest Net Cost Drugs

Organizations, such as the New York Department of Health, often downplay intelligence, believe their competitors to possess access to the identical information. Well, everyone also has access to a large array of fruits and vegetables, yet many don’t eat them or eat only a few. New Yorkers wastefully spent more than $706 million in Medicaid payments over three years. The state Department of Health uncovered the overcharges for pharmacy services, according to audits released by the state comptroller.

State Comptroller, Thomas DiNapoli, released five audits with several recommendations to improve the program. The comptroller criticized state health officials for failing to establish sufficient oversight and control with managed care payments, which led to the unnecessary payments. The department has worked to ensure efficient and cost-effective pharmacy services for New Yorkers dependent on Medicaid with the FFS model.

Many employers, unions, and government agencies pay large consultancies and brokerage firms to help them avoid overpaying for pharmacy services. So then how does this keep happening? There are a number of reasons including misaligned incentives, inefficient procurement and indifference just to name a few. But, the primary reason is without question a wholesale lack of education around pharmacy benefits management in general. It is education which leads employers to leveraging the four pillars to better PBM performance.

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Auditors found DOH missed opportunities to lower costs on pharmacy services delivered through Medicaid managed care because officials did not ensure the use of the lowest net cost drugs, according to the comptroller. Auditors estimate $605 million was spent in unnecessary drug costs from Jan. 1, 2016, through Dec. 31, 2019. Folks access doesn’t translate into action. Buzzwords and repurposed RFPs with 200 hundred questions are not working.
A senior leader from one of the world’s largest 
pharmaceutical manufacturers emailed this to me…  
 
“We have had numerous debates internally about how purchasers are asking for transparency vs. just the lowest price. Contract nomenclature often obscures the real price. We get asked often about direct contracting between manufacturer and employer.  Lots of barriers but conceptually something that needs to be considered and they are not asking for a lower net price vs. the PBM…just better optics!”
 
Education is key to use of lowest net cost drugs in 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 that may reasonably be accomplished have a higher probability of getting to lowest net cost.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 331)

This document is updated weekly, but why is it 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 health care reform.
 
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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.
 

Tuesday Tip of the Week: Increase out-of-pocket (OOP) spending for specialty drugs

Medicare beneficiaries pay substantially higher out-of-pocket (OOP) costs for specialty drugs than employer-sponsored insurance enrollees. Based on specialty drug class, average OOP spending for Medicare fee-for-service (FFS) enrollees was $108 to $1437 greater than spending by employer-sponsored insurance enrollees. Medicare Advantage beneficiaries had slightly higher OOP spending than FFS beneficiaries.
The pharmaceutical pipeline is moving toward more high-cost specialty drugs. From 2008 until 2017, CMS defined specialty drugs as those with a monthly cost greater than $600; beginning in 2017, the threshold became $670. These drugs are primarily biologics and biosimilars used to treat complex chronic conditions such as rheumatoid arthritis (RA), multiple sclerosis (MS), cancer, and hepatitis C. Patients with these conditions have few other clinical options, forcing them to pay high cost-sharing rates or forgo treatment.
How Much US Households with Employer Insurance Spend Premiums OOP | Commonwealth Fund
Care for these diseases can begin around age 40 years and continue throughout life, making health insurance coverage likely to span across employer-sponsored insurance (ESI) and Medicare prescription drug (Part D) coverage. Few studies have examined whether the financial burden placed on patients who take specialty drugs differs among those with ESI, Medicare fee-for-service (FFS), and Medicare managed care (Medicare Advantage [MA]) drug coverage.
The benefit structure of Part D results in Medicare enrollees paying substantially higher OOP costs for specialty drugs than employer-sponsored insurance enrollees, primarily due to the absence of an OOP cap in Medicare and the donut hole. Given the policy and clinical concerns that high cost sharing may lead to nonadherence and financial burden, it is important to understand the levels of cost sharing across insurance types and the role that benefit design may play.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 330)

This document is updated weekly, but why is it 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 health care reform.
 
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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.