FIGURE 1: Basic supply chain example from manufacturer to consumer

A reference pricing initiative was linked to more prescription fills of lowest-priced drugs and a decreased average price per prescription, but higher rates of copayments by patients, a new study finds.

Reference pricing is a price control mechanism where an insurer or employer specifies the highest amount it will contribute towards paying for a drug or service, leaving patients to pay the additional cost if they choose an option priced higher than that benchmark. A recent study published in the New England Journal of Medicine examined the results of a reference pricing program implemented by the healthcare purchasing organization RETA Trust in 2013.

The program set the trust’s maximum drug payment for 1302 drugs in 78 classes at the price of the least expensive drug in each category. Unless an exemption was granted for clinical reasons, patients choosing a drug that was not the least costly would have to pay the difference in price.

Using pharmacy claims from 2010 to 2014, researchers analyzed changes in drug selection and expenditures after the implementation of reference pricing for the 17,500 employees covered by the RETA Trust. Members of a labor union which did not use reference pricing served as a comparison group to control for market trends.

Analyses indicated that more prescriptions were written for the lowest-priced drug in each therapeutic class for members of the RETA Trust after reference pricing was instituted. Specifically, the share of such prescriptions increased from 59.5% in July 2010 to 69.7% during the first quarter after reference pricing was implemented in July 2013. Over this time, the share of prescriptions written for the least costly drug among the labor union members did not change.

Tyrone’s comment: Reference pricing is a great first step. The article doesn’t mention it but I’m curious to know how the final cost [for the lowest priced drug in each category] to the labor union was determined. The point I’m making is even with an effective tool such as reference pricing to aid in price control there is still quite a bit of price uncertainty. AWP minus, AAC plus and WAC + all have different cost implications on both sides of the claim. I often play devils advocate so I’m happy to see the reference pricing strategy implemented with such a large organization. Assessing transparency will be more effectively done by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals. My hope is that the RETA Trust will continue to eliminate waste whilst not negatively impacting its members’ healthcare outcomes.     

Researchers also determined that reference pricing had an effect on the RETA Trust’s expenditures. Before reference pricing, the trust paid around 10.6% more per prescription than the union, but after the change it paid prices that were 13.9% lower than those paid by the union, equivalent to a $9.24 lower average price per monthly prescription. Extrapolated to the total number of prescriptions filled in the 18 months after implementation, the RETA Trust saved $1.34 million in this time.

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In the middle of the EpiPen news cycle, CNBC interviewed Steve Miller, the chief medical officer of Express Scripts. “If she wanted to lower the price tomorrow she could,” Miller said of Mylan’s CEO, Heather Bresch. He continued (emphasis added):”We love transparency for our patients. Our patients should know exactly what they’re going to pay when they go to the pharmacy counter. We love transparency for our clients — they can come in. They can audit their contracts. They know exactly what they’re going to be required to pay … What we don’t want is transparency for our competitors.”

Did you catch that?

Express Scripts will tell clients how much they should pay, but it is trying hard not to tell anyone how much things cost. The problem is that when people find out, they seem to get very angry.

Tyrone’s comment: There are two important take aways from the point made above. First, plan sponsors and their agents are not getting enough information to make sound business decisions. Second, once an appropriate amount of information is gathered these same stakeholders must be able to adeptly interpret it. The problem here is most plan sponsors don’t know what they don’t know. One solution, become an expert steward of the pharmacy benefit. 

Pharmaceutical-benefit managers started simply enough. In the 1960s, they served a need. As more Americans started taking prescription drugs, insurance companies were overwhelmed processing claims. PBMs offered to do it for them. PBMs pioneered plastic prescription cards and mail-order drug delivery.

They promised Americans they’d negotiate to keep drug prices down. They promised insurers they’d make processing prescriptions a lot cheaper and easier. And they promised drug companies they would favor certain drugs in exchange for rebates and price breaks.

They’re paid fees by the insurers and employers who use their services. But they’re also taking a cut of every sale. That alone isn’t a problem. American business is full of middlemen, and nothing the PBMs do is illegal.

But where the PBMs are starting to get into trouble is that they’re making bundles by keeping each player they deal with — pharmacies, insurers, drugmakers — partly in the dark. And those bundles, you could argue, are coming at the expense of the people who pay for healthcare.

Here’s how a PBM like Express Scripts controls information and pricing.

Let’s say a doctor prescribes you a heartburn drug. Its list price is $300, but the only people who pay that are those without insurance. Because you have insurance, you go to your local pharmacy and pay a $20 co-pay. For you, that’s it. Your insurer might be paying $180 for the drug as part of a large-scale agreement it came to years ago via the PBM. The pharmacy that dispenses it may get only $160 for it. That $20 difference is a spread, and that goes to your PBM as profit. That’s on top of fees your insurer is paying the PBM to administer its prescription-drug program.

That’s the simplest way this goes down.

All the while, the pharmacy has no idea how much your insurer is paying for the drug, and your insurer isn’t exactly sure how much the pharmacy is getting for dispensing the medicine. The drug company, meanwhile, isn’t even getting close to the $300 list price that makes everyone so angry.

Then things get really murky.

If the price of the drug has increased, the PBM can be paid a rebate for the excess, which it pockets. The insurer, which is paying for the drug, won’t know. “These rebate amounts are less likely to be explicitly shared with a client,” analysts at AllianceBernstein, an investment firm, wrote in a recent note on Express Scripts.

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It’s standard advice for consumers: If you are prescribed a medicine, always ask if there is a cheaper generic.

Nathan Taylor, a 3-D animator who lives outside Houston, has tried to do that with all his medications. But when he fills his monthly prescription for Adderall XR to treat his attention-deficit disorder, his insurance company refuses to cover the generic. Instead, he must make a co-payment of $90 a month for the brand-name version. By comparison, he pays $10 or less each month for the five generic medications he also takes.

“It just befuddles me that they would do that,” said Mr. Taylor, 41. A spokesman for his insurer, Humana, did not respond to multiple emails and phone calls requesting comment. With each visit to the pharmacy, Mr. Taylor enters the upside-down world of prescription drugs, where conventional wisdom about how to lower drug costs is often wrong.

Out of public view, corporations are cutting deals that give consumers little choice but to buy brand-name drugs — and sometimes pay more at the pharmacy counter than they would for generics.

The practice is not easy to track, and has been going on sporadically for years. But several clues suggest it is becoming more common.

Tyrone’s comment: The next time you run a claims analysis (re-pricing) here is what I want you to do before deciding which PBM to go with – assuming cost and transparency are important factors in your selection process. Take a look at the contract and based upon the language in said contract ask yourself which vendors’ numbers are most likely to hold up? I don’t care what your title is Benefits Director, Corporate Attorney or CFO if you’re not an expert in the PBM space, far beyond our functional role, find someone else to interpret the information. Finally, be wary of anyone who claims to have it all figured out. This [pharmacy and pharmacy benefits] has been my obsession now for 15 years and still rarely a day goes by when I don’t learn something new.

In recent months, some insurers and benefit managers have insisted that patients forgo generics and buy brand-name drugs such as the cholesterol treatment Zetia, the stroke-prevention drug Aggrenox and the pain-relieving gel Voltaren, along with about a dozen others, according to memos and prescription drug claims that pharmacies shared with ProPublica and The New York Times.

Dr. Lawrence Diller, a behavioral pediatrician in Walnut Creek, Calif., said he began noticing “very odd things” going on with Adderall XR and other attention-deficit drugs about two years ago. He began receiving faxes from pharmacies telling him that he had to specify that patients required brand-name versions of the drugs.

He had been practicing for 40 years, but until then had never had a pharmacy tell him that he had to prescribe a brand-name drug instead of a generic.

[Read More]

This article was written through collaboration between The New York Times and ProPublica, the independent, nonprofit investigative journalism organization.

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.

Courtesy of National Community Pharmacists Association

The National Association of Specialty Pharmacy (NASP) launched www.stopdirfees.com, which is a site that underscores how direct and indirect remuneration (DIR) fees affect independent pharmacies—especially those in the specialty space—and Medicare patients.

DIR fees have been said to increase drug costs for seniors insured through Medicare Part D, while also threatening the profitability of specialty pharmacies who provide treatment to patients with complex diseases.

“Big pharmacy benefit management (PBMs) firms have worked hard to make DIR fees so complicated and opaque that very few people understand how they impact sick seniors enrolled in Medicare,” Sheila Arquette, executive director of NASP, said in a press release.

NASP has previously spoken out about the harms of DIR fees and how these actions can result in poor patient outcomes and cause pharmacies to close their doors. The Pharmaceutical Care Management Association disagrees, however, stating that DIR fees reduce premiums for Medicare Part D beneficiaries, which they state leads to lower costs for the federal government.

In an interview with Pharmacy Times’ sister website, Specialty Pharmacy Times, NASP President and CEO of Avella Specialty Pharmacy, Rebecca Shannahan, JD, discussed how the costly nature of specialty drugs coupled with DIR fees can result in a loss of profitability for pharmacies, as well as causing seniors to reach catastrophic coverage.

“DIR fees endanger the integrity of the Medicare Part D program, which is intended to ensure quality, satisfaction, and cost effectiveness for sick seniors across the nation. While debates continue over runaway prescription drug prices from Capitol Hill to local town halls, sick and vulnerable seniors are increasingly shouldering the brunt of DIR fees, which erode access to the vital clinical and patient support services required of such breakthrough specialty medications,” Arquette said.

“StopDIRfees.com exposes how these dangerous and misaligned fees threaten both seniors’ pocketbooks and our entire healthcare system.” Earlier this year, the Community Oncology Alliance commissioned a white paper that outlined how PBMs changed the meaning of DIR fees to benefit their businesses. DIR fees cut profits for pharmacies and raise co-payments for seniors, which drives them to reach catastrophic coverage sooner than necessary, according to the report.

[Source]

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.

Sources:  Berkley Research Group,  IMS-Quintiles

[Source]

The suit also alleges that CVS pharmacies charge customers a “co-pay” that’s instead additional money CVS shares with the PBM. It works like this, according to the complaint:

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The lead plaintiff in the case is a woman named Megan Schultz, and she claims that she bought a generic medication at CVS that cost $165.68 under her insurance but would’ve cost only $92 had she paid in cash without using her insurance.

Here’s why, according to the complaint:

The PBMs can control which pharmacies are “in network” for their clients, the insurers.
Since CVS pharmacies want those sales from in-network patients, they offer the PBMs a cut of the drugs they’re selling to those insured patients. What’s more, Schultz says she had to find this out on her own because no one at CVS could legally give her a heads-up. From the complaint:

“These agreements with PBMs are based on secret, undisclosed contracts, under which CVS agrees to specific amounts it will charge and collect from insured customers — but the customers can neither see nor learn about these agreements or their terms from the pharmacies, the insurance companies, or anyone else. The linchpin of the scheme is that the customer pays the amount negotiated between the PBM and CVS even if that amount exceeds the price of the drug without insurance.”

CVS said the allegations were “built on a false premise” and “completely without merit.” Here’s a statement the company emailed Business Insider:

“Co-pays for prescription medications are determined by a patient’s prescription coverage plan, not by the pharmacy. Pharmacies collect the co-pays that are set by the coverage plans. Our pharmacists work hard to help patients obtain the lowest out-of-pocket cost available for their prescriptions. Also, our PBM CVS Caremark does not engage in the practice of co-pay clawbacks. CVS has not overcharged patients for prescription co-pays, and we will vigorously defend against these baseless allegations.”

Tyrone’s comment: If I were a Director of Benefits or CFO I would be looking into this with every resource at my disposal. If it was discovered that my company was a victim of this practice [clawbacks] I would be asking my advisers how could you let this happen? As the saying goes, where there is smoke there is usually fire. Those of you who follow me know that I don’t mince words so this next sentence should not come as a surprise. The truth is most employers are overpaying (when you boil it down a clawback is an overpayment) because their advisers are overmatched and/or are in bed with PBMs so they have little incentive to eliminate hidden cash flows like clawbacks. Since the contracts employers sign permit these opaque practices, in the end the plaintiff will likely lose or the case will be dropped. This isn’t CVS’s first rodeo. The good news is there is a solution should you choose to fight back.

The lawsuit claims that this doesn’t happen with every prescription, just a select number. However, the drugs named in the suit — including Tamiflu, amoxicillin, and Viagra — are pretty common. Three large PBMs control about 80% of the market in the United States. One of them, Caremark, is owned by CVS, and another, OptumRx, is owned by UnitedHealth. The largest of all PBMs, though, and the only stand-alone one, is Express Scripts.

[Source]

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.