After Express Scripts last month filed a suit alleging Kaleo owes $14.5 million in unpaid rebates, Kaleo has filed a countersuit saying it overpaid the PBM giant by $5.3 million.

Kaleo’s suit claims it overpaid due to “opaque and convoluted invoices” from Express Scripts.

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Further, Kaleo says, it paid administrative fees to the PBM giant only to see patient access to its overdose med Evzio restricted. Both actions amount to violations of contractual obligations, the drugmaker argues.

In its filing, Kaleo takes a page out of the industry playbook to accuse PBMs of causing high prices by demanding rebates that pad their bottom lines. In the suit, Kaleo argues Express Scripts “extracts excessive fees and ‘rebates’ from pharmaceutical manufacturers like Kaleo to drive up its own profits while providing little, if anything, of value to the pharmaceutical supply chain.”

For its part, Express Scripts argued in its lawsuit that Kaléo owes $14.5 million in unpaid rebates because the company stopped paying its bills in full back in April 2016. From June 2016, the company hasn’t paid any rebates, and Express Scripts removed Evzio from its national preferred formulary effective July 1, 2016, according to the Express Scripts lawsuit.

Kaleo’s coverage contract with Express Scripts features two types of rebates, according to Express Scripts’ suit, a “formulary rebate” designed to secure coverage and a “price protection rebate” to limit exposure to dramatic price hikes. Kaleo’s eventual price hikes on Evzio drove up the latter significantly.

On Friday, an Express Scripts spokesperson said the PBM wants “Kaleo to honor its written contracts and not shirk its obligation to pay the rebates and fees it owes.”

“Kaleo’s business strategies—its baseless exponential price increases on its drugs and its failure to satisfy its contractual obligations to Express Scripts under the terms of its rebate agreements—are geared towards increasing its own profits and undermining the efforts by pharmacy benefit managers and other payers to reduce the cost of prescription drugs,” according to the Express Scripts spokesperson.

Kaleo CEO Spencer Williamson sees things differently, arguing that the lawsuit from Express Scripts is “baseless.”

Earlier this year, more than 30 senators wrote to Kaleo seeking information about drastic price hikes on the lifesaving overdose med. In its countersuit, Kaleo admits that it priced a two-pack of Evzio injectors at $575 in 2014 and $3,750 in 2016.

The senators wrote to Kaleo CEO Spencer Williamson that they were “deeply concerned” about the price hikes that came amid an opioid-abuse epidemic. The move “threatens to price-out families and communities that depend on naloxone to save lives,” the letter stated (PDF).

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.

Table 1: Scores from a Very Basic Pharmacy Benefits Quiz

Keep in mind this is a fairly large corporation with more than 5000 employees. I asked the pharmacist was there a reason why they didn’t have a customized formulary? A representative from their third-party administrator (TPA) quickly chimed in and responded with, “we use the incumbent PBMs formulary but with edits.”

I pushed back with, “does it make sense that you allow a non-fiduciary PBM to control your formulary when it stands to benefit from how it is ultimately managed?” It is at this point when the pharmacist made a startling comment. The response to my question was, “we don’t have a customized formulary because we don’t have a P&T committee.”

Here is the problem with that statement. No third-party payer requires an in-house P&T committee in order to take advantage of a customized formulary. There are reputable companies who specialize in formulary build-out and subsequent management of the formulary who may also maintain a P&T committee. Because these companies don’t stand to benefit from any rebate dollars, their primary focus is drug efficacy, safety and cost-effectiveness not what’s in it for them.

The decision to include a drug on a drug formulary is a process that considers such factors as efficacy, safety and cost-effectiveness. In managed health care plans, formularies are generally developed and maintained by a pharmacy and therapeutics (P&T) committee. The job of a P&T committee is to identify those products that are most medically appropriate and cost-effective. Overall, the P&T committee is tasked with determining what drug treatments best serve interests of a given patient population.

That being said, a customized formulary is not the best option for every self-funded employer. But for the company in question a customized formulary is ideal provided the requisite level of sophistication is there to see it through.

Because the pharmacist was unaware of the 3rd party formulary management option, learned helplessness or relying too heavily on the PBM will lead to overpayments. A la carte services (mix of insourcing and outsourcing) isn’t a new concept and is an effective way to get a good price point for PBM services.

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. The best proponent of transparency is informed and sophisticated purchasers of PBM services.

Table 1 represents the scores from a very basic quiz to test pharmacy benefits aptitude. It was offered to my entire mailing list which consists of over 5,000 professionals who either buy PBM services or consult on the purchasing decision. A sample size of just 43 was required to represent the entire list of 5,000 (a 15% margin of error and 95% confidence level). The confidence level is the amount of uncertainty tolerated.

The average score was just 23%! So it shouldn’t come as a surprise that transparency is so elusive. With test scores like this one has to wonder is it the PBM’s unwillingness to be transparent or the purchaser’s inability to drive complete transparency which leads to excessive overpayments for PBM services?

Assessing transparency will be more effectively done by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals. The purchaser needs to understand not only what they want to achieve in their relationship with their PBM but also the competitive market and their ability to drive disclosure of details on services important to them. 

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On May 26, 2017, Maryland became the first state to ban pharmaceutical “price gouging” on certain prescription drugs made available for sale in the state. Amidst overwhelming bipartisan support from both the House of Delegates (137-2-2) and the State Senate (38-7-2), Maryland Governor Larry Hogan allowed House Bill 631, also known as the “Prohibition Against Price Gouging for Essential Off-Patent or Generic Drugs” (“Act”), to become law without his signature.

The Act, which takes effect on October 1, 2017, has two key provisions: (1) a prohibition on price gouging on certain drugs and (2) the authorization of administrative and legal action by the Maryland Attorney General (“MD AG”) to enforce this new law.

The first key provision of the Act (to be codified in Maryland Code Health-General as  Section 2-802) prohibits manufacturers and wholesale distributors from engaging in “price gouging” when selling “essential off-patent or generic drug[s].” An “essential off-patent or generic drug” is any drug or drug-device combination that:

• is not subject to exclusive marketing rights,
• is listed on the most recent World Health Organization Model List of Essential Medicines or indicated by the Maryland Secretary of Health and Mental Hygiene,
• is actively manufactured and marketed in the United States by fewer than three manufacturers, and
• is made available for sale in Maryland

According to the Act, “price gouging” is an “unconscionable increase in the price of a prescription drug.” An “unconscionable increase” is defined as an increase that is “excessive and not justified” by costs associated with production or access to the drug for public health promotion and results in prescribed consumers lacking “meaningful choice” due to personal necessity and inadequate competition in the market.

The second key provision of the Act (Section 2-803) authorizes the Maryland Medicaid Program to notify the MD AG when (1) over the previous one-year period, a 50 percent increase in either the wholesale acquisition cost (“WAC”) or price paid by the Maryland Medicaid Program for the drug occurs and (2) the WAC for either a “full course of treatment” or a 30-day supply exceeds $80.

Under this provision, the MD AG also may compel a potential justification disclosure statement from the manufacturer of the drug identified by the Maryland Medicaid Program.[9] If requested by the MD AG, the manufacturer has 45 days to provide a statement that includes an itemized list of production costs and the potential justification for the drug price increase.

In addition, the MD AG may compel a manufacturer or wholesale distributor to produce any records or documents relevant to a determination of whether the price increase violates the first provision of the Act that prohibits price gouging.

[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.

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During the webinar, titled “The Anthem/Express Saga + The End Game,” analyst Ross Muken observed that “the PBM industry, as well as other parts of health care services, is going through some pretty massive change.” Over the next 24 to 36 months, “we think…you’re going to see a real reshaping of that health care service landscape.”

The dispute between Anthem and Express Scripts “really re-elevated this idea of…the future of the PBM and what does the function look like, what is the economic model?” Muken pointed to the 2007 CVS Corp. purchase of Caremark Rx, Inc. as the beginning of the shift on the PBM side, followed by Express Scripts, Inc.’s deal for Medco Health Solutions, Inc. in 2012 and then UnitedHealthcare’s acquisition of Catamaran Corp. three years later.

“The industry’s been changing for some time, but I do think we’re kind of building up to another series of events where we see other models formed that look quite different than how the industry focused in the past,” he asserted.

These market shifts and merger-and-acquisition activity have led insurers to consider what services should be insourced — a “high-value function that you need to own” — and which should be outsourced. Payers also are looking to the integrated approach that United has with OptumRx and the potential of that model.

Muken said the choices Humana Inc. and Anthem make as far as their PBM services should “have pretty broad implications” and give “a much clearer picture of some of the other tie-ups or strategic relationships that are likely to happen.…Essentially you’ll have an environment whereby a number of vertically integrated entities will have a cost advantage that will drive share, and then those who are left as sort of stand-alone will struggle and probably cede share.”

Still, he cautioned, there are “tons” of potential industry outcomes. The Anthem-Express Scripts relationship began with Express Scripts’ purchase of then WellPoint’s PBM, Next-Rx, in 2009. As part of the deal, Express Scripts gained a 10-year contract to provide PBM services to WellPoint’s clients.

In 2012, Anthem conducted a price check to ensure it was getting “competitive benchmark pricing.” Until the 2016 J.P. Morgan & Co. conference where Anthem took the companies’ dispute public — the “J.P. Morgan pipe bomb,” Muken called it — “this was viewed as a deal that was reasonably constructed on both sides.”

According to Muken, “In our minds, this definition of the competitive pricing benchmark is really, I think, at the epicenter of what some of these guys are debating.”

“What’s driving a lot of this” focus on the future of the PBM “is a view on how managed care wants to manage the drug benefit going forward,” said analyst Mike Newshel during the call. Managed care “wants to have a more integrated benefit between medical and pharmacy” so plans can manage them together.

Anthem has issued an RFP for its PBM business — “the endgame for Anthem is getting a more competitive cost structure,” Newshel said. Express Scripts has said it is unlikely to retain that business — Evercore gives this option a 5% chance of happening. Other potential moves are Anthem shifting its business to OptumRx (a 15% probability) or to CVS (a 30% probability).

But the most likely move (a 50% probability) is an à la carte approach — “separating the PBM functions into discrete things that they can pick and choose from” — through which Anthem will outsource various functions to various vendors — perhaps Walgreens Boots Alliance, Prime Therapeutics LLC and software provider Argus — while keeping several high-value functions to itself, said Newshel.

This hybrid model that is a “mix of insourcing and outsourcing” is not a totally new concept, he noted, and is an interesting way to get to a good price point. He maintained that Anthem has the potential to get to $4 billion or $5 billion in total drug savings.

[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.

Table 1: Revenue Going from Drugmaker, kaleo, to Express Scripts for a Single Drug

But over time they became just another special interest. In the 1990s, some of the biggest PBMs were acquired by drug companies, creating conflicts of interest that led to federal orders for divestment. The next phase was a wave of mergers and acquisitions within the field, followed by acquisitions by insurers and pharmacy companies — CVS acquired Caremark, then the biggest PBM, in 2007 and UnitedHealth merged CatamaranRx, then the fourth-largest PBM, into OptumRx in 2015.

The position of the three major PBMs at the center of the drug distribution system appears to be unassailable for now. Last year CalPERS, California’s public employee benefits system, awarded OptumRx a five-year, $4.9-billion contract to manage prescriptions for nearly 500,000 members and their families enrolled in non-HMO health plans. The only other finalists in the bidding were CVS Caremark and Express Scripts.

Express Scripts reported profit of $3.4 billion last year, up 34% from 2015, on $100.2 billion in revenue, down slightly from $101.8 billion in revenue the year before. OptumRx reported operating profit of $2.7 billion last year, up from $1.7 billion the year before. CVS doesn’t break out its PBM financials.

Today the firms extract billions of dollars in price concessions from drug companies eager to remain in their good graces (see table 1). The drugmakers’ goal is to secure spots on the PBMs’ formularies, the rosters of approved drugs the PBMs maintain for their health plan clients. To do so, the drugmakers offer PBMs rebates for each prescription filled and agree to a dizzying list of other fees. The PBMs say that since most of those rebates and fees are passed on to health plans and subsequently to patients, they fulfill their promise to reduce drug costs all along the line.

But no one can be sure that’s really happening, because the size of the rebates and the degree to which they’re passed along is guarded by the PBMs as trade secrets. Each PBM contract for each health plan, moreover, is concealed from other health plans.

“The PBMs are sitting at the center of a big black box,” says Linda Cahn, a drug pricing consultant to health insurers. “They’re the only ones who have knowledge of all the moving pieces.” Among the murky areas are how much in rebates and other fees the PBMs collect from drug companies, and what share gets passed on to health plans.

Whatever the pass-through, critics say the rebate process forces up prices. “It’s not a secret anymore
that the drug companies are just raising prices to pay for the rebates,” says Derek Loeser, a Seattle lawyer who filed the Los Angeles lawsuit and others around the country making similar allegations.

[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.