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But even as drug prices and access have become increasingly at the mercy of PBMs, how they operate has remained mostly hidden. Earlier this year, Community Oncology Alliance, an advocacy organization for community-based cancer care practices, commissioned a report exposing how PBMs work and the damage they are causing. Newsweek spoke with COA Executive Director Ted Okon about what many health care experts believe is Big Pharma’s latest villain.

So how do PBMs cause drug prices to increase?
This issue is a murky one, mainly because PBMs lack transparency. I have heard these companies emphasize the importance of transparency except for their interactions with drug companies. PBMs assert that these interactions are the “secret sauce” that enables them to keep prices down. But I have come to the conclusion that this lack of transparency is actually driving prices up.

What is happening behind the scenes?
Let’s say a manufacturer assigns a list price of $10 to a given drug. The PBM then tells the company that it will not list the drug on its formulary unless it receives a discount. The willingness of the manufacturer to discount the drug, and the extent of that discount, is guided by a few factors: the power of the PBM, which the consolidation of companies has increased; how many other competitive products exist; and also the size of the pharmaceutical company.

The pharmaceutical company offers the PBM a discounted price of $8. If the PBM does not accept that price, then the company may offer a rebate of an additional $2 if sales of the drug reach some designated amount. The more powerful a PBM is, the greater discount they can demand—and the fact that three PBMs control the vast majority of the market makes these three companies very powerful.

But how does this negotiating practice lead to higher drug prices?
PBMs want to make money. To do so, they charge fees to pharmacies, whether it’s a retail business or a community oncology practice. At community oncology practices, these fees have increased dramatically in recent years, from 3 percent up to 11 percent. Cancer medications are already expensive, and now PBMs are imposing an additional fee calculated as a percentage of the cost of that pricey drug.

In light of these practices, PBMs make more money from paying closer to the list price and receiving a rebate rather than an upfront discount. The higher the price of the drug, the higher the PBM fee at the pharmacy. So they don’t have an incentive to drive upfront prices down as much as they can. They are taking fees based on the list price, but the net price that the PBM is paying for the drug is much lower than that because of rebates.

In addition, pharmaceutical companies now anticipate steep discounts and rebates when they set their list prices. As a result, they set list prices higher so that the eventual negotiated price will be as high as possible.

How does this approach affect patients?
Patients are being affected in many ways. In terms of cost, patients are now paying copays to their insurers for medications, and they are paying, directly or indirectly, the PBM fee. And all these fees are based on the list price, which is not really what the PBM is paying.

The more patients on Medicare pay for prescription drugs, the faster they enter the so-called “doughnut hole,” when they are responsible for all their health care costs. And the faster they enter the doughnut hole, the faster they leave it, which increases taxpayer-funded Medicare costs.

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Source: DiplomatRx

A new trend in the way pharmacy benefit managers (PBMs) are collecting fees from pharmacy providers is driving up drug costs, gouging point-of-sale pharmacy operations, and playing havoc with spending at CMS, according to reports from CMS and the Community Oncology Alliance (COA).

Direct and indirect remuneration (DIR) fees have traditionally involved PBMs collecting a percentage of drug costs from pharmacy providers, via rebates and pharmacy concessions, and then reporting those amounts to CMS. Since at least 2013, PBMs have been accounting for those fees in different, less-transparent ways and also collecting the fees well after beneficiaries have received the drugs, making it harder for CMS to oversee spending under Medicare Part D.

DIR fees are causing Part D beneficiaries to pay cost shares that do not reflect the lower actual prices of the drugs, and beneficiaries are moving faster through Part D benefit phases to the catastrophic phase of coverage, where Medicare costs are potentially higher, according to the reports. CMS stated that DIR fees more than doubled over a 3-year period, rising to $23.6 billion in 2015 from $10.5 billion in 2012.

Part D drugs include the costly new spectrum of immuno-oncolytic drugs, and the flat percentage DIR fees can potentially be very lucrative for PBMs, according to the COA study, which was performed by Frier Levitt.

“DIR fees charged by PBMs harm patient pocketbooks and care,” said Jeffrey Vacirca, MD, president of COA and a practicing medical oncologist and CEO of New York Cancer Specialists in Long Island, NY. “The fees drive the cost of vital-but-expensive cancer drugs even higher; increasing patient out-of-pocket costs and driving patients in the ‘doughnut hole,’ where co-pays are higher. The costs also force too many patients to cut back or even abandon their treatment, jeopardizing their care and threatening their lives.”

The COA report was released this week and the CMS concerns were issued in a report on January 19, 2017. In response to the criticism, the Pharmaceutical Care Management Association (PCMA) contended that “DIR reduces premiums for Medicare Part D beneficiaries, which leads to lower costs for the federal government” and higher satisfaction for Part D enrollees.

However, CMS, in its report, stated that DIR fees give only an artificial appearance of lower Part D costs. It said DIR fees force the government to pay out more in reinsurance costs for the final catastrophic phase of coverage under the Part D benefit. When these costs are added in, the total drug cost is much higher for CMS.

For example, in 2010, the average Part D plan liability per beneficiary for CMS was roughly $800 and the reinsurance cost was about $400. In 2015, the plan liability per beneficiary was about $670—or $130 less than in 2010—and the reinsurance cost was $870—or $200 higher. Annual DIR fees have also risen sharply, actually outpacing the steady growth in Part D spending, COA and CMS noted in their reports.

In 2010, DIR fees amounted to $8.7 billion of the net $68.8 billion Part D drug spend. In 2015, DIR fees were $23.6 billion and net drug costs were $113 billion. DIR fees related to the Part D program have more than doubled since 2012, when they stood at $10.5 billion.

Read more >>                                                                                                         http://frierlevitt.com/

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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To hold drug costs down, many private employers, insurers, and even states and the federal government use pharmacy benefit managers (PBMs). PBMs are third-party administrators of prescription drug programs. Some 266 million Americans—approximately 82% of the total U.S. population—are covered by these programs as part of their commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefit Program, state government employee plans, and Managed Medicaid plans. 

Cost-saving PBM services have evolved since they first became popular in the early 1970s. Where they once simply facilitated prescription billing, today they use complex business models to manage prescription drug program services for employers and health care insurance companies.They also negotiate rebates from drug manufacturers and discounts from retail pharmacies, offer patients more affordable pharmacy channels and more effective delivery channels, encourage the use of cost-saving generics and affordable brands, reduce waste by efficient processing of claims and improving patient compliance with medication, and manage high-cost specialty medications. 

How have PBMs performed? A February 2016 report for the Pharmaceutical Care Management Association estimated cost savings as a result of PBM services over the decade 2016–2025 will be approximately $654 billion. A June 2016 report by the National Center for Policy Analysis identified PBM services as one of the top five factors expected to affect medical costs through 2017. 

But all are not platitudes for the PBM industry. A November 2015 report for the National Community Pharmacists Association identified three legislative and regulatory concerns raised by legislators, policymakers, customers, and pharmacies about business practices in the PBM industry: 

■ a lack of accuracy and transparency in PBM revenue streams 
■ potential conflicts of interest by retail pharmacy networks with PBM-owned mail-order and specialty pharmacies 
■ unclear generic drug pricing and Maximum Allowable Cost payment calculations.

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One way the industry is responding is by diverting the national dialogue from price rollbacks to the notion of pay-for-value, which represents an area of common ground among healthcare policy stakeholders. The strategy aligns with healthcare payers’ focus on the total cost of care of their members and the pursuit of high-quality care — goals driven home by Medicare reforms that emphasize quality measurement and paying for value instead of volume.

The value discussion has intensified as drug development has shifted from primary care drugs to oncolytics and expensive specialty drugs, pressuring health plan pharmacy budgets. Health insurers and other healthcare purchasers are increasingly reluctant to pay for drugs that don’t work. That has led payers to experiment with outcomes-based contracts (OBCs) that hold pharmaceutical companies responsible for their products’ real-world performance.

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Some of the most high-profile drugs to hit the market the past couple of years — including the cholesterol-lowering PCSK9 inhibitor Repatha and the hepatitis C drug Viekira Pak — have become the subject of OBCs. In February, Harvard Pilgrim Health Care, a Massachusetts-based health plan that had already inked a contract with Amgen on Repatha, announced another contract with Amgen for its rheumatoid arthritis drug Enbrel, which is facing impending competition from a biosimilar. The contract will tie the health plan’s payment for Enbrel to an effectiveness algorithm driven by six criteria, including patient compliance, switching or adding drugs, dose escalation, and steroid interventions.

The stars appear to be politically aligning to drive further growth of the pay-for-value trend. While the Trump administration has proclaimed a get-tough stance on drug pricing, it has also signaled its willingness to tackle the regulatory impediments that payers and drug companies say are holding back innovative contracting.

The commonly cited barriers — ranging from Medicaid best-price guarantees to anti-kickback rules to FDA regulations limiting the information manufacturers can share with payers — as well as the administrative difficulties of data sharing and collection, may be limiting the reach of risk-based contracting, but not stalling it.

More than one-third of the 40 managed care organizations (MCOs) surveyed by Decision Resources Group (DRG) indicated they were involved in OBCs, while another third said they expected to do such contracting in a year.

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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.

“If we just lowered the cost of Sovaldi from $85,000 to $50,000, every payer would rip up our contract,” said Jim Meyers, executive vice president of worldwide commercial operations, in an interview with Bloomberg News.

Source: Novo Nordisk

Pharmacy benefit managers such as Express Scripts Holding Co. and CVS Health Corp. negotiate drug reimbursement, often in secrecy, for employers and health plans. While PBMs say they deliver lower prices for customers and patients, drugmakers have begun aggressively implicating the middlemen in high medication costs that have become a frequent target of Washington lawmakers and President Donald Trump.

One of the functions of PBMs is to help insurers decide which drugs to cover for their customers, and how much to reimburse manufacturers. Manufacturers use rebates to ensure they get on PBMs’ lists of covered drugs, called formularies, and the middlemen often take a cut of those rebates, often about 10 percent, for themselves before passing the rest of the savings to the insurers. Now, pharmaceutical companies are charging that PBMs prefer higher list prices, because the middlemen want to sustain their own revenues.

“I have never met, in this entire experience, a PBM or a payer outside of the Medicaid segment that preferred a price of $50,000 over $75,000 and a rebate back to them,” Meyers said in the interview.

Read more >>

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.

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. effective acquisition cost (EAC)
• Why mail-order and preferred pharmacy networks may not be the great deal you were sold

See you Tuesday March 14 at 2 PM ET!

Source: Bloomberg News

A decade ago, Caterpillar Inc. looked at its employee drug plan and sensed that money was evaporating. The bills for pills had increased inexorably, so the company started to rein in its pharmacy benefit manager, or PBM. The managers are middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold, and for how much.

In a decade when the average American’s drug spending has spiraled higher, the figure has fallen at the company. By hiring its own doctors and pharmacists, among other changes, Caterpillar has saved tens of millions of dollars a year. “The model is as successful today as it’s ever been,” says Todd Bisping, a global benefits manager at the company.

Caterpillar’s experiment raises tough questions about a market that President Donald Trump recently slammed for “astronomical” prices. Pharmacy benefit managers process prescriptions for insurers and negotiate with manufacturers on one end and pharmacies on the other. The three biggest—Express Scripts Holding, OptumRx (a unit of insurer UnitedHealth Group), and CVS Health—process about 70 percent of the nation’s prescriptions, according to Pembroke Consulting.

The Health Transformation Alliance, a year-old group of more than 30 companies including IBM Corp. and American Express Co., has promised to bring down costs in part by reducing “redundancies and waste in the supply chain.”

PBMs deny raising costs and say pharmaceutical companies seek to mask their own profiteering. “Drugmakers set prices, and we exist to bring those prices down,” Tim Wentworth, Express Scripts’ chief executive officer, said on a Feb. 15 earnings call. Larry Merlo, head of CVS, sounded a similar refrain six days earlier: “Any suggestion that PBMs are causing prices to rise is simply erroneous.”

In the U.S., $15 of every $100 spent on brand-name drugs goes to middlemen, estimates Ravi Mehrotra, a partner at MTS Health Partners, a New York investment bank. The largest share, about $8, goes to benefit managers. In other developed countries, only $4 out of every $100 goes to middlemen, he says. PBMs popped up in the late 1960s as payment processors. They now draft medication menus and negotiate prices behind the scenes with drugstores, health plans, and manufacturers.

As their role expanded, so did ways to make money: Benefit managers keep about 10 percent of the rebates from manufacturers vying to get their medicines covered; they sometimes charge health-plan clients more for generics than they reimburse the pharmacies dispensing them; and they channel clients to their own specialty or mail-order pharmacies. PBMs say they vary terms to suit client needs. While the terms are agreed to in contracts, they aren’t always well-understood by clients.

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