But Braly resigned under pressure from shareholders in 2012. Her successor, Joseph Swedish, had different thoughts about how the deal was playing out.

This January, he said Express Scripts should be passing along billions of dollars in savings it negotiated from drugmakers. He threatened to ditch Express Scripts as a partner, even though the alliance runs through 2019.

“We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion,” Swedish said at a health care conference. “To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis.”

Much of those savings would be passed on to clients, he said.

Two months later, unable to reach an agreement, Anthem sued Scripts for $15 billion, alleging the company violated its contract through excessive charges. Express Scripts turned the tables a month later, filing a countersuit and denying Anthem’s charges.

As part of its defense, Express Scripts said it originally offered Anthem two options while negotiating to buy NextRx.

The first was to offer a smaller upfront payment, which would be made up with lower drug prices over the 10 years. The other was for a higher upfront payment, which would include higher drug prices.

“And Anthem chose, in essence, Door Number Two,” Michael Carlinsky, attorney for Express Scripts, told a New York federal judge last month, according to a newly filed court transcript. “It took the deal to accept up-front $4.675 billion as opposed to, I think, Door Number One was roughly $500 million, just so the court can appreciate the difference.”

According to court filings, the two sides had signed an agreement that Anthem or a consultant would conduct a market analysis every three years to ensure that it was receiving competitive drug prices.

“In the event Anthem determines that such pricing terms are not competitive, Anthem shall have the ability to propose renegotiated pricing terms to Express Scripts,” the agreement said.

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Tyrone’s comment:  Do you use reference-based pricing as a strategy to determine fair pharmaceutical pricing? If so, is the reference source based upon market price (acquisition cost) or contract agreement? The latter addresses only billing errors while the former discloses the full extent of overpayments, if any. 
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In return, Express Scripts—which has two central Indiana fulfillment centers with a total of 1,300 employees—agreed to “negotiate in good faith over the proposed new pricing terms.”

It’s unclear how often the two sides would renegotiate prices. Those details were redacted in court filings.

But the dispute now focuses on whether Express Scripts is charging Anthem higher than the market prices for drugs, and if so, what Express Scripts is obligated to do in return.

Read more >>

Mr. Adzema said the auditor pulled from his store, shown above, 19 prescriptions for medications costing between $500 and $3,700, though he estimates 90 percent of his dispensed scripts cost less than $50.

In this particular case, $55,402.47 worth of denials — to be withheld from future payments to the pharmacy.

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Tyrone’s comment:  This is a BIG, BIG deal. What happens to the dollars PBMs recover from pharmacies due to these audits? The dollars, sometimes huge amounts, are going into the bank accounts of traditional and pass-through PBMs when the money should in principle go back to plan sponsors who paid for the medications in the first damn place! I bet you [Benefits Directors, benefits consultants, principals etc…] haven’t had this conversation with your TPA or PBM. If not, shame on you. By the way, there is a name for this process and it’s referred to as back-billing. Though audits are necessary and sometimes produce good results, I am not a fan when the audit hurts stakeholders (i.e. patients, pharmacists and plan sponsors). The PBM is often the only beneficiary from this opaque process. The solution is to conduct your business with a fee-only or fiduciary TPA/PBM vendor.
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Jay Adzema, pharmacist and owner of Adzema Pharmacy on Perry Highway, says an auditor for St. Louis-based Express Scripts — a leading pharmacy benefit manager (PBM) nationwide which administers plans for Highmark, UPMC Health Plan and others — came to his shop on June 29 after asking to review some of the 20,000 prescriptions he filled over the past two years.

Mr. Adzema said the auditor pulled 19 prescriptions for medications costing between $500 and $3,700, even though he estimates 90 percent of his dispensed scripts cost less than $50. He received the final 8-page audit report July 7, listing multiple errors from six cases for missing scripts, an incorrect supply for days needed, invalid or incomplete scripts or refills made too soon.

That experience illustrates a widespread tension that can pit auditors who see themselves as safeguarding the integrity and safety of dispensing medications against pharmacists who believe the audits can be largely a money grab that latch onto minor errors to deny claims.

Pharmacists’ complaints have grabbed the attention and support of some legislators as 33 states have passed laws regulating how PBMs conduct pharmacy audits.

Pennsylvania is not among them but Rep. Matthew Baker, R-Bradford County and chair of the House health committee, hopes to change that. Mr. Baker is prime sponsor of a bill, HB 946, which was recently passed by his House colleagues to address some of pharmacists’ concerns.

If the Senate approves and the bill is signed into law, Mr. Baker said the Pharmacy Audit Integrity Act law “establishes for the first time in Pennsylvania audit procedures, written report requirements, limitations, enforcement and will provide consistency and reliability for pharmacy audits.”

Insurers contract with pharmacy benefit managers to administer their prescription plans. Pharmacists, in turn, sign contracts so they will be included on a PBM’s approved list. Those contracts typically include the pharmacy’s agreement to face periodic audits.

Because of consolidation in the industry, declining to sign the contract is not much of an option, pharmacists say: In Mr. Adzema’s case, 70 percent of his commercial business comes from prescription plans managed by Express Scripts.

In Mr. Adzema’s audit, the single biggest deduction, $44,400, was for an anti-seizure drug that cost $3,200 to $3,700 per dose. He said the pharmacy had received phone authorization to fill two prescriptions for the drug that a 6-year-old Children’s Hospital patient needed.

As part of the audit, Express Scripts denied the claim, Mr. Adzema said, because his pharmacy records did not note who in the doctor’s office provided the authorization. The denial was also applied to each of the subsequent five refills for both scripts, 12 in all, for the $44,400 total.

Because Mr. Adzema has worked with the doctor’s office for many years — his father opened Adzema Pharmacy in 1959 — he believes he can get the documentation to recover nearly all of the $55,400 “but it’s taken days out of my life to do this,” he said.

“PBM’s are running roughshod over whoever they can. They can justify anything, even charging back $40,000 because the wrong initials are on the paperwork. They are obviously targeting big dollars and care nothing about the healthcare aspects of what they do.”

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 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.

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.

Drugmakers have received the brunt of public outrage for the high prices of some specialty drugs, which require special handling and are used to treat diseases such as cancer, hepatitis C and rheumatoid arthritis. Many specialty drugs are pricey: Epclusa, Gilead Sciences Inc.’s hepatitis C drug that the U.S. Food and Drug Administration approved last week, comes to market at about $75,000 for a single course of treatment.

But experts say employers should be aware of the many middlemen, from PBMs to retailers, that profit from the drug. “When it comes to the distribution of drugs, every time that drug passes through another hand, there’s a margin that’s captured by whoever is handling it. Whether it’s the wholesaler, retailer or a doctor, everybody’s getting a piece,” said Alex Jung, Chicago-based principal of global strategy at Ernst & Young L.L.P.

But employers aren’t doing enough to hold middlemen accountable for the costs they add to the prescription drug bill, and few employers have custom pharmacy networks and direct contracts with health care providers to ensure they pay the lowest costs but get the best outcomes for their employees, she said last week during the Midwest Business Group on Health’s Employer Forum on Pharmacy Benefits and Specialty Drugs in Chicago.

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Tyrone’s comment:  The key to eliminating pharmacy overpayments is to become highly educated in the pharmacy benefits management industry. Make no mistake about it; much of the excessive remuneration from plan sponsors to PBMs is due to overpaying for pharmaceuticals. For example, mail-order Rx’s are not always less expensive than retail. Another example, preferred pharmacy networks don’t always deliver cost-savings compared to non-preferred networks. In many cases, the opposite is true; they are more expensive! Middlemen want to keep employers in the dark so the cash cow continues to feed them. One can’t hold a PBM accountable if they don’t know exactly how PBMs go about the business of making money.

There are two factors which determine how effective an employer is at paying the lowest possible price while not sacrificing health outcomes: negotiating skills and industry (PBM) knowledge. It is important to recognize that offering a pharmacy benefit is inherently expensive, but with a PBM’s buying power the pain is supposed to be alleviated. However, when PBMs hide cash flows the primary reason we exist is subverted; that is to lower cost for our clients. Instead PBMs seize the opportunity to take advantage of employers’ lack of knowledge and/or desire to keep cost low. Most plan sponsors, and their agents, don’t know what they don’t know.
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Employers need to understand what diseases are prevalent among their employees and “construct a network that meets your needs by looking at a provider that serves those needs from a therapeutic perspective,” she said. “You can’t just say I’m going to follow whatever Boeing (Co.) does or whatever United Airlines (Inc.) does, because … they’re not creating a customized specific benefit plan that meets the needs of the specific therapeutic diseases that are prevalent in your population.”

But most employers don’t have the expertise to navigate the prescription drug industry or devise custom pharmacy networks. And only employers with thousands of employees have the power to form direct contracts, experts say.

Read more >>

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Humalog faces competition from a very similar drug: Novolog, from Novo Nordisk A/S. Benefit managers have been playing one company against the other to get cheaper prices. Lilly offered discounts of 66 percent on Humalog last year, up from 23 percent in 2009, according to SSR Health estimates. Discounts for Novolog have risen in parallel fashion since 2012, the data show.

Lilly said it doesn’t disclose rebates for individual drugs, but, on average, its discounts are 35 percent for commercial insurance plans and 80 percent for government plans. Novo Nordisk said U.S. discounts for all of its medicines were over 50 percent last year, compared with about 35 percent in 2010.

Read more >>

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The lawsuit is the latest development in the $15 billion battle between Anthem and Express Scripts. In March, Anthem sued Express Scripts for allegedly overcharging for prescription drugs in violation of the parties’ agreement.

Two months later, two health plan participants sued both companies under the Employee Retirement Income Security Act challenging Express Scripts’ alleged overbilling.

The latest lawsuit, filed June 24 in the U.S. District Court for the Southern District of New York, is brought by participants in three medical plans sponsored by Verizon Communications Inc., AmTrust Financial Services Inc., and LG&E and KU Energy LLC. The plans have more than 26,000 participants combined.

Billion-Dollar Agreement

In December 2009, Express Scripts paid approximately $4.67 billion to Anthem for the exclusive right to provide pharmacy benefit management services, the complaint says. Under this agreement, Express Scripts supports Anthem’s business in over 24 states and services more than 15 million of its members.

According to the complaint, Anthem breached its ERISA duties by entering into an agreement with Express Scripts that was imprudent and not in the best interests of its members. In addition, Anthem allegedly failed to properly monitor and prevent Express Scripts from overcharging.

The complaint alleges that Anthem used Express Script’s nearly $5 billion payment to fund stock buybacks in 2009 and 2010, which ultimately enriched Anthem’s stockholders and management, rather than passing this money through to participants.

Read more >>

The estimated price tag for treating a patient with a specialty drug is high. For some chronic conditions, a year of treatment with a specialty drug can exceed $100,000. In many cases, specialty drugs represent only about 1% of all prescriptions but account for one-quarter to one-third of total drug spend.

The most popular cost-controlling methods for organizations are tiered pricing and a mail-order drug service, with 89% and 82% of employers currently implementing these initiatives. As for drug formulary lists, 71% of organizations have this tool in place, and 63% are using a pharmacy benefit manager (PBM).

Tyrone’s comment:  CMS conducted an analysis to determine whether or not preferred networks and mail-order drug service deliver on the purported savings. The conclusion is that in some cases they do not. The difference maker is likely two things: negotiation skills and level of PBM industry knowledge.

Other techniques include:

• Reference-based pricing/cap on certain drugs – 6%
• Collective purchasing groups – 14%
• Coverage of select over-the-counter drugs – 15%
• On-site or near-site pharmacy – 16%
• Discontinued or limited coverage of cosmetic/lifestyle drugs – 17%
• Preferential pricing agreements (negotiated with pharmacies/manufacturers) – 18%
• Drug card program – 28%
• Preferred provider networks – 35%
• Mandated use of generic drugs when available – 37%
• Prior authorization/utilization management – 38%
• Step therapy/therapeutic substitution – 46%

Employers are finding it necessary to vigilantly watch prescription drug prices. They are striving to keep costs controlled by trying new approaches like using five or more tiers for cost sharing, where the highest tier is for the highest-priced drugs—usually specialty drugs. Moving forward, employers will continue exploring unique cost-saving measures like referenced-based pricing.

by Julie Stitch

There are two levels of service a consulting firm can perform on a group pharmacy benefit plan: review and audit. In truth, many plan sponsors believe they’re buying an audit when in fact they’re receiving only a review. Because the identification of risk is vastly different between the two consulting services, plan sponsors and their agents should know the differences.

[Figure 1]

Review

The problem is that a review provides only limited assurance and is substantially narrower in scope when compared with an audit.

• A review does not include an investigation of the plan sponsor’s internal control system or its risk of excessive overpayments, which could be an area of interest for CEOs, CFOs and plan administrators.
• A review does not use true acquisition cost reference-based pricing. For the most part, a review checks for contract compliance. Errors found during a review are likely just billing mistakes and don’t account for all risks. Risk is measured by exposure to overpayments.
• A review costs less than an audit and, as a result, is often viewed as the preferred option (see figure 1).
• Reviews disclose overpayments related specifically to contract terms. It does not help to disclose payments over AAC (average acquisition costs) or withheld manufacturer revenue which the PBM retains as a service fee or hidden cash flow.

The lesson here is that a company should hold an in-depth discussion in advance of the consulting firm’s initial engagement to ensure that there is sufficient value in performing a review, or determine whether a different option would be better fit. Ultimately, a review is a very effective option for companies that are comfortable with the limited assurance given in the report.

Audit

An audit provides the highest level of assurance that the plan sponsor is free from excessive overpayments. Under an audit, the pharmacy benefit management consulting firm is required to:

• Obtain an understanding of the client company’s internal controls and assess hidden cash flow (paid) risk.
• Corroborate figures and disclosures included in the final report by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmation, examination, analytical procedures and other procedures.
• The audit is usually substantially higher in cost than a review. However, the evaluation of risk (overpayments) is more substantial compared to a review.

Often overlooked, in far too many PBM contracts, is how much cash the PBM actually generates for itself; on a per client basis. I have a simple equation that every consultant, broker and benefits expert should employ to calculate PBM service costs but few do.  Here it is absence of charge:

When plan sponsors can account for PBM service revenues they make better decisions about their pharmacy spend. In addition, they will discover the key to cost-containment in the pharmacy benefit is primarily mitigating the PBMs profit not the pharmaceuticals.

Some might bark at this notion but keep this in mind. Offering a pharmacy benefit is inherently expensive thus the key is not to overpay. Groups achieve this by making sure they benefit more from the PBMs buying power than the PBM itself.

Choosing an audit or a review is mainly a question of your needs and the needs of your stakeholders. Should cost be considered? Yes, but it should not be the driving factor unlike the choice for a PBM vendor. Proper planning and discussions with your cross-functional team should yield the right decision for your company – one that will fulfill your needs in the most cost-effective manner.