CMS Analysis: preferred vs. non-preferred pharmacy networks

CVS Health announced Tuesday that it expects to lose 40 million retail prescriptions next year because of new retail pharmacy networks that don’t include CVS, such as those created by Walgreens’ partnerships.

This year, Deerfield-based Walgreens formed partnerships with a number of pharmacy benefit managers, which are companies that manage prescription drug benefits for insurers and employers. Those partnerships make Walgreens a preferred pharmacy for people with certain health insurance plans, meaning medications for those customers are significantly cheaper at Walgreens and other in-network pharmacies than at drugstores that aren’t part of those networks.

Tyrone’s comment: A CMS analysis has proved this theory (cheaper medications in preferred networks) to be inconsistent at best. While medications may cost patients less at the point-of-sale, it turns out they could actually be more expensive to payers in a preferred network.

In September, Express Scripts, the pharmacy benefit manager for the U.S. military’s health insurance program, announced that on Dec. 1 it would add Walgreens to the military health insurance program’s network and drop CVS. That means those with military health insurance, known as Tricare, will have to get their prescriptions at Walgreens or other in-network pharmacies starting Dec. 1 or pay significantly higher rates for them elsewhere.

In August, Walgreens announced a partnership with pharmacy benefit manager Prime Therapeutics, which is owned by 14 Blue Cross and Blue Shield plans and has 22 million members. Walgreens also partnered in March with benefit manager OptumRx, which is part of UnitedHealth Group and has 66 million members.

Walgreens has been particularly aggressive in pursuing such deals, said Vishnu Lekraj, a senior equity analyst at Morningstar in Chicago. The benefit managers restrict which drugstores can be part of their networks to get better discounts on drugs from pharmacies such as Walgreens, he said.

CVS has its own pharmacy benefit manager business, and CVS President and CEO Larry Merlo said in a news release Tuesday the he expects a “healthy increase” in operating profit growth next year in that area. He said, however, that he expects a decrease in retail operating profit growth.

Tyrone’s comment:  I hope self-funded employers are paying attention to this comment because it is significant. An increase in operating profit occurs one of two ways; increase in revenues and/or cost-cutting measures. In other words, Caremark will look to grow its account base but also increase incremental revenue from existing clients.

Read more:  http://www.chicagotribune.com/business/ct-walgreens-cvs-prescriptions-1109-biz-20161108-story.html

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For a health plan administrator looking to improve the quality of care, reduce thoughtless use of expensive drugs, and lower costs it’s hard to see how not to impose prior authorization.

Lee Newcomber of United Health Care and colleagues reported in The Journal of Clinical Oncology Practice on a thoughtfully designed prior authorization program for chemotherapy implemented only in Florida – and compared costs in Florida compared to the rest of the Southeast, and then compared to the rest of the country.  Costs went down by 9% in Florida, and went up by 10-11% in the comparison geographies.   Only 42 cases (1%) were denied. Savings totaled $5.3 million for the pilot program.

The program used National Comprehensive Cancer Network (NCCN) guidelines, which were digitized by a third party.  Oncologists had to submit the minimal amount of information to get to a NCCN decision node, and were offered a series of choices. They only needed to get prior authorization if they were prescribing medications not listed as appropriate by NCCN.

Tyrone’s comment: PAs, for biologics, can easily run into the $400 to $500 range so be prudent in managing this service along with the associated costs. Ask your PBM who handles PAs and what, if anything, their specialty pharmacy does to help patients finance their cost share (i.e. co-pay cards, coupons, patient assitance programs and/or nonprofits). Lastly, a quarterly cost-benefit analysis could prove to be very worthwhile. 

Characteristics of this program which made it far less onerous than many prior auth programs:

1)   Requested the minimal amount of information necessary
2)   Used guidelines that were promulgated by a trusted source, and were open source (nonproprietary)
3)   Allowed providers to do “self service” if they stayed on the clinical pathway
4)   Committed to 24 hour turnaround times for “non-pathway” treatment
5)   Allowed “grandfathering” of patients already on “non-pathway” treatment

The high rate of administrative expiration was described as being due to administrative errors, duplicates, out-of-state physicians mistakenly using the system, and change in patient status.

This program, which the authors call “decision support” rather than “prior authorization,” replaced a previous program that asked physicians to follow the NCCN guidelines and denied claims if they went outside the guidelines without prior authorization. The previous program led to many calls for “permission” that were unnecessary, and led to 7% denial rates.

Doctors and patients will continue to despise prior authorization programs. But it appears that this program was able to save significant dollars, keep more patients on an NCCN pathway, and minimize hassles. It’s a good model that should be replicated elsewhere.

By Jeff Levin-Scherz

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 pharmacy cost 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.

Note: Prices listed herein are gross thus do not account for rebates, discounts or other purchase incentives which ultimately reduces the net cost.

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 pharmacy cost 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.

Note: Prices listed herein are gross thus do not account for rebates, discounts or other purchase incentives which ultimately reduces the net cost.

Pharmacy benefit managers (PBMs) have come under fire recently due to outrage over high drug prices, with some critics blaming PBMs for the cost growth. However, many PBMs attest that they have been saving patients and the healthcare industry money through their negotiated drug costs and formulary exclusion lists.

PBMs are also faced with rising drug costs, and they respond by removing drugs from their formulary lists when a less costly alternative is available. Since they can use these lists to negotiate prices, these policies have largely had a positive impact on costs, and have not been seen to affect patient access to medications, according to the Pharmacy Benefit Management Institute’s 2016 PBM Customer Satisfaction Report.

Figure 1

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 pharmacy cost 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.

Note: Prices listed herein are gross thus do not account for rebates, discounts or other purchase incentives which ultimately reduces the net cost.

Tyrone’s comment: Similarly, I’m astonished that I continue to come across third-party payers, such as self-funded employers, who don’t know how much they pay PBMs and/or TPAs for managing the pharmacy benefit. This is far different than net plan costs as the PBMs take is hidden in the total pharmacy spend.

Price comparison: non-fiduciary PBM (incumbent) vs. fiduciary PBM

At the big picture level, PwC has pointed out that more than half of healthcare spending adds no value (PDF). At a ground level, we see employers spending 55% less on health benefits with a benefits package better than 99% of the workforce. In other words, the best way to slash healthcare costs is to improve benefits.

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 pharmacy cost 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.

Note: Prices listed herein are gross thus do not account for rebates, discounts or other purchase incentives which ultimately reduces the net cost.