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.

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Why do medications cost so much, particularly specialty drugs that treat the most serious conditions? Mostly because U.S. drug companies can price them however they want. Some of their justifications are reasonable — for instance, high prices fund research. Others, like the notion that drug treatment lowers total medical costs, are far from proven.

But pharmaceutical companies don’t deserve all of the blame for high drug prices. Lots of other actors in purchasing, distribution, and brokerage have greater incentives to keep prices high than to lower prices or choose drugs that reduce longer-term medical and business costs, like absenteeism.

We believe that employers have the greatest potential to influence some of those actors and, ultimately, to chip away at high drug prices. To appreciate the power that employers have in this area, you must first understand how competing incentives work in the world of drug pricing.

Competing Incentives

Hospitals, for example, can take advantage of the 340B pricing program, which allows them to buy drugs at 30% to 50% of the retail price but then bill at full price for patients with insurance. And even organizations that, theoretically, are paid to help hold down drug costs sometimes have incentives to do the opposite. Take insurers and pharmacy benefit managers (PBMs), which are hired to manage drug costs for employer-based health plans.

Indeed, it’s smart for employers like GE, IBM, and Google to contract with these specialist entities and have them decide which drug among several competitors their employees should get first, at what cost, and which medical policies should govern the use of that drug. After all, insurers and PBMs can spread the costs for research, negotiation, and decision making about drug-reimbursement policies across all of their clients.

However, PBMs and insurers may have business objectives that differ from those of their clients. For one, they’re not always at risk for the cost of drugs — the clients are. Also, a PBM or a pharmacy department of an insurer gets a substantial portion of its drug-related profit from rebates. These are payments negotiated with manufacturers that return, via the PBM or payer intermediary, a percentage of the drug’s price to the payer — for example, to an employer that contracts with a PBM or an insurer.

Here’s a simplified version of how these rebates work:

To get the business, the PBM or plan typically guarantees a minimum rebate on every prescription, say $60. On a $300 script, that’s a 20% net reduction in the cost to the employer (final price: $240). As an incentive for the PBM or plan to negotiate even harder — maybe get a 30% rebate (in this case, another $30) — it often takes home 30% to 50% of anything above the guaranteed rebate. In this example, if the split were 50/50, the employer would pay $225, net, for the prescription and the PBM would get $15. Not a bad deal.

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In the old days — maybe five years ago, when most prescriptions ranged from $200 to $400 — rebates worked to the employer’s advantage. But for a specialty drug, costing say $50,000, a rebate of 20% means that the employer pays a net $40,000 and the PBM pockets $10,000 (plus other fees for processing and, sometimes, for handling the prescription through a specialty pharmacy division). Meanwhile, the $60 guarantee becomes meaningless.

Now let’s assume both a smaller rebate (10%) and a lower price ($25,000) for the same drug. The $60 rebate is still meaningless, but now the net cost to the employer is $22,500 (much better than $40,000) and the PBM’s profit is just $2,500. If you’re the PBM, do you want the manufacturer to price the drug at $50,000 or $25,000?

It’s also true that very large employers sometimes get virtually the whole rebate, not a 50/50 split. But don’t cry for the plans and PBMs, which know how to tack on various fees, often including a specialty pharmacy fee of about 2%. That cost covers the overhead and profit margin of a necessary part of the distribution system. But 2% on a $500 drug is $10; on a $50,000 drug, it’s $1,000. Again, a higher drug price means a more profitable supply chain.

(Insurance companies would argue, by the way, that they shouldn’t be lumped in completely with PBMs, because most insurers manage their pass-through and full-risk businesses with the same pharmacy policies. For the full-risk business, insurers care about drug prices, at least to the extent that they can’t just raise premiums for employers.)

Options for Lowering Prices

The easiest way to lower drug prices would be with a single-payer system, which most European countries have. That payer would be on the hook for all medical costs and would therefore have the incentives — and the clout — to negotiate lower prices. But we can’t envision that happening in the U.S., where some political players would cry “socialism.” So we’re left looking to employers and the Centers for Medicare and Medicaid Services (CMS), which runs Medicare.

Changing CMS reimbursement practices is a Sisyphean task, given the congressional and lobbyist opponents. Even a relatively small proposal last year — narrowing the “protected classes” rules that, in essence, require reimbursement for all drugs in six therapeutic areas — was shot down decisively by drug companies, patient advocacy groups, and legislators.

Employers’ weak-kneed behavior is more baffling — no other group has a greater stake in buying smarter. But employers have always been reluctant actors in the health care system, as they feel out of their depth. Some companies, like Honeywell and Nielsen, have taken tough steps to control costs, with no loss in employee satisfaction. But don’t count on a sea change in employer buying behavior — when push comes to shove, they can always shift costs to their employees.

What Employers Can Do

Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have skin in the drug-pricing game.

Our sense is that PBMs, at least, are willing to listen. Express Scripts, for example, recently proposed capping its customers’ total exposure to the PCSK9-inhibitor class of cholesterol-lowering drugs. If their customers spend more than a pre-set amount, Express Scripts eats the overage. Certainly, Express wouldn’t do this without a clear idea of how much its clients would be spending. Notably, those clients must agree to follow Express’s rules about who gets the expensive drugs — and must use Express’s specialty pharmacy. But it’s a very good start.

We certainly don’t expect employers to start writing drug-coverage policies and doing their own contracting. But, as seasoned buyers, they know how to negotiate with suppliers, such as insurers and PBMs — and they should not be afraid to do it. It’s now easier to understand the tradeoffs among competitive drugs, thanks to tools like the Institute for Clinical and Economic Review’s new assessment reports, RealEndpoints’ RxScorecard, and the National Comprehensive Cancer Network’s evidence blocks.

Combine these tools with contracting that does not focus entirely on rebates, and employers may begin to change the rules of a game they will otherwise continue to lose.

by Robert Galvin, MD and Roger Longman

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.

As soon as officials address one problem with prescription costs, another arises. It’s like the arcade game Whac-A-Mole, in which a toy mole pops his head up, and as soon as you whack it down, another pops up from a different hole, and then another and another.

New state comptroller’s statistics, obtained by Government Watch, show that taxpayers funded nearly $332 million in prescriptions for the 200,000 participants in the state health benefits program during the 12 months that ended June 30 — up about $53 million, or 18.8 percent, from the previous year’s $279 million.

Moreover, the cost per participant jumped by an even higher percentage — 24.7 percent — because there were fewer state employees, retirees and family members participating in the program during the more recent year.

Comptroller Kevin Lembo, the elected official in charge of running the state employees’ health plan, has been using the Whac-A-Mole analogy for the past year in conversations about the problems with prescription drug costs. He did it again in a phone interview Friday.

“Something else always pops up. You always feel like you’re chasing the next problem, and you’re battling people sitting in rooms thinking of how to take advantage of programs designed to support the health and life of others,” he said.

Tyrone’s comment:  This phenomenon, “Something else always pops up…” is referred to as ballooning.  In other words, when one loophole is closed the traditional PBM will look for another loophole to account for the lost revenue.  Traditional PBMs have internal staff whose sole purpose is to drive incremental revenue from client contracts.  To make matters worse, this process of hiding cash flows doesn’t begin until the ink is dry on the contract!  The only sure fire way to avoid this pitfall [overpayments] is to enter into a fiduciary agreement. 

He attributed the latest $53 million escalation to a general skyrocketing of costs in the national pharmaceutical market, something that he said the state government has little influence over and that Congress needs to fix.

“The factors behind rising pharmacy costs include market consolidation, new pricing models and outright profiteering. Projections indicate no future relief as pharmacy costs are expected to continue to rise at an exorbitant rate in the coming years. Meanwhile, pharmaceutical companies are recording historic profits,” Lembo said in written testimony he submitted this past week to the U.S. House Democratic Steering and Policy Committee. It’s an all-Democrat panel co-chaired by U.S. Rep. Rosa DeLauro, who represents Connecticut’s 3rd Congressional District.

Based on Congress’ record of dealing with major health care issues, any quick solution is doubtful. But it appears that a Connecticut problem that reared its head in the past few years has been pretty much whacked.

That $24 million problem was compounded drugs — mixtures of medicines, typically produced by big, out-of-state compounding pharmacies, often in the form of topical creams for pain. Costs to Connecticut taxpayers for those medicines had exploded from $800,000 in 2012 to an estimated $24 million this year, with charges as much as $18,000 per patient for a 30-day supply.

Those medicines, not approved by the U.S. Food and Drug Administration, also were straining the prescription drug budgets of many states as well as the U.S. military and Department of Veterans Affairs as the compounding pharmacies exploited the lack of regulation.

In mid-May, Lembo imposed a “prior authorization” requirement for compounded medicines under which a prescribing doctor must demonstrate “medical necessity” before payment is approved by CVS/Caremark, the state’s health benefits manager. A patient may appeal a denial.

Costs dropped from a peak of $3.1 million in April to $36,229 in July — and the average monthly savings on compounded drugs has been $2.2 million, according to a report to the comptroller by CVS/Caremark for the period from May 15 to Oct. 31.

The State Employees Bargaining Agent Coalition notified the state months ago that it was challenging the new policy on the grounds that it creates “too much interference in medical choices between a doctor and patient.” But a Sept. 23 binding arbitration hearing has been postponed indefinitely while union representatives watch how the new procedure is working.

There have been only a handful of patient appeals so far, and the high-cost, out-of-state compounding pharmacies have been pretty much supplanted by local, low-cost pharmacies, which have been mixing most of the compounded drugs still being used, Lembo said.

An investigation by the office of state Attorney General George Jepsen is “active and ongoing” into the recent spike in costs for compounded medicines, an office spokeswoman said Friday.

It’s hard to trumpet the cost-savings for those compounded medicines — not in the context of a $53 million increase in the prescription costs for which state employees, retirees and their dependents are responsible for only minimal co-payments.

Prescription co-payments for a 30-day supply of medicine range from $5 to a maximum of $35. That top co-payment of $35 is for a “non-preferred brand-name drug” that hasn’t been certified as medically necessary by a doctor; it drops to $20 with a physician’s certification.

Lembo said in his congressional testimony that prices for name-brand medications, as well as for long-established generic drugs, are rising at an alarming rate.

He gave as an example a recent huge increase in the price of Daraprim, a medicine that has been used for 62 years to treat a potentially fatal parasitic infection. Turing Pharmaceuticals, a startup company headed by the former manager of a hedge fund, acquired the drug recently and raised the price from $13.50 per tablet to $750.

“We applaud the profit motive in our free market society as a mechanism to efficiently distribute resources and drive innovation, but excessive profits can cause significant harm when applied unbridled to essential and lifesaving medicines in an uncompetitive marketplace,” Lembo said in his testimony. “High costs are pushing certain treatments out of reach for some.”

He asked that Congress strengthen anti-trust laws “to limit consolidation in the pharmaceutical industry and ensure that adequate competition remains to drive competitive pricing,” and to reduce a backlog in FDA approvals of generic drugs. He said the state employees’ health plan spent $8 million in the past year for the name-brand drug Nexium “as a result of a significant delay in the release of a generic version of the drug.”

by Jon Lender

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.

During the session, held on October 27, Tharaldson identified several specialty medications that are likely to be approved in 2016, and she spoke about how those medications could affect the managed care pharmacy industry.

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Here’s a closer look at four diseases and conditions that Tharaldson says are likely to be heavily impacted by newly approved specialty medications in late 2015 and 2016.

1. Non-Small Cell Lung Cancer (NSLC)

Genentech’s alectinib is an oral ALK inhibitor that is expected to be approved by March 4, 2016, for the treatment of ALK+ NSCLC who have progressed on, or are intolerant to, crizotinib (I would use generic name here). It will compete with Novartis’ Zykadia in this patient population.

AstraZeneca’s osimertinib and Clovis Oncology’s rociletinib are oral epidermal growth factor receptor (EGFR) inhibitors that are expected to be approved by February 2016 and March 30, 2016, respectively. They are pending approval for the treatment of EGFR and T790M mutation-positive NSCLC.

2. Multiple Myeloma

Bristol-Myers Squibb and AbbVie’s Empliciti (elotuzumab) is a biologic drug that may be approved by March 1, 2016, for use in combination with Revlimid (lenalidomide) and dexamethasone to treat relapsed or refractory multiple myeloma.

Janssen’s daratumumab is another biologic drug that could be initially approved by March 9, 2016, as monotherapy to treat patients with relapsed or refractory multiple myeloma.

Takeda’s ixazomib citrate is the first oral proteasome inhibitor that may be approved by March 10, 2016, to treat relapsed or refractory multiple myeloma in combination with Revlimid and dexamethasone (all-oral regimen).

3. Severe Asthma

GlaxoSmithKline’s Nucala (mepolizumab) is an interleukin-5 inhibitor that expected to be approved by November 4, 2015, for the treatment of patients with severe eosinophilic asthma.

Teva’s reslizumab is another interleukin-5 inhibitor that is expected to be approved by March 30, 2016, for severe eosinophilic asthma.

4. Duchenne Muscular Dystrophy (DMD)

BioMarin’s drisapersen is expected to be approved by December 27, 2015, for the treatment of DMD amenable to exon 51 skipping. Sarepta Therapeutic’s eteplirsen is expected to be approved by February 26, 2016, for the treatment of DMD amenable to exon 51 skipping. Both drugs treat the underlying cause of DMD by allowing the production of a functional dystrophin protein.

There are approximately 20,000 boys in the U.S. with DMD. This rare disease is caused by mutations in the dystrophin gene, resulting in the absence or defect of the dystrophin protein. Patients experience progressive loss of muscle function, often making them wheelchair bound before the age of 12.

Respiratory and cardiac muscle can also be affected by the disease. Few patients survived past the age of 30. Up to 13% of boys with DMD have dystrophin gene mutations/deletions amendable to an exon 51 skip. Approximately 2,600 boys in the U.S. have DMD with exon 51 skip. These drugs may cost approximately $300,000 per year.

by Aubrey Westgate

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.

Repatha (evolocumab) was approved by the Food and Drug Administration in August for use in certain patients whose high levels of LDL, or bad cholesterol, have not responded to dietary and drug interventions. At full price the drug costs $14,100 per year.

Harvard Pilgrim Health Care (HPHC), which serves New England, estimates that 1 percent of its members will be eligible to take the drug, Joan Fallon, HPHC spokeswoman, told Bloomberg BNA in an interview Nov. 10.

Three Types of Discounts

The health plan negotiated three types of discounts for Repatha, Fallon said. HPHC will receive a discount simply for “preferring” Repatha, Fallon said. The health plan also will receive a rebate if the drug fails to lower the cholesterol in members to the degree indicated by the drug’s clinical trials, Fallon said. Finally, if more members end up using the drug than was anticipated during negotiations, HPHC also will receive a rebate, Fallon said.

Tyrone’s comment:  The pay-for-performance (PFP) model is better for payers than the fee-for-service model, but traditional PBMs will still take advantage of loopholes in this pricing model in order to hide cash flow from third-party payers.  Download my white paper to better understand the flow of money and opaque tactics employed by PBMs to disguise rebates.

Fallon declined to say how much the discount and rebates are worth and described that information as confidential aspects of its contract with Amgen.

The pharmacy benefits manager Express Scripts Holding Co. estimated that Repatha and similar drugs could cost $100 billion a year retail, given its high price and that 10 million or more Americans would be eligible for the drug. The cost to Medicare would be $27 billion, the Department of Health and Human Services estimated.

Other Arrangements 

The promise and high price of Repatha and other drugs, including some gene therapies, has sparked much debate among public and private payers about alternative pricing arrangements, including pay-for-performance and paying in installments.

For example, Spark Therapeutics Inc., of Philadelphia, is considering installment payments for its proposed gene therapy to treat blindness, and Bluebird Bio Inc., of Cambridge, Mass. is in discussions with insurers about alternative payment plans.

“Agreeing to pricing models that align payment with appropriate outcomes is critical if we are to better manage increasing drug costs. We take very seriously our responsibility to ensure that the dollars we spend on health care are used wisely and give our members access to the highest quality care,” Michael Sherman, HPHC chief medical officer, said in the Nov. 9 announcement.

Novartis Discount 

Novartis AG announced July 8 that it would offer a pay-for-performance discount to all U.S. insurers for its new drug to treat heart failure, Entresto. An Entresto prescription costs about $4,500 per year. A Novartis official predicted at the time that the industry would move toward more pay-for-performance arrangements.

Repatha is one of a class of new cholesterol busters called PCSK9 inhibitors that work differently from previous cholesterol-lowering drugs. The PCSK9 drugs inhibit a protein that blocks the body’s ability to clear bad cholesterol from the blood. Repatha is given by injection, two to four times a month. Research has associated high levels of LDL cholesterol with a higher risk of stroke and heart attack.

By Adrianne Appel

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.

• According to insurers, prices for some commonly used generics have increased between 15 and 75 times their original prices.
• Insurers and others are concerned about rising generic drug prices, because of the reliance of these drugs in the U.S. (According to a recent report from the Generic Pharmaceutical Association, 88% of all prescriptions dispensed in the U.S. are generics.)
• Spending on prescription drugs is the fastest growing healthcare cost. In Massachusetts, spending on prescription drugs increased 13% in 2014, while overall healthcare spending increased by 4.8%.

Dive Insight:

Courtesy of American Action Forum

It’s true that some of the roughly 12,000 available generic drugs have increased in price within the last two years, including drugs such as amitriptyline, an antidepressant, which increased in price from four cents per pill in 2013 to $1.03 per pill in 2015, as well as captopril, a medication for hypertension, which increased from 11 cents for a 12.5-mg pill in 2013 to 91 cents for the same pill in 2015. And there are many other examples.

What’s driving the increases? According to experts, several factors, including increasing costs of chemical and other raw materials used to produce the drugs; lack of price regulation in the U.S.; and declining competition due to increased consolidation in the generics industry.

These factors need to be addressed—especially the issue related to lack of competition. But there is also another perspective: According to the 2014 Express Scripts Trend Report, since 2008 the cost of brand drugs has almost doubled, while generic drug prices have almost been cut in half. In a separate analysis, AARP reported that generic drug prices fell by 4% in 2013. According to that analysis, generic drug prices have declined steadily in the last 10 years.

One reason that payers are still feeling the pinch and complaining about price increases is that, while some of the hikes may be declining (or are modest in nature), use of these medications stretches so far across the market that winds up being a huge cost burden anyways.

By Nicole Gray