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.

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.

It took hundreds of millions of dollars wasted, but the state of Ohio finally gets it. Before I address what “it” is allow me to revisit a blog I wrote just yesterday. The timing of that blog couldn’t have been any better.

In the blog I wrote, “Many purchasers (plan sponsors and their advisers) select the PBM vendor who puts the lowest price on the table. Lowest price involves several variables including admin fees, rebate guarantees, AWP discounts and most important contract language. The problem is plan sponsors are putting a premium on the “numbers” and largely discounting the contract language.”

Seasoned executives or brokers can be seduced into placing more emphasis on the spreadsheet instead of the contract language. For example, price quotes 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.

Then today I come across an article in the Columbus Dispatch in which the state of Ohio’s Medicaid Director, Maureen Corcoran, says this in response to a question posed by a reporter…

Maureen stated exactly what I’ve been preaching for the past seven years! Yet, very smart people, from the CFO down, are having trouble grasping this approach. I’m often asked, “Tyrone, tell me again why the proposal with the lowest cost isn’t necessarily the lowest cost?” The simple answer is the contract language sets the foundation for all of the financials – not the other way around.

It is through continuous PBM education you become a more sophisticated purchaser of pharmacy benefits which inevitably leads to radical transparency in your PBM relationship(s).

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According to Steven Pearson, MD, founder and president of Boston-based Institute for Clinical and Economic Review (ICER), science is producing a growing number of gene and cell therapies to treat spinal muscular atrophy, leukemia, and other conditions, but payers and providers don’t have the information they need to determine what they should pay for these treatments.

These are either single or short-term therapies that can deliver clinical benefits for the rest of a patient’s life. That’s a departure from the historical norm where patients take a drug on a daily basis. If a health insurer is paying for these new gene and cell therapies just once, it’s going to be a steep price, Pearson tells Managed Healthcare Executive.

Tyrone’s Commentary:

While research and development can indeed carry large costs and span multiple years, there is simply more to pricing drugs. Many modern-day assessments cite the value that a new drug brings to patients, along with savings incurred by the health system, as more relevant factors that drive drug price. 

I’m in the camp that drugmakers set prices based on whatever the market will bear, especially since demand for some therapeutic drugs is relatively inelastic — in other words, demand does not change much in response to price changes.

Pharmacoeconomic studies, such as those offered by ICER, may seek to quantify the value of a drug by calculating the estimated cost of an intervention per quality-adjusted life year (QALY) added by the drug. Cost savings resulting from a drug are often calculated through the cost of clinical services, hospitalizations, and other less effective medications that untreated patients would otherwise incur. 

If rare value and lack of alternatives drive high cost for specialty drugs, what could cause increases in generic drug prices?

The challenge payers are facing is they’re asked to pay a significant cost during the year the patient receives treatment, but there’s uncertainty around these treatments. The biggest question payers are wrestling with is this, he says: “How can we pay so much if [we’re unsure] the cure will last or what if it wears off in a few years?”

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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.

 

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.

Prescriptions for selected specialty therapy areas, 2013 and 2018  (Source: IQVIA, “Medicine Use and Spending in the U.S.,” May 2019)

Formulary management techniques continue to drive down expenditures for traditional medicines. It’s a different story, though for specialty drugs. In 2018, U.S. spending for traditional medicines fell 3.4% on a per capita basis while spending on specialty medicines trended north by 5.8%, according to IQVIA’s “Medicine Use and Spending in the U.S.” report. Total nondiscounted spending on specialty drugs was $218.6 billion, or 45.4% of total pharmacy spending of $482 billion, according to Doug Long, vice president of industry relations at IQVIA.

Nondiscounted spending includes all fees and other costs in the pharmaceutical supply chain, such as rebates and dispensing fees. Some say it is a more accurate figure for drug expenditures than, say, the net revenue of manufacturers, which is more commonly reported. Express Scripts painted a similar picture to IQVIA’s in its 2018 Drug Trend report.

In 2018, spending on traditional and specialty medicines seesawed for Express Scripts’ amalgam of commercial, Medicaid, Medicare, and ACA plans; spending on traditional medicines fell by 5.8% while spending on specialty medications rose by 9.4%. Express Scripts reported that specialty medications accounted for 44.7% of its total pharmacy expenditures, a number very close to the proportion reported by IQVIA. The company warned in its report that the specialty medicines could reach 50% of total pharmacy expenditures as soon as next year.

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The latest Rx Price Watch report by Leigh Purvis and Dr. Stephen W. Schondelmeyer finds that retail prices for widely used prescription drugs increased by an average of 4.2 percent in 2017. In contrast, the general inflation rate was 2.1 percent over the same period.

Tyrone’s Commentary:  If what you’re doing right now isn’t bending the Rx trend, try something different.

In 2017, the average annual retail cost for 754 brand name, generic, and specialty prescription drugs used to treat chronic conditions was almost $20,000 per year. This average annual cost was nearly 20 percent higher than the average Social Security retirement benefit ($16,848). The annual drug cost was also more than three-quarters of the median income for Medicare beneficiaries ($26,200) and almost one-third of the median US household income ($60,336).

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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.

 

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.

A non-fiduciary PBM would prefer that its clients not know just how much revenue or hidden cash flow it generates as a service fee. There are three primary methods in which a non-fiduciary PBM will look to drive revenue. The three primary methods are: spreads, rebates and benefit design. Spreads and rebates are much talked about benefit design not so much at least not where overpayments are concerned.

Usually, the benefits design conversation is about keeping employees happy or limiting disruption to their benefits experience. It’s an appropriate conversation to have but certainly not the only one to be had around benefit design. If an employer closes off spread and rebate overpayments to a non-fiduciary PBM, sure enough the non-fiduciary PBM will look to make up for that lost revenue in the benefit design.

The Pacific Business Group on Health commissioned an excellent report, “Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans” which you must read. Here are a couple of recommendations from that report.

Source:  Pacific Business Group on Health

Non-fiduciary PBMs are good at this game!

I had this discussion with a seasoned benefits consultant who couldn’t believe that this actually happens. That a PBM would poorly design a pharmacy benefit plan so to protect its revenue. He was surprised to learn that a PBM would take this route to protect its margins. I was taken aback that he was clueless to this ballooning tactic.

A good benefit design is one that is both cost-effective and gets medically appropriate drugs in the hands of patients. Cost-effectiveness is the act of saving money by making a product or performing an activity in a better way. It is easy for a PBM to get a medically appropriate drug in the hands of a patient yet that drug may not be cost-effective, for example.

One last word on #10 above. If your finance or accounting teams have not been properly trained, preferably by someone with PBM insider experience, then they too will leave money on the table. It’s a game of whack-a-mole with big stakes. Without training from a PBM insider, a non-fiduciary PBM will always beat you at that game.

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“No one is immune from monetary temptation. We have a system that rewards oncologists and their chemotherapy offices with more money for giving more expensive chemo. This has to change,” said Vincent Rajkumar, MD, a professor of medicine and a hematologist/oncologist at the Mayo Clinic, Rochester, Minnesota. “Last week a myeloma patient told me his oncologist had switched him from Zoledronic acid (ZA) to a ‘new, easier’ option: denosumab. A recent @ASCO guideline in @JCO_ASCO said both were options. ZA is ~$70; Denosumab is ~$2000. The oncologist gets 6% of the drug he/she chooses.”

Distorted Model

Drugs that are administered by infusion or injection in physician offices and in hospital outpatient departments are covered by Medicare Part B, as are certain products furnished by suppliers. Under the current system, oncology practices must buy the chemotherapy drugs up front. The cost for drugs may vary; in the United States, Medicare reimburses costs on the basis of the average sales price (ASP) plus 6%. The 6% is meant to cover any variation in the acquisition price, as well as overhead.

Source:  Academy of Managed Care Pharmacy

Tyrone’s Commentary:

A big chunk of overpayments made by self-funded employers to PBMs can be eliminated by uncovering the most important objective of the PBM. Is their primary objective to make money or to help clients? Yes, you can still make money and put clients first. There are PBMs telling clients that therapeutic substitution is a bad thing. In other words, PBMs who engage in therapeutic substitution programs do it only to drive rebates for themselves. The truth is some do and some don’t. More important, is the PBM’s primary objective this ultimately drives financial and sometimes clinical decisions. Avoid the “Happy Ears” syndrome and trust your PBM training and education not what the PBM tells you. This story highlights why therapeutic substitution programs are a valuable drug utilization management tool when used appropriately. It is applicable to both the pharmacy and medical drug spend categories. By the way, how much time are you allocating to monitoring the medical drug spend outside of reviewing standard reports? If the answer is little to none you might want to take a serious look. You will likely discover gross overpayments.

As Rajkumar noted in his Twitter thread, that means that providers will be paid more money for prescribing a more costly medication, even if a less costly and equally effective alternative is available — such as the case he highlighted with the myeloma patient being prescribed denosumab (Xgeva, Amgen) in place of zoledronic acid.

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