Author: Tyrone Squires, MBA, CPBS

This author has written 1351 articles

Tip of the Week: Pass-Through and Transparent PBM Business Models are Small Ideas (Re-run)

All of the different PBM business models will profess how much money they can help plan sponsors save or ways to improve your pharmacy benefit plan. But what one thing none of them are doing is sharing with these same employers how much money they are making off your group. Only two business models will do that – 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 the PBM is being paid for servicing your group?
Think about this for a second. The contracts pharmacy benefit managers enter into with pharmaceutical manufacturers and pharmacies are pretty much set in stone. Unless a PBM significantly outperforms its contract, the terms between us and manufacturers won’t change until the contract has come to an end. For a PBM to outperform a contract with a pharmaceutical manufacturer or rebate aggregator would require doubling the number of lives covered, for example. If you believe this and you should, then what plan sponsors are really negotiating for come renewal is what part of the discounts a PBM has secured you will allow that same PBM to keep. 
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The amount of dollars a PBM keeps for itself is referred to as the PBM’s service fee. In other words, it is the fee a PBM is charging you for the services it was hired to perform. PBM service fees are a primary driver of PMPM or PEPY costs. While rebates, clinical management, and discount guarantees are important, they are also being used to distract purchasers from a key driver of their final plan costs – PBM service fees.
Don’t confuse the service fee with the admin fee. The service fee is the amount of money a PBM keeps in its bank acount after the bills are paid. An admin fee is usually a per claim, PEPM or PMPM fee which is easily quantifiable. I don’t want to confuse you but the admin fee I’m referring to is different than a manufacturer admin fee. That is a topic for another day. In many cases, the non-fiduciary PBM will offer an artificially low admin fee knowing full well acceptance means you’ve essentially given it a blank check for service fees. 
Pass-through and transparent PBM business models don’t let you in on what their service fee amounts to. That is a big big problem. Unlike admin fees, service fees are not easily quantifiable primarily because non-fiduciary PBM don’t want you to know just how much their fees are contributing to your costs! The full-disclosure and fiduciary-model PBM will let employers in on their service fee or the part of negotiated discounts it will keep. The lower this fee the less employers pay plain and simple. A fair PBM service fee will bend the cost trend. Non-fiduciary PBM companies have learned how to leverage the purchasing power of the unsophisticated plan sponsor purchaser to their financial advantage. 
The perception of many plan sponsors is that “AWP minus discount” and the “minimum rebate guarantee” are the two key components in evaluating the PBM proposal. The plan sponsor should take the time to investigate the cash flows to the PBM. PBM cash flow is a variable rarely considered in the evaluation of PBM proposals yet can have the most profound impact on final costs. Making what you pay a PBM, or their service fee, the primary metric in evaluating PBM proposals is a big 💡 idea. A fiduciary PBM will allow purchasers this level of disclosure. If a PBM is purporting to be fiduciary yet doesn’t offer this level of transparency, then at the very least it is telling half-truths.
There are two things which should be non-starters for purchasers of PBM services. One, having full access to your own claims data, via SFTP, free of charge. Second, knowing what you pay a PBM for the services it was hired to perform. Alvin Toffler wrote, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” Education is the most logical and effective foundation for achieving extraordinary results in pharmacy benefit management services.

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

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. 

Tuesday Tip of the Week: It is a Myth That Any Pharmacy Benefit Manager Offers Better Price Savings Because of Their Size (Rerun)

 It is a myth that the Big 6 (ESI, CVS, Optum, Humana, MedImpact and Prime) offers better price savings just because of their size. The myth is often perpetuated by the old guard who for a long time have personally benefited from overpayments received from opaque PBM business practices. We can’t expect the old guard to bite the hand that feeds them, can we?

Sure, the Big 6 have more purchasing power, but their clients often don’t realize the full benefit. For example, if our rebate aggregator pays us, TransparentRx, a $3000 rebate for drug “A” every penny goes back to the client with an audit trail. The audit trail includes claim level detail (e.g. claim number, NDC, date and rebate amount) for every drug which earned a rebate payment. 

The Big 6 might earn $4000 on that same drug, but retains $1200 in-house, for instance. The plan sponsor pockets an additional $200 working with a radically transparent, albeit smaller, PBM. Without an audit trail a PBM could earn a rebate on a drug and not share any of those dollars with the plan sponsor who actually earned it. A similar scenario plays out in mail, specialty and retail pharmacy networks.

Price quotes (RFPs etc…) are simply an estimate of what the plan sponsor would have spent had the historical utilization matched that of the proposing PBM (a lot in this sentence). Furthermore, the future actual cost is unknown. As a result, the plan sponsor’s PBM contract is the most important tool to address the actual level of spend – not cost projections. Non-fiduciary PBMs know full well what you like to see in proposals. When contract language is opaque, the non-fiduciary PBM starts to eat away at the proposed savings, i.e. discount and rebate guarantees, as soon as you go live.

If you’ve never considered the PBM management fee in how you procure pharmacy benefit management services, watch this free webinar. The PBM management fee isn’t what you think it is. It is largely the undisclosed fee a PBM charges for providing their services to plan sponsors. For non-fiduciary PBMs, the bulk of this fee is buried in the final plan pharmacy cost. It goes without saying, the contract is king.

Tuesday Tip of the Week: Don’t Turn a Blind Eye to PBM Management Fees

Ohio Attorney General Dave Yost is going after a $101 billion corporation that used $20 million in taxpayer money to hire a pharmacy benefits manager to provide services for Medicaid recipients that essentially already were covered by another PBM paid by the state.

Click to Get Started!

In a deal reported by The Dispatch in October 2018 as part of its Side Effects series, Centene Corp’s Buckeye Community Health Plan hired two other Centene companies, Envolve and Health Net, to handle pharmacy benefits — even though Buckeye already had hired CVS Caremark as a pharmacy benefits manager.

Officials said at the time that the “administrator” and “manager” were paid for basically doing the same job. The duplication by Buckeye  — one of five managed-care organizations hired by the state to deliver health-care services to the 3 million Ohioans on Medicaid — was the main reason it was charging the state more than twice the per-prescription costs of the other four, a state consultant found.

Tyrone’s Comments:

I’ve never personally had my identity or a very large sum of money stolen from me. But I’ve got to imagine it would feel a lot like how AG Yost feels. That’s not to say Centene is guilty. In fact, chances are Centene will not be held liable. The contract the state of Ohio signed I’m sure allowed for an artificially low administration fee (e.g. per claim, PEPM etc.) on the front-end leaving the PBM to generate its management fee however it saw fit. The trade off then is great optics but poor cost performance. How else is the PBM going to pay dividends or make payroll on an $1 per paid claim administrative fee? When your administrative fee is artificially too low, say less than $6 per paid claim, alarm bells should be going off in your head. There are self-funded employers who pay more annually to PBMs in management fees than the drugs actually cost. Don’t be one of those employers. Be better.

“Corporate greed has led Centene and its wholly owned subsidiaries to fleece taxpayers out of millions. This conspiracy to obtain Medicaid payments through deceptive means stops now,” Yost said in an emailed statement. “My office has worked tirelessly to untangle this complex scheme, and we are confident that Centene and its affiliates have materially breached their obligations both to the Department of Medicaid and the state of Ohio.”

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Tuesday Tip of the Week: PBM’s are the Only Check on Drug Manufacturers’ Ability to Increase Drug Costs

PBMs are a critical component of the health care supply chain. The veiled reason groups want PBMs removed from the picture is because they want a bigger slice of the pie. PBM’s are the only check on drug manufacturers’ ability to increase the cost of drugs by negotiating the price to reasonable rates and avoiding cost hikes, as there is currently no regulation over Big Pharma and the prices they set. How do PBMs help plan sponsors save money?

1) Negotiate discounts

2) Increase use of generics
3) Make distribution more efficient
4) Negotiate rebates
5) Formulary management
6) Plan design
While PBMs are a critical component of the health care supply chain, they are also adding too much costs to the supply chain. Both can be true, we are critical components and charge too much. PBMs do a great job at negotiating savings but get greedy when the time comes to return those savings back to plan sponsors. Education is the key to getting to lowest net cost in pharmacy benefit plans. 
Only the most sophisticated purchasers of PBM services will have the knowledge and confidence to bind radical transparency into PBM 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.
CASE STUDY

After going through a market check in 2019, a midsize client was looking for a better deal than their incumbent PBM. The client hired a major consultant to evaluate offers from leading PBMs to determine who would provide the best deal. Despite ranking middle of the pack on the consultant’s scorecard, TransparentRx won the business. We were able to demonstrate how transparency and the PBM’s management fee impacts cost. 
When the carrier, PBM and ASO all share the same parent company, it may combine aspects of the two funding options to subsidize pricing by cost-shifting. Self-insured employers may have forces working against them. Here are the results after the first twelve months:

Tuesday Tip of the Week: Vertically Integrated Insurers Pivot to Protect Drug Manufacturer Revenue

Insurer vertical integration
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Humana Inc. has agreed to join a purchasing group run by rival Cigna Corp. in a move that the health insurer says will help drive down its drug costs for its commercial members. Beginning April 1, Humana will join a Cigna purchasing organization called Ascent Health Services to give it access to greater discounts from drugmakers, the companies confirmed to Bloomberg News. Ascent manages commercial rebates, the payments that drugmakers make to health plans. The agreement covers drug contracting and negotiations for Humana’s commercial business.

“This arrangement will help us leverage scale and buying power to extract deeper price discounts from drug manufacturers and advance affordability for our customers while at the same time preserve our ability to address their specific clinical needs,” Humana spokeswoman Kelley M. Murphy said in an email.

Tyrone’s Commentary:

This move and others like it are a play to hold on to the undisclosed cash flows non-fiduciary PBMs generate from drug manufacturers for rebates. In place of rebate disguising, non-fiduciary PBMs charge manufacturers fees as part of the GPO or group purchasing organization. This arrangement technically (by passing through all manufacturer revenue less GPO fees to plan sponsors) allows non-fiduciary PBMs to be in compliance with the new regulations being placed on us by departments of insurance across the country. Radical transparency requires that plan sponsors are able to verify the fees earned by PBMs in these GPO arrangements.

Cigna and Humana both sell health insurance and other medical services, including pharmacy benefits. Cigna has expanded its footprint in the pharmacy business since its 2018 acquisition of Express Scripts. In 2019, Cigna announced a three-year deal to work with Prime Therapeutics LLC, a pharmacy-benefit manager owned by Blue Cross and Blue Shield plans. Cigna executives have described how working with outside partners like Prime can increase purchasing leverage with drugmakers.

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

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. 

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

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.

Tuesday Tip of the Week: Optimize Specialty Contracting to Control Costs and Improve Patient Outcomes

Specialty drugs are the future of health care. They are becoming more curative thus require high-contact care coordination and deliberate follow up to guarantee patients stay disciplined and can manage potential side effects to optimize therapy. As a result, payers have looked to narrow their networks as a means to control outcomes, contain costs, and protect revenue which in turn dictates where patients can fill their prescriptions. Today, there is a range of pharmacy options for payers to assess. For the purpose of this blog post, a payer is both a PBM and plan sponsor (third-party), for example.

Health System Specialty Pharmacy (HSSP)

A study by the CDC showed that patients working with an HSSP had an 89% medication adherence rate compared with 74% for patients filling prescriptions at specialty pharmacies outside of their health system. Additionally, well-established HSSPs may have broader access to LDDs or limited distribution drugs compared to larger SPs. HSSPs are on track to become the fastest-growing sites of care over the next 5 years, offering a valuable opportunity for payers to broaden their reach and meet patients at the community-level. HSSPs are uniquely positioned to access both electronic health record and claims data and may provide outcomes assessment data for payers. Patients benefit from a level of high-quality, coordinated care that promotes better adherence and outcomes. It may, however, also come at a higher cost.

Independent Pharmacy

Independent pharmacies that offer specialty dispensing may provide more extensive clinical services in niche therapeutic areas. Additionally, independents often have higher agility in terms of adopting and customizing clinical programs to meet patient and payer needs. While independent SPs may be a part of certain LDD networks, they typically do not have access to the vast majority of specialty drugs on the market.

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Chain Specialty Pharmacy

Chain or major retail pharmacies with specialty channels, have greater access to LDDs than independent SPs. Due to their large number of physical stores, they are a convenient option for patients. However, given the high volume of specialty prescriptions they dispense every day, chain SPs may have less time and bandwidth to dedicate to individualized patient care and follow-up. As a result, they may experience lower customer service ratings compared with other types of SPs. Finally, when the PBM, insurance carrier and specialty pharmacy are all owned by the same organization this convenience often comes with strings attached. Some plans are required to use only the chain’s SP and often forgo rebates in doing so.

Specialty Pharmacy Network

One emerging option for third-party payers is to work with a specialty pharmacy services administration organization (PSAO), a centralized contracting organization that aggregates and supports multiple types of specialty pharmacies at once. Composed of a mix of HSSPs, independent SPs, and medically integrated dispensers, specialty PSAOs create access to a larger network of high-performing pharmacies and enable payers to utilize the trust and familiarity patients have at local and regional facilities, in addition to independents. 

The pharmacy landscape has changed significantly in recent years, and payer networks must follow suit to ensure they are taking advantage of the patient benefits and quality of care each type of pharmacy provides. It’s important for payers to consider how they can evolve and optimize their specialty contracting strategies—not only to control costs, but also to increase patient access to high-quality care that leads to better outcomes.

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Tuesday Tip of the Week: Money is Good, Information is Better

Three economists were critical in creating and expounding on the hypothesis of information asymmetry or information failure: George Akerlof, Michael Spence, and Joseph Stiglitz. The three shared the Nobel Prize in economics in 2001 for their commitments. 

Information Asymmetry hypothesis suggests that sellers may have more data than purchasers, slanting the cost of merchandise sold or services rendered. The theory argues that low-quality and high-quality services can command the same price, given a lack of information on the buyer’s side. 

Akerlof initially contended about information asymmetry in a 1970 paper named “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” In this paper, Akerlof gave a new explanation for a well-known phenomenon: the fact that cars barely a few months old sell for well below their new-car price. Akerlof’s model was simple but powerful. 
Assume that some cars are “lemons” and some are high quality. If buyers could tell which cars are lemons and which are not, there would be two separate markets: a market for lemons and a market for high-quality cars. But there is often asymmetric information: buyers cannot tell which cars are lemons, but, of course, sellers know. Therefore, a buyer knows that there is some probability that the car he buys will be a lemon and is willing to pay less than he would pay if he were certain that he was buying a high-quality car. This lower price for all used cars discourages sellers of high-quality cars. 
Although some would be willing to sell their own cars at the price that buyers of high-quality used cars would be willing to pay, they are not willing to sell at the lower price that reflects the risk that the buyer may end up with a lemon. Thus, exchanges that could benefit both buyer and seller fail to take place and efficiency is lost.
KEY TAKEAWAYS
PBMs know exactly how much they are charging (management fee) for their services, but self-funded employers do not. Non-fiduciary PBMs don’t want buyers (employers) to know how much revenue they generate because it would allow better decisions on the part of their customers. Those customers, self-funded employers among others, don’t realize that in many cases the PBM’s management fee contributes more to their final plan costs than does the ingredient cost! 
A large number of the difficulties self-funded employers face come about because of something they are doing or not doing, something that changing broker, benefits consultant or even PBM won’t fix. My experience reveals that their grievances about prescription drug prices and pharmacy benefits management in general stem from the self-funded employer’s choices and constraints, not a lack of options.
Self-funded employers are smart but they are unaware of or lacking information that might benefit them in improving their pharmacy benefit management decisions. Better decisions are the first step to improving their employer-sponsored pharmacy benefits results. The key then to getting to lowest net cost and maximizing efficiency in their pharmacy benefit program is eliminating information asymmetry which requires extensive pharmacy benefits management education and training.