Author: Tyrone Squires, MBA, CPBS

This author has written 1377 articles

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
Click to Learn More

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.

<< Read More>> 

[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.

Click to Learn More

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.

<<Read More>> 

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.

Auditor Claims Non-Fiduciary Pharmacy Benefit Manager Hiked Drug Prices by $1.6 million with Rebate Credit Program

The Lehigh County Controller’s Office reviewed Lehigh County’s prescription drug plan administered through Highmark which lost savings of almost $1.6 million, while battling a lack of transparency and openness about drug costs. The report sheds light on the middlemen of the insurance world, Pharmacy Benefit Managers or PBMs and their power.
PBM’s directly negotiate with pharmacies to determine how much they will reimburse them for the cost of their drugs and receive rebates from pharmaceutical companies to improve the likelihood that consumers will utilize a preferred drug. These rebates should in theory be passed back to the insurer, in this case, Lehigh County.  However, this process does not always occur and savings can depend in large part on the negotiation of the contract.
Lehigh County elected to choose a fixed discount structure, meaning that it received a flat rate savings for each employee on its healthcare plan. Lehigh County is self-insured. It could have elected to take full rebate value which results from savings passed from the pharmaceutical company to the Pharmacy Benefit Manager, but chose not to do this. In 2019, Lehigh County found that the actual rebate value exceeded the fixed discount by $700,000!
Tyrone’s Commentary:

Click to Learn How

If you are a self-funded employer who has relinquished rebates to the non-fiduciary PBM in exchange for a credit of some sort, whether to the medical or pharmacy benefit, you may want to seriously reconsider that decision.  Heed the words of Controller Mark Pinsley who said, “I feel like it’s just a false narrative. It’s just what they have created, like you either get this or you get this. That’s their decision. There’s no rule that says it has to be that way.” Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the U.S. pharmacy distribution and reimbursement system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction. 

“This audit exposes what many of us have known, that our healthcare system is wasteful, lacks transparency and is subject to the greed of Pharmacy Benefit Managers that are more interested in profit,” said Controller Mark Pinsley.

Tuesday Tip of the Week: Drug Manufacturer Rebates Have Never Been the Problem

The Department of Health and Human Services on Friday agreed to push back the implementation of a controversial rebate rule until 2023. The regulation would effectively ban drug makers from providing rebates to pharmacy benefit managers and insurers — a radical change in the way many drugs are priced and paid for in Medicare and Medicaid. 

Instead, drug companies will be encouraged to pass the discounts directly to patients at the pharmacy counter. The Trump administration had backed down from issuing this rule in 2019 after it was found to raise costs for seniors and the federal government, but issued the final rule in November. 

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, sued the Trump administration to stop implementation of the rule. The group, along with America’s Health Insurance Plans, argue that it would benefit drug manufacturers. A federal judge last week put the case on hold pending a review by the Department of Health and Human Services.

Tyrone’s Commentary:

Click to Learn More

For the record, I  worked for one of the big five drugmakers Eli Lilly & Co. and can tell you these people weren’t sitting around thinking of ways to take advantage of patients or payers. Sure prescription drugs can be very expensive but they’re not as costly as the hospitalization that would be required if they didn’t exist. I’m likely in the minority on this issue, but sometimes critics of drugmakers act as if drugmakers created the diseases which cause harm to people and then manufactured the drugs to profit from their own creation. 

In fact, the opposite is often true; drugmakers develop drugs for which there may be no alternative other than surgery, chronic pain or death in order to prolong life. Having said that, this rebate rule would have been a financial windfall for drug manufacturers. The Congressional Budget Office or CBO said as much. 

Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the health care system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction. 

PBMs should not be generating a single penny of revenue for themselves from rebates or any manufacturer revenue. All negotiated cost-savings should be passed fully on to third-party payers like self-funded employers. When this happens getting to lowest net cost is within reach. One benefit is less cost-shifting to employees. I don’t expect employers to start writing drug-coverage policies and doing their own contracting. But, as seasoned buyers, they know how to negotiate with suppliers, such as insurers and PBMs — and they should not be afraid to do it.

[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: It is a Myth That Any Pharmacy Benefit Manager Offers Better Price Savings Because of Their Size

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.