Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits and other notes from around the interweb:

• PBM Drug Pricing Practices Layer $7 Million in Excess Charges to State Medicaid Plans Nationwide. While Medicaid is a unique program that enables us to make comparisons between our study pharmacies and the aggregate payer experience, the data from our study pharmacies can highlight payment disparities within how people obtain medications. The pharmacy market is broadly divided into three payer types: Medicaid, Medicare, and Commercial. Each of these segments is setting potentially different incentives for pharmacies. As our study pharmacies demonstrated, Oregon Medicaid reimbursements were associated with the lowest margin experience in our pharmacies, whereas Medicare was the most profitable. This is despite many of the medications used overlapping between the payers.

• Drug companies favor biotech meds over pills, citing new U.S. law. Drugmakers are prioritizing complex biotech medicines over treatments that can be given as pills because recent U.S. legislation gives biologics a longer runway before becoming subject to government price limits, top industry executives said this week. The Inflation Reduction Act (IRA), which Democrats passed last August, for the first time allows the government’s Medicare health plan for people aged sixty-five and over to negotiate the prices it is willing to pay for certain medications. The law sets a nine-year exemption period for “small molecule” drugs, which are mainly pills, while “large molecule” biologics, generally injections or infusions, are protected from negotiation for 13 years. “The difference between a nine- and 13-year product line is about 50 or 60% of the value,” Eli Lilly Chief Executive Officer Dave Ricks said in an interview. “In 10 years, we’ll have far fewer small molecules being developed than we do today.”

• Why Now Is the Time for Health Plans to Take Control of Pharmacy Benefits. It’s worth belaboring the point: PBMs are under the watchful eye of state and federal governments. The PBM of the future isn’t a gas-guzzling, polluting SUV, for example, it is an efficient, state-of-the-art, fully customizable electric vehicle. It is regulatory compliant and uses the best technology to ensure equitable pricing methodology, financial value, and great member experience. Instead of shrouding drug pricing in secrecy, new PBM business models rely on transparency. The best way to create an efficient and fair market is to allow both the buy and sell sides of the transaction to communicate freely about how drug prices are set, rebates, and other essential information. On the compliance side, plan sponsors must recognize and understand how their health plan drives revenue for their benefits brokers and consultants (e.g., are they compensated for recommendations on pharmacy benefits or any other aspect of health benefits?). The Consolidated Appropriations Act of 2021 places new fiduciary responsibilities on entities that provide health benefits, and plan sponsors must ask their broker or consultant to disclose how they’re compensated.

• Summit County sues pharmacy benefits managers over opioid crisis. Governments, insurers, or employers typically hire pharmacy benefit managers to facilitate prescription drug programs, with the goal of reducing costs for the insured. The lawsuit, however, accuses the companies of doing the opposite. It alleges the businesses colluded with manufacturers to make opioids more available for pain treatment and by ignoring clear warning signs of addiction in patients. The companies did so to increase profits, the lawsuit said. “Whether by colluding with manufacturers to make opioids more available as a form of pain treatment or by ignoring the mounting evidence of addiction and misuse in their own claims data, [pharmacy benefits managers’] role in creating and sustaining the opioid epidemic is largely hidden from public scrutiny but nevertheless facilitated the reckless promotion of opioids by manufacturers, the oversupply of opioid shipments by distributors and the irresponsible dispensing of prescription opioids by numerous pharmacies,” the lawsuit said.

A price source refers to a data source that provides information on prices of goods or services. In the context of the prescription drugs, a price source would be a database or other source of information that provides pricing data on pharmaceutical drugs. This data is used to calculate the AMP, which is a key metric used by the US government to determine reimbursement rates for drugs covered under the Medicaid program, for example. Price sources can be private or public, and may include data from manufacturers, wholesalers, or other entities such as Elsevier, First Databank, Medispan, and Merative. Listed below are 10 benchmarks of PBM pricing aggregated by price sources.

1. The Average Wholesale Price (AWP) is a measure of the average cost of a medication to a wholesaler, which typically includes the cost of the drug, plus a markup. This markup can vary depending on the specific drug and the manufacturer, but it is around 25% to 30%. The AWP is used by some insurance companies, pharmacy benefit managers (PBMs), and government programs to set reimbursement rates for drugs. However, it should be noted that the AWP is not an actual price that is paid by any one entity, and it is not necessarily reflective of the actual cost of a drug. It is important to notice that the AWP is different from the wholesale acquisition cost (WAC) which is the price a wholesaler pays to acquire a drug from the manufacturer and is typically lower than the AWP.
2. Wholesale Acquisition Cost (WAC) is the price at which a pharmaceutical manufacturer sells a drug to a wholesaler or distributor. It is the price that a wholesaler pays to acquire a drug from the manufacturer, and it is typically lower than the Average Wholesale Price (AWP). The WAC is an important metric in the pharmaceutical industry, as it is used to set reimbursement rates for drugs covered by insurance companies, pharmacy benefit managers (PBMs), and government programs. It can also be used as a benchmark for determining the price of a drug at the pharmacy level. However, it should be noted that the WAC is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers. WAC can be considered a published catalog or “list price” of a drug, and it’s important to note that the final cost of a drug to a patient can be different than the WAC, and it can be affected by factors such as insurance coverage, rebates, or negotiations with pharmacy benefit managers.
3. Direct Price (DP) refers to the price that a pharmaceutical manufacturer charges for their products when they are sold directly to a pharmacy, hospital, or other healthcare provider, as opposed to through a wholesaler or distributor. Direct Price can be considered as the “net price” after any rebates, discounts or other price reductions have been applied. Pharmaceutical manufacturers may offer DP to certain customers, such as hospitals, to increase sales or gain market share. These prices are usually lower than the wholesale acquisition cost (WAC) of a drug, but higher than the prices paid by large pharmacy benefit managers (PBMs) or government programs. PMDPs can vary widely between manufacturers, and they are not always publicly available. Additionally, it should be noticed that the DP does not always reflect the final cost to the patient as it can be affected by insurance coverage, deductibles, or copays. It is also worth noting that DPs are different from the prices set by the manufacturer for the drug when it is sold to the government, which are usually incredibly low, and are set under the Medicaid Drug Rebate Program.
4. Average Acquisition Cost (AAC) rate schedules are based on the premise that chemically equivalent drug products in the same strength and dosage should be reimbursed similarly. AAC rates are designed to maximize the cost-effectiveness of pharmacy services by setting reimbursement amounts for therapeutically equivalent drug products at the same price, based on the cost of the products. The Centers for Medicare & Medicaid Services (CMS) uses this same premise to establish federal upper limits (FULs) for drug products. AAC rates are state Medicaid programs version of CMS FULs.
5. The average invoice cost a pharmacy spends to purchase a medication is represented by the National Average Drug Acquisition Cost (NADAC) survey. The purpose of NADAC was to “create a national reference file to help State Medicaid programs in the pricing of Covered Outpatient Drug claims to reflect the Actual Acquisition Cost (AAC) of medications,” according to the Centers for Medicare and Medicaid Services (CMS). The most thorough public measurement of market-based retail pharmacy acquisition costs is what NADAC seeks to achieve. For the benefit of CMS, Myers & Stauffer, an accounting firm that focuses on public healthcare and social service organizations, compiles NADAC. It is created from data collected from 2,500 randomly chosen retail pharmacies in a voluntary monthly invoice cost survey with 450 to 600 respondents.
6. Maximum Allowable Cost (MAC) is a term used in the pharmaceutical industry to describe the highest price that a pharmacy benefit manager (PBM) or another payer will reimburse for a specific drug. It is a type of reimbursement method where the payer sets a maximum price that they will pay for a drug, regardless of the price charged by the pharmacy or the manufacturer. PBMs and other payers use MACs to control costs and ensure that they are paying a fair price for drugs. They typically establish MACs for generic drugs, which are usually less expensive than brand-name drugs. The MAC for a specific drug is based on the prices of other drugs in the same therapeutic class and the prices of the same drug from different manufacturers. The MACs are updated regularly to reflect changes in drug prices. PBMs and other payers may also use a MAC pricing strategy to negotiate lower prices from manufacturers and pharmacies. When a pharmacy or manufacturer charges a price that is higher than the MAC, the payer will only reimburse the pharmacy or manufacturer for the lower MAC price. This can incentivize pharmacies and manufacturers to offer lower prices to be reimbursed fully. It’s important to note that this pricing strategy is used primarily for prescription drugs covered by public and private insurance plans, and it is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers.
7. Pharmacies are reimbursed by the PBMs (as a pass through from clients) for the ingredient cost of the drug dispensed plus a dispensing fee, less the member’s co-pay or co-insurance. Ingredient cost is usually [but not always] based on the lessor of methodology, which is the lowest of four calculations, depending on the drug dispensed: AWP, maximum allowable cost (MAC), usual and customary (U&C), or copayment. Reimbursement rates vary depending on the network. To ensure their clients receive the lowest possible price for drugs, pharmacies are contractually obligated to limit their reimbursement to the price they would charge a cash-paying customer. This price is called Usual and Customary (U&C) and is determined by the pharmacy. For example, if a retail pharmacy charges a cash-paying customer $20 for a drug, the retail pharmacy cannot invoice the PBM for an ingredient cost greater than $20, regardless of the AWP discount or MAC price in effect for that drug.
8. The 340B Drug Pricing Program, also known as the 340B program, is a federal program that requires drug manufacturers to provide certain outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. The program is named after Section 340B of the Public Health Service Act, which established the program in 1992. The 340B program is intended to help safety-net providers such as Federally Qualified Health Centers (FQHCs), Ryan White HIV/AIDS Program grantees, and certain children’s hospitals, to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. These providers use the savings from the 340B program to expand access to care and provide more comprehensive services to vulnerable patient populations. The 340B price is the price at which manufacturers are required to sell their drugs to 340B covered entities, it is significantly lower than the average wholesale price (AWP) or the wholesale acquisition cost (WAC) of the drug. The 340B price is set by the manufacturer and the Department of Health and Human Services (HHS). It is important to note that the 340B program is not a reimbursement program, 340B covered entities are responsible for purchasing and dispensing the drugs, and they are not reimbursed by the government for the drugs they purchase at the 340B price. Overall, the 340B program is intended to help safety-net providers stretch their resources further, reach more patients, and provide more comprehensive services, while also helping to reduce the cost of drugs for uninsured, low-income, and other vulnerable patients.
9. Average Sales Price (ASP) is the manufacturer’s revenue from sales of a drug to all customers in the U.S. during a calendar quarter divided by the total quantity of the drug the manufacturer sold during that same quarter. Any discounts are taken out of the ASP. The Centers for Medicare & Medicaid Services has been using an ASP-based payment system to cover the majority of Medicare Part B-covered medications since January 2005.
10. Average Manufacturer Price (AMP) is a metric used primarily by the US government to calculate reimbursement for drugs covered under the Medicaid program. AMP is defined as the average price paid to the manufacturer by wholesalers for a drug, net of all discounts and rebates. The AMP is used to determine the reimbursement rate for the drug under Medicaid. It is also used to calculate the Medicaid Drug Rebate Program (MDRP) which requires drug manufacturers to pay rebates to states for drugs covered by Medicaid.

The 10 benchmarks of PBM pricing are standards or reference points used to measure and compare prices of prescription drugs. In many cases, a price benchmark is used to determine if a price is fair or reasonable. In the context of the Average Manufacturer Price (AMP), a price benchmark would be a standard or reference point used to measure and compare the prices of pharmaceutical drugs, for instance. This benchmark can be used as a starting point to determine if a drug’s price is fair and reasonable, and if it is in line with prices of similar drugs. Price benchmarks can be used for various purposes such as setting prices for prescription drugs, evaluating price changes over time, determining reimbursement rates, and identifying price disparities between different pharmacy benefit managers. Finally, the price benchmark matters less when the PBM doesn’t take a spread.

Drug companies favor biotech meds over pills, citing new U.S. law other notes from around the interweb:

• Drug companies favor biotech meds over pills, citing new U.S. law. Drugmakers are prioritizing complex biotech medicines over treatments that can be given as pills because recent U.S. legislation gives biologics a longer runway before becoming subject to government price limits, top industry executives said this week. The Inflation Reduction Act (IRA), which Democrats passed last August, for the first time allows the government’s Medicare health plan for people aged sixty-five and over to negotiate the prices it is willing to pay for certain medications. The law sets a nine-year exemption period for “small molecule” drugs, which are mainly pills, while “large molecule” biologics, generally injections or infusions, are protected from negotiation for 13 years. “The difference between a nine- and 13-year product line is about 50 or 60% of the value,” Eli Lilly Chief Executive Officer Dave Ricks said in an interview. “In 10 years, we’ll have far fewer small molecules being developed than we do today.”

• FTC action on PBMs could be just what the doctor ordered to improve patient outcomes. The stated purpose of PBMs is to alleviate some of the administrative burden related to processing prescription drug claims and optimizing drug utilization to help manage costs for plan sponsors. Unfortunately, most PBMs have evolved to become vertically integrated pharmacies and adopt opaque business practices that mostly benefit only themselves. For example, pharmaceutical rebates have become a cash cow for PBMs. Paid out by drug manufacturers, these rebates are designed to help lower the price burden of new drugs by reimbursing plan sponsors a portion of the cost each time they’re filled at the pharmacy. The problem is, PBMs are under no obligation to pay the full rebate back to the plan sponsor, and many PBMs pocket a substantial portion, if not all, of these rebates, often with plan sponsors completely unaware.

• California sues largest US insulin manufacturers and PBMs for overpricing. Eli Lilly, Novo Nordisk, and Sanofi produce over 90% of the global insulin supply and the PBMs CVS Caremark, Express Scripts and OptumRx administer pharmacy benefits for around 80% of prescription claims managed. The lawsuit, filed in the California Superior Court in Los Angeles, argues that because competition is highly limited in both their markets, these six companies can keep ‘aggressively hiking’ the list price of insulin at the expense of patients, violating the state’s Unfair Competition Law. According to a 2021 Congressional report, Eli Lilly, Novo Nordisk, and Sanofi have raised the price of their insulin by 1,219%, 627% and 715%, respectively, since they were first launched.

• How Coupons Keep Drugs Costly. An economist who holds a joint appointment at the Harvard Kennedy School, began studying this topic more than a decade ago, prompted by the growing number of pharmaceutical ads that included coupons. Such coupons offer consumers a discount on the co-pay for the advertised drug and have grown increasingly popular; the share of brand-name prescription drug spending that included a coupon rose from 26 percent in 2007 to 90 percent in 2017, Leemore S. Dafny reports. And the number of drugs with available coupons rose from about 200 in 2008 to more than 800 in 2018. Not everyone is eligible for coupons; Medicare enrollees are prohibited by law from using them. “The coupons are considered kickbacks or financial inducements to consume a product that is reimbursed by the federal government,” Dafny explains, and are therefore banned in that context. But pharmaceutical companies are permitted to donate to independent charities that subsidize co-pay assistance for patients, even those on Medicare, and to earmark those donations for conditions treated by drugs they make.

One of the main advantages of using a fiduciary to manage your pharmacy benefits is that they are required to put the interests of their clients before their own financial gain. For instance, it has been reported that insurance professionals who are not obligated to uphold a fiduciary standard will recommend insurance products to their clients solely based on which ones come with the highest commissions, not necessarily because the recommendations are in their clients’ best interests. Here are 8 reasons you need a fiduciary PBM.

1. Conflicts of interest are minimized: A fiduciary pharmacy benefit manager must disclose any conflicts of interest and cannot profit from recommending certain products or investments.
2. Professionalism and expertise: A fiduciary pharmacy benefit manager is held to a high standard of professionalism and is required to have a certain level of expertise.
3. Transparency: Fiduciary pharmacy benefit managers must provide full disclosure of all fees, including their take rate, and costs associated with the pharmacy benefit management services they recommend and offer.
4. Customized advice: A fiduciary pharmacy benefit manager takes the time to understand their client’s unique financial situation and goals and provides customized advice accordingly.
5. Fiduciary duty to act in client’s best interest: A fiduciary pharmacy benefit manager is legally bound to act in the best interest of the clients, not their own or their firm’s interest.
6. To the best of their knowledge, ensure that all pharmacy benefit advice is accurate and comprehensive.
7. Refrain from engaging in any potential conflicts of interest; and
8. Make pharmaceutical benefit suggestions that are consistent with the goals, objectives, and risk tolerance of their clients.

As stated above, a fiduciary pharmacy benefit manager (PBM) is required by law to act in the best interests of their clients. Along with these instances, the “suitability standard” that is applied to brokers, insurance agents, and other financial professionals is far less stringent than the fiduciary requirement. The only requirement of the suitability criteria is that recommendations to clients are appropriate if a coverage objective fulfills their needs and goals (the last bullet point in the list). Since the fiduciary standard would cost them money in the form of fees as well as the additional expense of adhering to the new standard of care, many pharmacy benefit managers would prefer to be held to a suitability standard than live up to the 8 reasons you need a fiduciary PBM.

Lawsuit accuses former executives of failing in fiduciary duty to oversee PBM operations and other notes from around the interweb:

• Lawsuit accuses former executives of failing in fiduciary duty to oversee PBM operations. A lawsuit from a pension fund holding Centene stock accused former executives of conspiring to defraud state Medicaid programs, the St. Louis Business Journal reported Dec. 21. The lawsuit accuses the former execs of violating its Medicaid managed care contracts and federal and state law. When Centene acquired Health Net in 2016, the company received favorable reimbursements and discounts for prescription drugs because of Health Net’s contract with CVS Caremark, the lawsuit alleges. The payer did not disclose its arrangements with CVS Caremark, and instead reported “inflated expenditures” to state Medicaid agencies, thereby overcharging them, the plaintiffs allege. The suit alleges five former executives breached their fiduciary duties, and names several members of the board of directors.

• FTC action on PBMs could be just what the doctor ordered to improve patient outcomes. The stated purpose of PBMs is to alleviate some of the administrative burden related to processing prescription drug claims and optimizing drug utilization to help manage costs for plan sponsors. Unfortunately, most PBMs have evolved to become vertically integrated pharmacies and adopt opaque business practices that mostly benefit only themselves. For example, pharmaceutical rebates have become a cash cow for PBMs. Paid out by drug manufacturers, these rebates are designed to help lower the price burden of new drugs by reimbursing plan sponsors a portion of the cost each time they’re filled at the pharmacy. The problem is, PBMs are under no obligation to pay the full rebate back to the plan sponsor, and many PBMs pocket a substantial portion, if not all, of these rebates, often with plan sponsors completely unaware.

• Getting off the PBM Merry-go-Round: How Late-stage Offer Tricks Take Employers for a Ride. Monies offered by PBMs come in many forms – a general allowance credit that the client can use to pay for claims and expenses during open enrollment and implementation, an administrative credit that the client can use to pay back to the PBM for administrative fees, a clinical credit that the client can use to pay for voluntary clinical programs administered by the PBM or, at times, slightly improved pricing. If it seems odd that two of these credits go towards paying back the PBM for additional services, that’s because it is. Employers should think of these credits like getting tokens at a carnival – the tokens are valuable, but only if the employer uses them at the proverbial PBM carnival (i.e., invests them back into the PBM). If PBMs would manage their costs appropriately to begin with, employers wouldn’t be taken for this ride.

• How Coupons Keep Drugs Costly. An economist who holds a joint appointment at the Harvard Kennedy School, began studying this topic more than a decade ago, prompted by the growing number of pharmaceutical ads that included coupons. Such coupons offer consumers a discount on the co-pay for the advertised drug and have grown increasingly popular; the share of brand-name prescription drug spending that included a coupon rose from 26 percent in 2007 to 90 percent in 2017, Leemore S. Dafny reports. And the number of drugs with available coupons rose from about 200 in 2008 to more than 800 in 2018. Not everyone is eligible for coupons; Medicare enrollees are prohibited by law from using them. “The coupons are considered kickbacks or financial inducements to consume a product that is reimbursed by the federal government,” Dafny explains, and are therefore banned in that context. But pharmaceutical companies are permitted to donate to independent charities that subsidize co-pay assistance for patients, even those on Medicare, and to earmark those donations for conditions treated by drugs they make.

How coupons keep drugs costly and other notes from around the interweb:

• How Coupons Keep Drugs Costly. An economist who holds a joint appointment at the Harvard Kennedy School, began studying this topic more than a decade ago, prompted by the growing number of pharmaceutical ads that included coupons. Such coupons offer consumers a discount on the co-pay for the advertised drug and have grown increasingly popular; the share of brand-name prescription drug spending that included a coupon rose from 26 percent in 2007 to 90 percent in 2017, Leemore S. Dafny reports. And the number of drugs with available coupons rose from about 200 in 2008 to more than 800 in 2018. Not everyone is eligible for coupons; Medicare enrollees are prohibited by law from using them. “The coupons are considered kickbacks or financial inducements to consume a product that is reimbursed by the federal government,” Dafny explains, and are therefore banned in that context. But pharmaceutical companies are permitted to donate to independent charities that subsidize co-pay assistance for patients, even those on Medicare, and to earmark those donations for conditions treated by drugs they make.

• Accumulators And Maximizers: A New Front in the Battle Over Drug Costs. At the time the patient presents to the retail pharmacy and uses the copayment coupon, the retail pharmacy (which contracts with the PBM) enters the amount of the coupon in the adjudication system. The PBM notes this part of the transaction and deducts the value of the coupon so that it does not “accumulate” against the deductible. (The pharmaceutical assistance program also notes the value of the coupon, as the programs do put limits on the amount of assistance available.) The beneficiary still avoids the copayment cost at least until she hits the limits on the copayment program, when the coupon ceases to become available and the patient must begin to pay, reinstating the original incentives. From the payer’s point of view—either the self-insured employer or the insurer—the effect is financially salutary. Some pharmaceutical firm funds help pay for the initial costs of the medication. But eventually, the deductible and copayments come back into play and promote consumerism. Yet, as the coupon limits come into play, the beneficiary faces challenges from out-of-pocket spending, and adherence can drop.

• Getting off the PBM Merry-go-Round: How Late-stage Offer Tricks Take Employers for a Ride. Monies offered by PBMs come in many forms – a general allowance credit that the client can use to pay for claims and expenses during open enrollment and implementation, an administrative credit that the client can use to pay back to the PBM for administrative fees, a clinical credit that the client can use to pay for voluntary clinical programs administered by the PBM or, at times, slightly improved pricing. If it seems odd that two of these credits go towards paying back the PBM for additional services, that’s because it is. Employers should think of these credits like getting tokens at a carnival – the tokens are valuable, but only if the employer uses them at the proverbial PBM carnival (i.e., invests them back into the PBM). If PBMs would manage their costs appropriately to begin with, employers wouldn’t be taken for this ride.

• Self-funded plans sue health care company alleging overcharging and other ERISA violations. The plaintiffs, self-funded health plan fiduciaries, claim the defendants breached their fiduciary duty under ERISA by denying the plaintiffs access to their plan claims data, failing to manage the claims “prudently, loyally, and in compliance with documents governing the plans,” and partaking in “prohibited transactions relating to the management and disposition of plan assets,” the complaint said. ERISA is a federal law that requires health plans to “provide participants with plan information, including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty,” according to the U.S. Department of Labor.

Since open communication is essential in the partnership between pharmacy benefit managers (PBM) and unions, health plans, health systems, commercial and public sector employers, you should be able to ask tough questions of prospective PBMs before selecting one. Ask PBMs these 8 questions as you look for the right fit for your company.

• What will be your earnings after cash disbursements (EACD)? The amount of money a PBM receives in exchange for the services it provides to your organization is referred to as EACD, or earnings after cash disbursements. You can only begin to comprehend the magnitude of overpayments after discovering how much money a non-fiduciary PBM retains for itself. The ingenious of EACD is that it is hidden in your plan’s final cost! One may fairly conclude that the $25 PMPM cost discrepancy between PBMs “A” and “B” who each offer yearly costs of $63 and $88 PMPM, respectively, represents revenue for the PBM. A commercial employer with 8000 members contributes an additional $2.4 million yearly to its cost for PBM “B” management fees! The management fee or EACD of the PBM must be understood and incorporated into your financial analysis. Both the quantity and the source of the PBM’s money flows must be open to disclosure.

• What is Your Book GDR, or Generic Dispensing Ratio? Verify that your PBM is not a member of any brand-specific incentive programs. The adoption of generic substitutes is discouraged by brand-name incentive schemes, which push PBMs to settle more prescriptions for name-brand medications. These could prompt them to suggest pricier, name-brand drugs. The fact that generic medications are less expensive means you want a PBM that supports them. That can help you find less expensive options, which can save you money. GDR is the proportion of prescription drug claims that are generic. The generic dispensing ratio, or GDR, is 82% if there are 82 generic claims out of 100 total claims. Data from HealthPartners show that a 1% increase in generic drug use might result in a 5% reduction in pharmacy expenses. Goal ≥ 90%.
• What is Your Book PDC, or Proportion of Days Covered? By examining the percentage of days that a person has access to the drug throughout a certain period of interest, the proportion of days covered (PDC) is used to evaluate medication adherence. For instance, from January 1 and December 31, “Amy” fills a prescription for 30 pills 11 times. January 9 saw the initial fill. This covers 330 of the 356 days between January 9 and December 31 that were covered by refills. Consequently, 93% of days are covered. Poor medication adherence leads to higher medical costs and wasteful drug spending. Goal ≥ 80%.
• What is Your Book PMPM Cost? Pharmacy benefits administration revolves upon one unchangeable fact. For unions, health plans, health systems, commercial and public sector employers, the most crucial financial statistic in pharmacy benefits administration is the PMPM or per member per month cost. Do you ask why? PMPM considers all costs, including but not restricted to ingredient costs, clinical performance when product mix and utilization are the primary cost drivers, rebates, and ancillary expenditures like PAs, UMs, or manufacturer assistance programs as well as the PBM management charge!
• Will You Ensure Accessibility to Independent Pharmacies? If your pharmacy benefit management company also operates a pharmacy, there can be a conflict of interest. They shouldn’t have carte blanche on the formulary, network makeup or even drug utilization management programs. Make sure to request a report every month outlining pharmacy performance when you want to deal with a PBM that has its own pharmacy. You should also insist that they seek your approval before prescribing high-cost specialty drugs.
• Use Acquisition-Based Pricing in Your Business? A spread is the difference in the amount reimbursed to pharmacies and subsequently billed to commercial employers for the exact claim. With that said, price benchmarks (i.e., AWP, MAC, NADAC etc.) are irrelevant when the PBM doesn’t take a spread. There is a floor in the reimbursement pharmacies will accept from PBMs. Acquisition-based pricing in pharmacy benefits means the PBM bills its clients exactly what it paid out for ingredient cost. Look for a PBM that contractually prohibits itself from profiting from spreads which increases their profits through hidden cash flow streams. By doing that, you can end up saving money over time.
• Do You Allow 90-Day Maintenance Networks? The adherence rates and discounts at mail-order pharmacies are often higher. The risks of auto-refill programs and increased out-of-pocket expenditures for medications sometimes outweigh the benefits, causing consumers to hoard prescriptions they don’t need. A mail-order pharmacy can be replaced with a 90-day maintenance network from a retail pharmacy, which will eliminate these problems and permit patients to communicate with pharmacists directly.
• What Kind of Education Can You Provide Employees? To help employees realize which pharmacies give the most value to the business, your PBM should offer educational programs. For instance, employees have more affordable alternatives at Costco and Walmart pharmacies than at other major pharmacy stores. By providing the same drugs for less money, they may deliver greater value. You can help your business save money by training your personnel.

Find a PBM you can trust if you want to save on your pharmacy costs. Find someone who can satisfy your needs and offer radical transparency to do that. Spend some time obtaining the responses to these questions before evaluating your PBM possibilities. Then, select the company that can meet both your demands and the greatest arrangement for you. Ask PBMs these 8 questions to save money and ensure that you are happy with the service they provide.

Americans are becoming sicker because of rising prescription drug costs and other notes from around the interweb:

• Americans are Becoming Sicker Because of Rising Prescription Drug Costs. Soaring prescription medicine costs are consuming an ever-greater share of household income as basic costs rise. According to a recent Department of Health and Human Services government study, prescription medicine prices increased at an average rate of 31.6% over the course of the past year, with some increases reaching 500%. The pharmaceutical industry is so complex that Americans, who pay the highest costs in the world for prescription pharmaceuticals — two to three times more than citizens in other nations — are looking for any method to avoid it. Lower-income households are disproportionately harmed by high prescription drug expenditures, especially the 9% and 23% of US individuals who lack insurance or have inadequate insurance. People of color and Native Americans are more likely to experience financial challenges and have lower rates of health insurance. According to the Commonwealth Fund, a nonprofit organization focused on health policy reform, individuals of color are less likely to have health insurance and more likely to have financial hurdles to treatment. Patients who lack insurance must forgo their drugs in favor of more urgent requirements like housing or food. People who depend on prescription medications to treat their chronic ailments frequently rack up medical debt.

• Accumulators And Maximizers: A New Front in the Battle Over Drug Costs. At the time the patient presents to the retail pharmacy and uses the copayment coupon, the retail pharmacy (which contracts with the PBM) enters the amount of the coupon in the adjudication system. The PBM notes this part of the transaction and deducts the value of the coupon so that it does not “accumulate” against the deductible. (The pharmaceutical assistance program also notes the value of the coupon, as the programs do put limits on the amount of assistance available.) The beneficiary still avoids the copayment cost at least until she hits the limits on the copayment program, when the coupon ceases to become available and the patient must begin to pay, reinstating the original incentives. From the payer’s point of view—either the self-insured employer or the insurer—the effect is financially salutary. Some pharmaceutical firm funds help pay for the initial costs of the medication. But eventually, the deductible and copayments come back into play and promote consumerism. Yet, as the coupon limits come into play, the beneficiary faces challenges from out-of-pocket spending, and adherence can drop.

• Getting off the PBM Merry-go-Round: How Late-stage Offer Tricks Take Employers for a Ride. Monies offered by PBMs come in many forms – a general allowance credit that the client can use to pay for claims and expenses during open enrollment and implementation, an administrative credit that the client can use to pay back to the PBM for administrative fees, a clinical credit that the client can use to pay for voluntary clinical programs administered by the PBM or, at times, slightly improved pricing. If it seems odd that two of these credits go towards paying back the PBM for additional services, that’s because it is. Employers should think of these credits like getting tokens at a carnival – the tokens are valuable, but only if the employer uses them at the proverbial PBM carnival (i.e., invests them back into the PBM). If PBMs would manage their costs appropriately to begin with, employers wouldn’t be taken for this ride.

• Self-funded plans sue health care company alleging overcharging and other ERISA violations. The plaintiffs, self-funded health plan fiduciaries, claim the defendants breached their fiduciary duty under ERISA by denying the plaintiffs access to their plan claims data, failing to manage the claims “prudently, loyally, and in compliance with documents governing the plans,” and partaking in “prohibited transactions relating to the management and disposition of plan assets,” the complaint said. ERISA is a federal law that requires health plans to “provide participants with plan information, including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty,” according to the U.S. Department of Labor.

Drug Channels published a fascinating look at rebate payments, through Texas-mandated PBM disclosures, taken in by pharmacy benefit managers from 2016 to 2021. The majority of the rebates, fees, and other payments from manufacturers go to plan sponsors, according to their evaluations of the new PBM disclosures that Texas has enforced. Considering this impactful sharing of information, I am re-running this post: 6 Indicators Your PBM is Hoarding Rebates.

In pharmacy benefit management, pass-through doesn’t mean what you think it means hence the title of this post 6 Indicators Your PBM is Hoarding Rebates. A logical person would surmise that when a pharmacy benefit manager (PBM) professes it is pass-through, any discounts it has negotiated are distributed back to the client. Au contraire mon frere.

Pass-through pricing means that the PBM passes the discounts, rebates, other revenues, and actual costs charged by the pharmacy or paid by a pharmaceutical company (in the form of refunds) directly on to the plan sponsor. In actual use, it can have various definitions according to the understanding of the parties.

When a PBM salesperson tells you its organization is pass-through, they aren’t necessarily being untruthful. What they and you must understand is that in practice they are passing through only the discounts or refunds required by the contractual terms. The typical PBM salesperson is working with limited industry knowledge, so they don’t know any better. If there is a loophole, you must assume the PBM will take financial advantage of it.

The term pass-through must be carefully defined in the contract in every instance it is used since there is no industry-accepted definition. If the term is not included in the contract, add it. I spoke with a broker recently who was adamant that the deal they negotiated for their client was pass-through. When I pushed back the broker insisted that the contract was pass-through because the PBM told him so.

The base administrative fee for services related to pharmacy benefits management including, but not limited to, mail services, clinical services, and customer service was $0.00. I asked, rhetorically, how can the PBM make a profit if not through hidden cash flow streams when there is no administrative fee? It is not possible for a PBM contract to be truly pass-through when it waives the administrative fee. Here are 6 indicators your PBM is hoarding rebates.

1. The base administrative fee for services related to pharmacy benefits management including, but not limited to, mail services, clinical services, and customer service is artificially too low. It is not possible for a PBM to be truly pass-through when it waives the administrative fee or doesn’t charge enough to cover overhead.
2. The definition for rebates in the contract language is opaque. One example is “…and directly attributable to the Formulary and Covered Product utilization by Eligible Persons.” Allowing contract language such as this the broker unknowingly permits the PBM to retain at least 15% of rebate dollars.
3. You forgo all or a portion of rebates to take a credit on the medical administrative fee. Heck, you may as well call it for what it is – a bonus payment. The PBM’s pricing analysts will shift costs to make up for any “credit.” What’s more, these credits incentivize the PBM to dispense more brand drugs. An 87% generic dispense rate (GDR) is not good. It is below average. An 80% or higher prior authorization approval rate is not good either. In fact, it is way too high. High PA approval rates don’t improve outcomes, but it does increase drug spending unnecessarily. Rebate credits reward PBMs for rubberstamping drug utilization management programs. Never forgo rebates for any reason including medical benefit drug rebates.
4. The PBM excludes claims with DAW codes 1, 3 or 5 from rebate eligibility. There is no reason on god’s green earth for these claims to be excluded other than the PBM taking financial advantage of its client. DAW code exclusions are driven by PBMs who profit from an opaque revenue model.
5. The PBM does not provide claim (NDC) level reporting. A Rebate Remittance Summary Report is a summary of the total payments received from manufacturers, on a per client basis, which includes the total allocations for these payments, NDC, pharmacy identifier, claim number, fill date, and plan identification. The information in this report will reflect the guarantee and payment received on each specific claim.
6. The PBM service agreement ought to incorporate year-over-year increments on rebate or refund rates. This increment will assist with guaranteeing that your agreement is working every year. When long-term agreements are set up, it’s particularly vital to increase rebate rates every year to adjust for inflation and provide price protection. One more method for tending to this yearly rebate rate increment is through a market check. The market check helps to ensure you are getting the best rates year-over-year. In a perfect world, you would incorporate both the year-over-year increments of rebate rates, as well as an annual market check provision in the PBM service agreement.

Conclusion – 6 Indicators Your PBM is Hoarding Rebates

The Lehigh County Controller’s Office reviewed Lehigh County’s prescription drug plan which lost savings of almost $1.4 million, while battling a lack of transparency and openness about drug costs[i]. Lehigh County elected to choose a fixed discount structure, meaning that it received a flat rate savings for each employee on its healthcare plan. Lehigh County is self-insured. It could have elected to take full rebate value which results from savings passed from the pharmaceutical company to the pharmacy benefit manager but chose not to do this. In 2019, Lehigh County found that the actual rebate value exceeded the fixed discount by $700,000. The Controller’s Office also identified $654,749 in potential drug cost savings through a market check.

Bloomberg Law writes, “among employers’ concerns are a lack of transparency into whether PBMs are fully refunding rebates and discounts negotiated with drug manufacturers; how PBMs profit from manufacturer discounts; and whether they are including expensive drugs on formularies to increase their own profits.” It seems Bloomberg Law and Lehigh County have a lot in common.

[i] Siegel. J. 2021, January 29. Lehigh County Controller Takes on Highmark Health Insurance. PR Newswire. https://www.prnewswire.com/news-releases/lehigh-county-controller-takes-on-highmark-health-insurance-301218070.html.

Self-funded plans sue health care company, alleging overcharging and other ERISA violations and other notes from around the interweb:

• Self-funded plans sue health care company alleging overcharging and other ERISA violations. The plaintiffs, self-funded health plan fiduciaries, claim the defendants breached their fiduciary duty under ERISA by denying the plaintiffs access to their plan claims data, failing to manage the claims “prudently, loyally, and in compliance with documents governing the plans,” and partaking in “prohibited transactions relating to the management and disposition of plan assets,” the complaint said. ERISA is a federal law that requires health plans to “provide participants with plan information, including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty,” according to the U.S. Department of Labor.

• Accumulators And Maximizers: A New Front in the Battle Over Drug Costs. At the time the patient presents to the retail pharmacy and uses the copayment coupon, the retail pharmacy (which contracts with the PBM) enters the amount of the coupon in the adjudication system. The PBM notes this part of the transaction and deducts the value of the coupon so that it does not “accumulate” against the deductible. (The pharmaceutical assistance program also notes the value of the coupon, as the programs do put limits on the amount of assistance available.) The beneficiary still avoids the copayment cost at least until she hits the limits on the copayment program, when the coupon ceases to become available and the patient must begin to pay, reinstating the original incentives. From the payer’s point of view—either the self-insured employer or the insurer—the effect is financially salutary. Some pharmaceutical firm funds help pay for the initial costs of the medication. But eventually, the deductible and copayments come back into play and promote consumerism. Yet, as the coupon limits come into play, the beneficiary faces challenges from out-of-pocket spending, and adherence can drop.

• Getting off the PBM Merry-go-Round: How Late-stage Offer Tricks Take Employers for a Ride. Monies offered by PBMs come in many forms – a general allowance credit that the client can use to pay for claims and expenses during open enrollment and implementation, an administrative credit that the client can use to pay back to the PBM for administrative fees, a clinical credit that the client can use to pay for voluntary clinical programs administered by the PBM or, at times, slightly improved pricing. If it seems odd that two of these credits go towards paying back the PBM for additional services, that’s because it is. Employers should think of these credits like getting tokens at a carnival – the tokens are valuable, but only if the employer uses them at the proverbial PBM carnival (i.e., invests them back into the PBM). If PBMs would manage their costs appropriately to begin with, employers wouldn’t be taken for this ride.

• ERISA-Covered Companies Must Disclose Health Plan Costs. Starting in 2022, an estimated 2.5 million employer-sponsors of health plans are required to adopt new fee and pricing transparencies due to amendments made to ERISA. While ERISA has focused on retirement service fees in the past, the spotlight is now on healthcare costs. The requirements fall under the Affordable Care Act (ACA) and Consolidated Appropriations Act, 2021 (CAA 2021), and affect organizations covered by the Employment Retirement Income Security Act of 1974 (ERISA). ERISA applies to most private companies that offer healthcare and retirement plans to employees. Complying with ERISA fiduciary duties for group health plans has been challenging due to the lack of fee transparency in the industry. However, the new transparency rules put more fee and pricing information into the hands of health plan fiduciaries and other stakeholders to shed light on these fees.