Author: Tyrone Squires, MBA, CPBS

This author has written 1305 articles

Specialty Drugs: A Five Pillar Approach to Managing Cost

What is a Specialty Drug? Well readers, that is the $218 billion inquiry. As indicated by IQVIA, that was the measure of the 2018 specialty drug spend. This represented over 48% of medication spend for the entire pharmaceutical industry for that year. In spite of the fact that costs have been a pointer of what qualifies as a specialty drug previously, clinicians would contend that a medication ought to be characterized by its clinical viability and not its expense. Specialty medications can have a few attributes including however not restricted to:
 
  • Treats chronic, complex, or life-threatening conditions
  • Usually manufactured through biologic processes and/or targeting a specific gene
  • Costs more than $800/month
  • Requires intensive clinical monitoring, complex patient actions, and/or special handling
  • Although most commonly injected or infused, they may also be taken orally or inhaled 
Aspirin (non-biologic) vs. Monoclonal Antibody (biologic)
Yet, cost is still a prominent characteristic of determining what is viewed as a specialty drug. In light of this, managed care associations have started to execute systems so as to adequately deal with the excessive measure of spending and cost that encompasses this significant yet costly part of pharmacy. These methodologies are contract transparency, claims adjudication, utilization management, disease management, and patient education.

Tuesday Tip of the Week: Spreadsheets as the Primary Tool in Evaluating PBM Proposals is Like Buying a Used Car Without Ever Looking Under the Hood

Over the last several years, I’ve had conversations with brokers and PBM consultants around how to lower pharmacy costs. In these conversations, I always stress the importance of PBM contract language. That the language (transparency or lack thereof) in the contract will have the biggest impact on PBM performance is clear. More specifically, whether or not a plan sponsor has entered into a fair deal or bad deal with a pharmacy benefits manager.

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

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 317)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.
 
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.

 
When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Tuesday Tip of the Week: Lead with Transparency or a Non-Fiduciary PBM’s Pricing Analyst will Exploit Your Lack of Sophistication

In the PBM industry, ballooning occurs when one revenue stream is cut off only for the PBM to shift that lost revenue to a different source. One way non-fiduciary PBMs maximize ballooning is with the help of Pricing Analysts. Yes, it is true that large PBMs have pricing analysts on staff.
One of the core responsibilites of a PBM Pricing Analyst is to monitor revenue performing below thresholds and implement necessary tasks to bring performance to or above targets. Doesn’t it make sense then that if you are seeking better pricing from a PBM to start with the contract language and not higher rebates or discount guarantees? Here are some additional duties of a PBM pricing analyst.
  • Implements new processes, process improvements, and best practices related to pricing, guarantee monitoring, and ASO passback activities.
  • Creates and implements metrics and supports performance measures to establish performance objectives for revenue maximization and pharmacy pricing.
  • Creates tools and processes to monitor margin revenue, pricing accuracy, and client retention.
  • Implements pricing in the system related to margin.
  • Supports the Pharmacy Services team in implementing future revenue, member expansion and growth capacity.
  • Assists with developing pharmacy pricing training to underwriters and updates to underwriting guidelines.
During negotiations with a non-fiduciary PBM, you may win more pricing concessions but all you’ve really accomplished (without any material change in the contract language) is to make the pricing analysts job a little tougher. Let’s put it another way. Instead of 4th and inches, it is 4th and one to payday.

Click Here to View the Original Job Ad and Description
PBM Pricing Analysts are limited primarily by one thing in their quest to extract hidden cash flow from employers – Contract Language. The position of PBM Pricing Analyst is unnecessary when the PBM operates as a fiduciary or radically transparent service provider. Better yet, this position is ineffectual when employers, not just their independent consultants, across the country get more PBM education.
PBM Pricing Analyst is a full-time position dedicated to drive PBM top-line growth. Much of your non-fiduciary PBM’s margin occurs after you’ve signed on the proverbial dotted line. A non-fiduciary PBM will give the appearance of a better deal but rarely does it relinquish profits without also providing more transparency. Start with transparency then focus on spreadsheet analysis of pricing.
Pharmacy costs and PBM transparency are not mutually exclusive they are forever intertwined. When the non-fiduciary PBM’s hand is in the cookie jar, employers pay less when you are looking at the cookie jar and know full well how many cookies are in it.

BCBS Insurers in Six States Sue CVS Health Over an Alleged Scheme to Overcharge Them for Generic Drugs

Blue Cross Blue Shield insurers in six states have sued CVS Health Corp. over an alleged scheme to overcharge them for generic drugs by submitting claims for payment at “inflated prices.” The lawsuit, filed May 27 in the Rhode Island federal court, added to mounting pressure that CVS has been facing since 2015 over its cash discount programs, which it said were designed to compete with Walmart and other “big-box” discounted pharmacies.
Tyrone’s Commentary:
 
Derica Rice was Executive Vice President of CVS Health and President of CVS Caremark, the pharmacy benefits management business of CVS Health, from March 2018 through February 2020. Prior to that time, he was employed in various executive positions at Eli Lilly and Company since 1990, most recently serving as Executive Vice President of Global Services and Chief Financial Officer from 2006 to 2017. In less than two years he quietly departed CVS, why? My guess is that due to his pharmaceutical manufacturer and finance background he and the senior leadership team at CVS didn’t see eye to eye on things such as transparency.
According to the complaint, health insurers typically negotiate “lesser-of” contracts with pharmacy benefits middlemen to pay the lower cost of either the negotiated drug price or the cash price that insured patients would pay. But the BCBS companies alleged that CVS had offered lower prices for “hundreds” of generic drugs and later told insurers that the prices were much higher than they actually were.
“By intentionally submitting falsely inflated usual and customary prices, CVS knew that it was being overpaid for these generic drug transactions. In fact, as internal documents show, that was CVS’s plan all along,” BCBS’s attorneys from Partridge Snow & Hahn wrote in the 46-page complaint.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 316)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.


 
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.

 
When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Tuesday Tip of the Week: Large non-fiduciary PBMs hire members of the Big Four consulting firms to help them identify ways to generate hidden cash flows

Take this to the bank as it is neither hyperbole nor conjecture. Large non-fiduciary PBMs hire members of the Big Four consulting firms to help them identify ways to generate hidden cash flows which can lead to plan sponsors overpaying for PBM services. Those consulting firms include PricewaterhouseCoopers (PwC), Ernst & Young (EY), Deloitte & Touche, and KPMG.

Source: Wikipedia
I can’t imagine being a MBA just out of Harvard Business School working for one of these firms and learning about all the tools PBMs have at their disposal to generate hidden cash flow. What it feels like when they ask, “you mean to tell me your clients don’t know about this? or What about this?” and the PBMs response is no they don’t. It must feel like the first time a 5 year old boy or girl walks into Check E. Cheese.
 
The problem with hidden cash flow is that it contributes to wasteful spending and ultimately ends up in the Final Cost to the Plan. I can’t stress enough how important it is that anyone involved in the procurement or oversight of PBM services be sophisticated. I’m not talking about 1400 SAT or 4.0 GPA sophistication. I’m referring to a high level of sophistication in the PBM arena. If it isn’t your lane don’t play in it find someone who does. The stakes are far too high for your team to be comprised of folks who “pick it up as they go.” 
 
Take a look at what Michael Critelli, former CEO Pitney Bowes, wrote to me a few years back.
 
“Tyrone I am pleased that you wrote the particular essay I downloaded. Many corporate benefits departments do not understand that they are overmatched in negotiating with pharmacy benefit managers, as are the “independent consultants” who routinely advise them. The first step in being wise and insightful is admitting what we do not know, and you have humbled anyone who touches this field.”  
 
Employers want to provide the best health benefits for their employees while getting strong value in return for their healthcare dollars. If you’re not sure where you stand in your PBM education, take this self-assessment. Education is the great equalizer in the PBM space as it is in life.

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

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 most important metric when comparing PBMs
  • 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.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 315)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.


 
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.

 
When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Tuesday Tip of the Week: There are no problems associated with pharmacy costs a PBM consultant can solve that a PBM, if it so chooses, can’t itself solve for self-funded employers

Kevin O’Leary, who appears regularly on Shark Tank, doled out some good advice during a recent interview with CNBC. If you aren’t familiar with the television network show Shark Tank, check your pulse. In 1999 Kevin sold his software company to the Mattel Toy Company for a staggering 3.7 billion dollars, one of the largest deals ever done at that time in the consumer software industry.

To keep his money working hard, Kevin took control of his wealth from money managers and founded his own mutual fund company, O’Leary Funds. During this economic downturn, O’Leary offered sage advice for businesses.
  • O’Leary advises businesses need to be smart about spending money
  • Keep your overhead low. Try and keep the best employees around you because you’re gonna need them one day,” O’leary says
  • Lower your expectations and stay lean and mean and don’t spend money on stuff you don’t need.
  • This is a time to really practice being thrifty, says O’Leary
  • According to O’Leary, one third of the crap you buy for yourself you don’t need…So put that lesson to work when it comes to your business too
Self-funded employers are spending insufferable sums of money on PBM consultants and vendors who help contain pharmacy plan costs. In some cases, these consultants and vendors charge higher fees than the PBM’s gross profit on a per client basis. PBM consultants and cost-containment vendors exist only because non-fiduciary PBMs have learned how to leverage the buying power of unsophisticated plan sponsors to their financial advantage.
To that end, PBM consultants and cost-containment vendors are necessary when dealing with a PBM whose business practices are opaque. What if the PBM is fiduciary and always acts in the employers best interests? Are these consultants or vendors and the fees associated with their services still necessary? I say no.
 
 
The business models of PBM consultants are often predicated on the bad actor PBM. There are no problems associated with pharmacy costs a PBM consultant or third-party vendor can solve that a PBM, if it so chooses, can’t itself solve for self-funded employers. These consultants thrive because far too many PBM revenue models are opaque leaving self-funded employers in the dark as to how much you actually pay a PBM for the services it provides.
Additionally, some PBM consultants will not recommend a fiduciary PBM to their clients because it is not in the consultant’s best interest. There is nothing to advise on when the PBM is a fiduciary, for instance. A radically transparent or fiduciary PBM service inherently results in significant cost savings due to the elimination of all hidden cash flows and full disclosure of details important to plan sponsors. Be careful though, like beauty, transparency is in the eye of the beholder.
Over the last decade or so, I’ve noticed self-funded employers throwing cash at their pharmacy problems. There are better options available to self-funded employers for reducing pharmacy costs. Most of them center around better decision-making in house. The best proponent of transparency is informed and sophisticated purchasers of PBM services.
The purchaser needs to understand not only what they want to achieve in their relationship with their PBM but also the competitive market and their ability to drive disclosure of details on services important to them. Assessing transparency is more effectively done by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals.
PBM consultants and third-party cost containment vendors return a negative ROI when the PBM is fiduciary. During economic downturns frugality is paramount. Self-funded employers must be smarter about spending money on services to reduce pharmacy costs. Like Kevin did with his wealth, take control of your pharmacy benefit. Award your next contract to a fiduciary-model PBM and you won’t need a PBM consultant or other third-party vendor to help reduce pharmacy costs. Afterall, the primary responsibility of a PBM is too contain its clients costs. Don’t let anyone tell you different.