How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer radical transparency 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
Yesterday an article appeared in my bi-weekly newsletter which outlined how non-fiduciary PBMs make money in the back-end through a little known hidden cash flow tactic called back-billing. The article must have hit a nerve because I received quite a bit of feedback. One email I received in particular stood out. I’ll get to that later.
A couple of days ago I spent an hour talking with a seasoned consultant about how guaranteed AWP discounts aren’t in their clients best interest. Sure, guaranteed discounts are better than nothing but even better are plan sponsors paying actual pharmacy reimbursement (APR) which in turn makes AWP discounts ineffectual. He didn’t buy it!
Unsolicited email depicting back-billing case (click to enlarge)
Because it is shifting costs or service fees to the back-end, a non-fiduciary PBM will often come in at a lower price on the front-end (claims repricing and adjudication). I know what you’re thinking – sour grapes. Trust me it’s not I just don’t like to see people taken advantage of. But, if I try to help and you ignore it then you know how the saying goes, “fool me once…”
This brings me to the point of this post and I’m quoting a peer Lisa Gish who wrote to me recently, “can’t seem to shake my displeasure with the lack of forward thinking consultants who are absolutely stuck in old mindsets and tactics.” Nuff said now about that email I received.
I must admit part of the reason I’m sharing this email, albeit redacted, is because I too am frustrated by consultants and self-insured employers who evaluate claims repricings but don’t take into consideration hidden costs especially those in the back-end. What good are transparent, fiduciary or pass-through agreements if plan sponsors and their advisers aren’t sophisticated enough to verify if they are actually receiving it?
In conclusion, PBMs accepting a fiduciary responsibility is meaningless if plan sponsors and their advisers aren’t sophisticated enough to uncover hidden cash flows generated by non-fiduciary PBMs. The costs will almost always appear to be lower from the latter. Don’t take my word for it click on the image above and see for yourself. I redacted the PBM’s name but just know it is one of the big five.
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 a 5% or more price differential (paid versus actual cost) we consider this a problem.
Multiple price differential discoveries means 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.
The groundbreaking approval of 3 CAR T cell therapies in 2017 has not only opened up the possibility of cures for patients, but also sent shockwaves through the payer community, which is responsible for a large chunk of the costs. The launch cost of hundreds of thousands of dollars plus spending on monitoring and hospitalization, it is clear that payers must revisit their traditional formulary approach.
Biosimilars have also complicated formulary decisions. Payers must now compare the safety and efficacy of these products to reference drugs to determine how to meet patient needs, while also controlling costs.
In part 1 of a 2-part interview with Specialty Pharmacy Times, Steve Johnson, assistant vice president, Health Outcomes, Prime Therapeutics, discussed how newer specialty drugs have resulted in the need for new coverage strategies.
SPT: What are some important things for payers to know about CAR T cell therapies?
Johnson: First and foremost, these are obviously very complex therapies that we say are truly innovative, offering potential cures for very difficult diseases and conditions. These therapies aren’t limited to prescribed drugs, rather they often require hospitalizations.
One of the biggest mysteries within a non-fiduciary PBM’s contract are the algorithms that determines whether a drug is a brand or a generic. Here is an example of how the algorithm could be used at the smallest scale.
How it works:
Imagine a generic drug has an average sticker price of $100, and its cost (including money for the drug maker, wholesaler and pharmacy) is $15.
The PBM says it will apply an 80% discount on generic drugs, meaning an employer should only pay $20 for the drug. The PBM pockets $5 on normal spread pricing (after subtracting the $15 cost).
However, using the algorithm, the PBM could define the generic drug as a brand, which only commands a 17% discount.
Under that scenario, an employer would pay $83, or more than four times what it should for the generic, and the PBM pockets $68 after subtracting the drug’s cost.
Multiply this strategy for millions of generic prescriptions, and the profits add up quickly.
Tyrone’s Commentary: Within a PBM service agreement, the definitions usually start on pages one or two. Not coincidentally, this is also when the games [self-dealing] begin and some of the largest companies in the world fall for it. Just because you can make smart phones, build cars or design software doesn’t necessarily mean you are good at managing pharmacy benefits. Take ego out of it here are three no-no’s:
Don’t allow the definitions for important terms such as generic, brand and specialty drugs to be defined by non-fiduciary PBMs. Create a template in-house for important contract definitions and demand they replace ambiguous definitions in your PBM contract.
Don’t count on in-house lawyers to eliminate contract loopholes. There is nothing illegal about the contracts non-fiduciary PBMs present to their clients. Subsequently, some of the largest companies in the world (see Anthem vs. Express Scripts) think they are protected because they have in-house and outside attorneys vetting these contracts and that simply is not necessarily the case.
Don’t hire or retain any adviser who doesn’t protect you from points one and two above.
As a fiduciary-model PBM, free education is a core part of TransparentRx’s strategy. Think about it, we win when clients are educated and our competitors or non-fiduciary PBMs win when clients are illiterate.
I’m often asked, “why do you give away valuable information for free? Aren’t you just shooting yourself in the foot?
The answer is no; watch the video to learn why. HINT: A lot of people watch Bruce Lee movies but that doesn’t mean…By the way, I took this clip from my favorite televison show Billions.
If you have to ask what’s the difference between a fiduciary-model PBM and a transparent PBM then for all intents and purposes you are illiterate. Non-fiduciary PBMs generate the bulk of their free cash flow from uneducated purchasers. Don’t be a stock jockey or better yet don’t hire one! Learn the ins and outs of managing pharmacy benefits.
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 a 5% or more price differential (paid versus actual cost) we consider this a problem.
Multiple price differential discoveries means 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.
Historically, brokers and consultants have helped employers manage the cost of pharmacy benefits by focusing on negotiating pricing arrangements for drugs through discounts and rebates. As long as pharmacy benefit managers (PBMs) pass through most or all of the rebates and discounts to employers — especially for specialty drugs, which can cost thousands of dollars per script — employers should save a significant amount from retail pricing.
Tyrone’s Commentary: Cost resulting from a claims repricing most often tells only part of the story. Self-insured employers and their consultants must also consider which PBM proposal promises better utilization and product mix. Clinical information, utilization and product mix, is sometimes more important than the repriced claims! Ignore it or not pay it enough attention and the result will be wasteful spending and poor outcomes on both the pharmacy and medical side. How would you know which PBM proposal is best? The contract language will tell you which option is best that’s how. Don’t rely solely or too heavily on repriced claims data it is fools gold. Of course, results will vary based upon the decision-maker’s level of industry knowledge and negotiating skills. Sophisticated purchasers who know the ins and outs of PBM revenue models and contract loopholes will fare far better than those who are “picking it up” as they go. Even if a self-insured employer wins back all manufacturer dollars (rebates) and eliminates all spread pricing including back-end fees a non-fiduciary PBM could still shift their hidden fees to the clinical side, for example. So while many self-insured employers have their front doors locked, non-fiduciary PBMs are sneaking in through your back and basement doors. Caveat Emptor.
While this strategy helps save money and should continue to be used, there’s another tremendous opportunity that many employers are leaving on the table: reviewing drug formularies and claims from a clinical perspective. This practice can help plan sponsors determine the lowest net cost for a treatment.
Drug spending skyrocketed in 2014 and 2015, driven largely by the use of a new generation of curative therapies for hepatitis C. When national health spending data was released showing a 1.3 percent increase in spending on prescription drugs in 2016 — a small fraction of the increases in previous years — a pharmaceutical lobby spokeswoman highlighted the trend as evidence of the “nation’s competitive marketplace for medicines.”
Tyrone’s Commentary: Are you learned or have you decided to just “pick it up” along the way? The latter will cost you.
The new analysis suggests the low rate of increase will not last. CMS actuaries said the secret rebates that manufacturers negotiate with health plans have helped temper the growth of prescription drug prices and spending in recent years but will not contribute as much in the future. The prescription drug data does not include drugs administered in physicians’ offices or in hospitals.
Managing the pharmacy benefit efficiently is no easy task. It requires quite a bit of time, effort and skill to do it right. Anyone with business training can look at a P&L statement and determine whether or not a company made a profit. However, understanding the story behind the numbers requires a certain set of skills only a certified public accountant can provide, for example. The same can be said for pharmacy benefits.
Pick anyone from HR, finance or procurement and they will tell you succinctly the pharmacy cost trend is not sustainable. Ask these same professionals how to bend the trend (without increasing employee cost share, restricting access or reducing benefit levels) and you’ll likely get crickets. You’re probably thinking, that’s why we hire brokers and consultants. I’ll let the note Michael Critelli, former CEO at Pitney Bowes, sent to me address that point.
“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.”
For those interested in improving their company’s pharmacy benefit management results and unafraid of unconventional concepts, here are 10 steps in the right direction.
1.Get better educated
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” — Alvin Toffler. Education is the most logical and effective foundation for achieving extraordinary results in pharmacy benefit management services.
In order to improve on the job execution and career growth, benefits consultants, finance managers, procurement and HR professionals must expand their PBM knowledge beyond a functional role and understand exactly how each domain works together within the pharmacy distribution and reimbursement system. Don’t be a spendthrift learn the intricacies of managing pharmacy benefits like a pro.
I liken manual scoring and paper-based RFPs to typewriters and the Startac cell phone. Each served its purpose but their day of usefulness have long passed us. Non-fiduciary PBM companies have learned how to leverage the purchasing power of the
unsophisticated plan sponsor purchaser to their financial advantage. There are several ways to learn about the specific services and fees of those PBMs.
One, the request for information (RFI) is a shorter less-structured instrument compared to RFPs. It asks a handful of PBMs to answer some very targeted questions. The responses to those questions should be scored automatically based upon a set of predetermined criteria. When coupled with an automated reverse auction, the RFI can be a powerful tool in combating high PBM service fees.
PBMs have gotten so good at RFPs that they’ve just become a marketing tool for the PBM. The contract [language] is the white elephant purchasers seem to ignore or not pay nearly enough attention.
3.Add an in-house approach Caterpillar Inc. is one example of a large employer that took an active role and did something disruptive to deal with pharmacy spend. “We carved out a lot of the strategic decisions PBMs make on behalf of employers and made them ourselves,” said Todd Bisping, global benefits manager at the Peoria, Illinois-based heavy equipment manufacturer. This shift of strategic power began in the mid-2000s, he said.
Caterpillar still uses a PBM, Optum, for tasks like prior authorizations, customer support lines and some step therapies. When they started this process over a decade ago, they were using Milwaukee-based Restat, which was bought by Catamaran in 2013. Optum then acquired Catamaran for $12.8 billion in 2015 and renamed the company Optum Rx.
Caterpillar opted to build its own networks — that is, determine which pharmacies to contract with and give its members access to — rather than relying on a PBM to do so. It decided to determine its own pricing methodologies in contracts rather than using PBM-negotiated drug prices. It also designed its own formulary, a list of brand name and generic prescription drugs that employees covered by a specific health care plan can use.
4.Don’t expect big data to save the day Analytics may help ease the pain but doesn’t alone solve the problem which is excessive overpayments. If you don’t believe me, see Anthem, Express Scripts dispute. Anthem had unlimited resources yet got taken to the woodshed. Eliminating overpayments is done two ways:
Sophisticated purchasers or those persons with advanced negotiating skills should lead the procurement of PBM services. An in-house team of PBM “consultants” may or may not fill this requirement. Most PBM consultants (95%) can’t pass our quiz which assesses basic levels of pharmacy benefits comprehension. Which leads me to the second point.
You want someone or a team who knows the ins and outs of how PBMs go about their business of protecting margins and designing plans. Some decision-makers assume pharmacists know better than anyone else how to evaluate PBM performance and nothing could be further from the truth. In fact, the business of pharmacy benefits isn’t taught in most Pharm.D. programs.
Because purchasers rely too heavily on it, analytics can actually exacerbate the problem. In other words, don’t depend solely on algorithms or analytic software programs and the neat dashboards from which they display information to save the day. This is especially true if the data points being measured are inherently flawed (i.e. AWP and MAC).
Some day AI or artificial intelligence will eliminate the need for humans to evaluate contracts for loopholes, but we are not there yet. So a word to the wise, there is a significant human element at play in managing pharmacy benefits efficiently.
5.Claims repricings reveal only 25% of the cost tree so proceed with caution When conducting a side-by-side claims analysis it is a disservice to plan sponsors for brokers and consultants to determine best price from only the claims data before them. Instead brokers and consultants must view the data holistically and ask, “if the plan were being managed efficiently,what should the final plan cost for this group have been?”
A claims analysis or re-pricing looks primarily at retrospective pricing which is a good starting point but no where near telling the whole story. For example, it doesn’t always take into account poor product mix or bad utilization from which non-fiduciary PBMs intentionally profit. This profit is more or less a service fee, which is hidden in the plan sponsors final cost.
Any cost analysis which doesn’t take into consideration utilization or product mix falls short of telling the entire story.
6. Settle for nothing less than radical transparency There is one immutable truth plan sponsors and their advisers can rely upon when it comes to purchasing PBM services and that is PBMs will provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts.
Note: Level 3 includes both levels 1 and 2.
The best proponent of transparency is informed and sophisticated purchasers of PBM services. Assessing transparency will be more effectively done by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals. I wish I could take credit for the last three sentences, but I can’t they come from URAC.
7.Don’t take for granted plan design
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.
Evaluate your internal resources and pharmacy expertise
Access
Medication Adherence
Cost-Containment
Cost-Sharing
Outcomes and Safety
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. You would be wise to negotiate unrestricted access to this data upfront; before the contract is signed.
8.Never assume bigger means better or safer for your career Despite what you’ve been told, traditional, transparent and pass-through business models are all the same. They are nothing more than a play on words. The only PBM business model which provides a client-comes-first standard of care is a fiduciary one. Education is a kind of insurance policy in verifying the trust you’ve placed in your PBM. This video answers the question how can a boutique pharmacy benefits manager compete [price] with a behemoth PBM. Click below to watch.
9.Implement a PBM oversight plan PBM performance should be monitored on an ongoing basis with a formal business review no less than annually. The types of routine monitoring activities performed by the plan sponsor can vary based on past performance with the PBM or the nature of the services performed. The type and frequency of monitoring should be documented in the contract before it is executed.
The plan sponsor should establish key performance metrics designed to measure the PBM’s services. For example, if the plan sponsor delegates call center operations to a PBM, then the performance metrics should include, at a minimum, hold time, average speed of answer and abandoned rate.
The PBM oversight program must also define what happens if the vendor’s performance is below the plan sponsor’s performance expectations. When noncompliant performance occurs, the plan sponsor should request a formal action plan defining specific activities to ensure performance meets the defined expectations. Depending upon the severity of performance, the plan sponsor should consider increasing monitoring and audit activities of the PBM.
10.Don’t count on in-house lawyers to eliminate contract loopholes There is nothing illegal about the contracts non-fiduciary PBMs present to their clients. Subsequently, some of the largest companies in the world (see Anthem vs. Express Scripts) think they are protected because they have in-house and outside attorneys vetting these contracts and that simply is not necessarily the case. The thing is, assessing transparency is more effectively done by a trained eye. Someone who knows the ins and outs of PBM revenue models, contract loopholes and has personal knowledge of the purchaser’s plan goals.
ABOUT THE AUTHOR
This blog post was authored by Tyrone D. Squires, MBA, CPBS. Tyrone has been in the PBM, managed care and pharmacy industries for 15 years. He has started and operated PBMs, business process outsourcing firms, retail and mail-order pharmacies. Over the years his clients include a diverse group of health insurance carriers, HMOs, TPAs, and self-insured employers. Presently, he serves as Founder and Managing Director of TransparentRx a fiduciary pharmacy benefits manager.
Mr. Squires is author of the blog, “A Payer’s Guide to Managing Pharmacy Costs” and has written several white papers on pharmacy benefits cost containment techniques. Mr. Squires can be reached at TransparentRx’s office in Las Vegas, Nevada at 702.990.3559 or by email tyrone.squires@transparentrx.com.
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