Author: Tyrone Squires, MBA, CPBS

This author has written 1305 articles

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 314)

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.

6 Pillars of Pharmacy Benefit Plan Design (Rerun)

In less than two decades, transparent third-party prescription claims adjudication has evolved into the extremely profitable and opaque pharmacy benefit management industry of today. PBMs make most of the value decisions that plan sponsors are unqualified for or choose not to make. This wouldn’t be a problem except for the fact that most PBMs are non-fiduciary, which means their interests are not aligned to those of their clients.

Worse yet, non-fiduciary PBMs leverage the purchasing power of unsophisticated plan sponsors by negotiating with drugmakers and pharmacies for their financial benefit. Before non-fiduciary PBMs learned they could leverage the purchasing power of unsophisticated purchasers for their own financial gain, they focused on cost-efficiency or getting the best outcomes for the lowest cost. In many cases, the focus has shifted to promoting the products that are most profitable to the PBM.



Smart purchasers of PBM services want more control over their plan design not less. If this is you, here are six pillars upon which to design your pharmacy benefit plan.

I. Evaluate your internal resources and pharmacy expertise

If you’re reading this and work for a self-funded employer never retain the services of a PBM or a PBM consultant who benefits when your pharmacy costs increase. Should you do so, never leave them completely to their own accord.

  • Do you have the expertise within your company to design the pharmacy benefit plan? Or do you need pharmacy benefits education or the services of a pharmacy benefits consultant?
  • How do you want to be involved in the management of the plan design after it is set up?
  • Do you have the expertise and resources to manage the plan design or do you need to build in the incentives for the PBM to manage your program? In other words, hire consultants not because you lack the requisite knowledge to design or manage the pharmacy benefit plan in-house, but because you lack the time or human capital to go it alone. Plan sponsors might be surprised to learn that many so called advisers know little more than they do when it comes to pharmacy benefits.
  • Who is watching the watcher?

II. Access

A formulary is a list of medications for which a plan will provide reimbursement. When considering a formulary, access defines the basic aspects of a pharmacy benefit design which includes but is not limited to:

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

Managing a formulary and improving its efficiency involves an ongoing assessment of the drugs on the formulary as well as any new potential drug therapy treatments. Again, do not leave this responsibility solely in the hands of the PBM unless it has agreed to accept fiduciary responsibility. Lastly, plan design considerations must take into account DAW or dispense as written laws for each state.

III. Medication Adherence

Medication adherence is a large and growing issue that has an impact not only on patients’ health, but also on employer finances. Non-adherence to medications has been linked to 30-50% of treatment failures and 125,000 deaths each year, according to statistics gathered by the American College of Preventive Medicine.


                                            Figure 1. Gap Between a Written Prescription and Actual Medication Use

[Source: National Association of Chain Drug Stores, Pharmacies:
Improving Health, Reducing Costs, July 2010. Based on IMS Health data] 
In addition, non-adherence results in $290 billion in annual healthcare spending, $100 billion of which is due to hospitalization and rehospitalization that could have been avoided if medications were taken as prescribed. Simply put, even the most perfectly designed plan in the world can’t make up for poor adherence. Monitor adherence plan-wide and take corrective action for patients whose adherence is average or worse.

IV. Cost-Containment

Major cost-containment elements of pharmacy benefit plan design are plan restrictions, limitations and exclusions. There are many types of limitations used in varying degrees but they often lack the oversight [human] necessary to be effective over the long-haul. These elements encourage members to utilize low(er) cost alternatives:

  • Therapeutic Substitution
  • Mandatory Generic
  • Plans caps or the maximum amount a plan will pay for outpatient drug benefits
  • Partial fill programs or quantity limits on medication members can receive
 

Step Therapy V. Cost-Sharing

Refers to the members out of pocket cost. There are three major types of cost-sharing: copayments, deductibles and coinsurance. When members receive a more costly alternative to a preferred product they are required to pay the higher copayment. When members receive a branded product which has an available generic equivalent, they are required to pay the additional costs associated with the branded.

Source: Milliman Commerical Specialty Medication Research: 2016 Benchmark Projections 

According to the economic principles of demand, as price increases, demand tends to decrease. In the case of prescription drugs, price is the member’s OOP (out-of-pocket). As cost sharing increases, utilization decreases. However, it’s a catch twenty-two as there is a point of diminishing returns. You don’t want utilization to decrease so much that it causes an increase in hospitalizations or emergency room visits, for example.

VI. Outcomes and Safety

The sixth and final pillar does not provide or limits coverage for those products that do not improve or maintain the health of the members or have a tendency to be abused or overused. Some examples include:

  • Hair growth treatments
  • Over-the-counter drugs
  • Growth hormones
  • Erectile dysfunction
  • Weight loss/gain drugs
  • Smoking cessation products.
  • Opioids
This portion of the pharmacy benefit design is accomplished by clearly defining which drugs and/or therapeutic categories will not be covered or are limited in their coverage. Once a plan is in place there must be ongoing evaluation (far beyond standard reports) to determine how well the plan is achieving the goals and objectives upon which the plan is based. Critical to the process is the availability of data. I’m aware how tough some PBMs make it to get access to data. You would be wise to negotiate unrestricted access to this data upfront; before the contract is signed.

Tuesday Tip of the Week: Price Isn’t the Only Driver of Pharmacy Costs

Many PBM selection decisions come down to two things: comfort and price. Provided employers have done their due diligence, an employer’s comfort level with a PBM or its owner should take a back seat to the best candidate. Because PBM services have been commoditized, the best candidate should boil down to who delivers the lowest net cost. 

 
Gasoline is a commodity. The gasoline at Speedway is largely the same as that pumped at Shell. You aren’t going to get better gas mileage or a cleaner engine buying gasoline at Shell but you will pay more. Hence, the claim being adjudicated by TransparentRx is the same as that at Optum, CVS or Express Scripts. Don’t let the flashy offices and talk about AI and machine learning fool you. 

 
The price an employer pays for a prescription drug claim includes several components such as list prices, contractual discounts, fees and rebates. Price receives a lot of attention deservedly so. However, far too little attention is being paid to what matters most – cost. 

Click to Learn More
Product Mix refers to the complete range of products that is offered for dispensing by a pharmacy. In other words, brand, generic, specialty and biosimilar drugs make up product mix. Drug Utilization refers to the number of utilizers, days supply and channel mix for those drug products being dispensed by pharmacies. Cost Share is the member share of drug costs but that too is complicated and no longer as cut and dry as one might think.
 
Let’s take a quick look at how product mix might impact costs. Everyone knows that generic drugs are far less costly compared to brand drugs. But, did you know that for every 1% increase in GDR or generic dispense rate a plan sponsor can expect as much as a 2.5% decrease in ingredient costs? A non-fiduciary PBM is counting on you not knowing and that you will be mesmerized by their seemingly larger rebate and discount guarantees. 
 
In the case of poor product mix, the trade off is that you will overpay when GDRs hover in the 80% – 86% range despite big rebates. The non-fiduciary PBM benefits from its share of rebates on brand drugs that never should have been dispensed in the first place. Not only is the non-fiduciary PBM counting on you being mesmerized by unreasonably high discounts and rebates, it is counting on you not placing a dollar value on poor product mix.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 313)

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: Take DAW 9 Off the Table for Non-Fiduciary PBMs

In my Certified Pharmacy Benefits Specialist course, I can count on one thing happening during each term. When the topic of DAW or dispense as written codes is covered it stirs up some serious emotions in retail pharmacists. A pharmacist might take the floor and talk for 10 minutes about how the DAW 9 code is being used. It ticks them off and rightfully so.
DAW codes are important in billing claims correctly to a patient’s insurance plan. DAW codes are used by insurance companies and PBMs to help determine the reimbursement to the pharmacy and if the medication is eligible for full or partial coverage. Claims must be billed/filed correctly so that patients receive the appropriate drug products at the correct price. DAW 0 is used most of the time while DAW 1 is used sparingly. DAW 9 is increasingly becoming popular and being put into place by PBMs.
For most plan sponsors, brokers and consultants the use of DAW 9 goes unnoticed in how it increases cost and wasteful spending. Typically, a generic drug has been dispensed because it is a less costly alternative when compared to the brand name product. In short, when prescribers write a prescription and sign Product Substitution Permitted — the pharmacist must dispense the brand name product for the product to be covered by the patient’s insurance. This is done by changing the computer DAW code from a 0 to a 9.
In a retail pharmacy, it is the pharmacy technician who most often gets the claim paid. So when a claim is rejected with a DAW 0 code the pharmacy technician simply cycles through all the DAW codes until one is accepted. You may be asking, “why would a PBM engage in this practice?” In a word – REBATES! If you’ve taken a deal with a non-fiduciary PBM which calls for a $0 admin fee on the pharmacy benefit or you’ve decided to forgo rebates in lieu of admin fee credits on the medical benefit, how else do you expect the PBM to make money?
Artificially low admin fees on the pharmacy benefit and/or forgoing rebates for admin fee credits on the medical benefit gives a PBM the green light to employ hidden cash flow tactics, like DAW 9, to augment their service fee. In the case of DAW 9, that augmentation occurs in the non-fiduciary PBMs share of manufacturer revenues (rebates). In 2020, you can’t be doing business with a PBM that doesn’t provide radical transparency. It’s fiscally irresponsible. Unfortunately, most plan sponsors don’t know what they don’t know.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 312)

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: PBMs Must be Fiduciaries

Approximately one year ago, Ohio’s Attorney General announced a four-part proposal calling for quick action from the state’s legislature to shine a bright light on PBM contracts. The goal was to cut down on the hidden cash flows to non-fiduciary PBMs. AG Yost’s proposal called for:

  • Drug purchases in the state to be conducted under a master PBM contract that is administered by a single contact point
  • Ohio’s Auditor of State to have full power to review all PBM contracts, purchases and payments
  • The state to prohibit nondisclosure agreements on drug pricing.
  • PBMs to operate as fiduciaries, uh-oh!

So, what is the difference between a fiduciary PBM and one that isn’t? There are some very big differences.

  1. Fiduciary PBMs must provide full disclosure
  2. Fiduciary PBMs provide more transparency
  3. Fiduciary PBMs are a better value (ex. less reliance on Rx consultants or vendors to reduce drug costs)
  4. Final plan costs are usually lower with Fiduciary PBMs
In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relationship, good conscience requires the fiduciary to act at all times for the sole and interest of the one who trusts.
A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd” and that “[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.
Pharmacy Benefit Managers whose business models are predicated on hidden cash flows will be very reluctant to provide full disclosure. A leopard cannot change its spots. However, plan sponsors who are relentless in their pursuit of radical transparency can significantly reduce pharmacy spend without sacrificing benefit levels or asking employees to pay more.

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

Click to Register

How many businesses do you know will voluntarily cut their revenues in half? This is the reason non-fiduciary pharmacy benefit managers are reluctant to offer radical transparency. Instead, they opt for hidden cash flow opportunities to foster 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 flows streams in the PBM Industry
  • How to calculate the EACD or earnings after cash disbursements
  • Basic to intermediate level PBM terminologies
  • Pros and cons of PBM price benchmarks
  • Cost-containment strategies to implement today
 
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 311)

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.

Formulary Exclusions are Gaining Popularity

Comparing your formulary options
Click to Learn More

Jeenal Patel, PharmD, BCGP, a formulary manager for WellDyne, said pharmacy benefit managers (PBMs) and employers are increasingly turning to formulary exclusions to control the rising cost of drugs.

Tyrone’s Commentary:

The human resources department should anticipate some backlash from employees when formulary exclusions are adopted to help manage costs. The frustration associated with formulary exclusions can be alleviated by communicating the benefits to employees before adoption. Use multiple mediums to communicate with employees such as welcome letters, mobile notifications, member portal inbox messages, and SPDs, for example. If executed properly, formulary exclusions work without sacrificing patient outcomes. The good news is employees are smart and usually make the adjustment within 90 days or so.  

Formulary exclusions are gaining popularity as a means of managing the type and cost of medications used. “Many times when you have an excluded or not-covered product, it’s perceived to be a stronger deterrent to usage versus having the product placed on a higher tier, controlled by prior authorization or step therapy,” Patel said.

Even in the specialty arena, we’re starting to see limited drugs available on formulary for narrow therapeutic areas and unique oncology indications, for example. We’re seeing decreased redundancy across the board in broader categories, such as psoriasis and arthritis,” Patel said. PBMs are finding exclusions “one of the more attractive ways to lower costs” and develop a more competitive pricing landscape, she said.

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