Source:  Consumer Reports

For at least the past three years, Todd Smith and Benjamin Bove have crisscrossed the U.S., offering a sure-fire fix for struggling pharmaceutical companies. And wherever they go, the price of prescription drugs tends to skyrocket.

Their strategy is simple and, they say, good for patients: Thwart efforts by health plans to block access to drugs – and serve up what Smith calls their “special sauce” to get those meds into the hands of customers who need them.

The main ingredients include copays that are often zero, even for pricey drugs. Smith, 48, and Bove, 40, also offer the use of so-called specialty pharmacies – one of which they previously owned – to make it hassle-free for doctors and more affordable for patients. Yet critics point out that, over time, everyone might end up paying the price in the form of higher premiums. 

“It’s totally a wrong way to frame the issue to say it’s free to the patient,” said Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. “It’s ripping people off.”

Tyrone’s commentary:

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.

If nothing else, Smith and Bove’s business strategy illustrates a drug-pricing ecosystem that many agree is deeply flawed. President Donald Trump has accused drug companies of “getting away with murder,” and his Health and Human Services Secretary, Alex Azar, has vowed to bring drug prices down. Yet the system is averse to change because so many of its key players continue to profit from its complexity and lack of transparency. Patients, meanwhile, are faced with fewer choices and higher deductibles and insurance premiums.

“These sophisticated traps are designed to pay off certain members of the supply chain in a way that exploits the employer, the insurance company and the consumer,” said Michael Rea, chief executive officer of Rx Savings Solutions, which has an app that allows patients to find lower drug costs.

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Here is what some participants have said about the webinar.

A snapshot of what you will learn during this 30 minute webinar:

• Hidden cash flows in the PBM Industry such as formulary steering, rebate masking and differential pricing
• How to calculate cost of pharmacy benefit manager services or CPBMS
• Specialty pharmacy cost-containment strategies
• The financial impact of actual acquisition cost (AAC) vs. maximum allowable cost (MAC)
• Why mail-order and preferred pharmacy networks may not be the great deal you were sold

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)

Take a look at what Caterpillar Inc. is doing particularly the part about “it decided to determine its own pricing methodologies in contracts rather than using PBM-negotiated drug prices.” Discounts off AWP are a distraction used by non-fiduciary PBMs to perpetuate the opacity in their dealings. Caterpillar learned this a decade ago and is likely using a pricing methodology closely resembling APR.

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.

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.

2017 Launch Forecast for Specialty Drugs (source: Diplomat Specialty Pharmacy)

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.

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The smirk from a non-fiduciary PBM salesperson after closing a deal with an unsophisticated employer

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:

1. 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. 
2. 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.
3. Don’t hire or retain any adviser who doesn’t protect you from points one and two above.

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 self-insured employer’s plan goals.

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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.

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.

CLICK TO WATCH!

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.

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Learn how to manage pharmacy benefits efficiently

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.

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