Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

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A brand name medication, also known as “pioneer” or “branded” medication, is made by one manufacturer (single source) under a patent issued by the United States Patent Office. The manufacturer of the branded medication has a 20-year exclusive patent during which no other manufacturer is allowed to produce the exact same product. Examples of brand name medications include Lipitor, Exubera, and Humira.

A generic medication, or multi-source medication, is a medication produced by multiple manufacturers. Generic products are allowed to be marketed after the brand-name medication loses patent protection. Generic manufacturers vie to be the first one on the market, as they are given a six-month exclusivity period to regain development costs.

After six months, any manufacturer may apply for a license to market a generic version of the pioneer product. Pricing discounts, which are typically 10 to 15 percent in the first six months, drop to 50 to 70 percent or more after the six-month exclusivity period.

Multi-source simply means that multiple manufacturers produce the same medication. Some payers refer to a multisource medication as the first generic on the market after the pioneering brand name medication loses patent protection. Within the industry, the terms generic medication and multi-source medication are used interchangeably.

Authorized generics are considered brand drugs under a generic label. Put simply, a brand drug manufacturer supplies its drug to a generic firm and allows the firm to market the product under a different label for royalties. Brand companies also can create their own companies or subsidiaries to manufacture these authorized generics.

By taking either route, these authorized generics can compete with the first generic drug maker during their 180-day exclusivity period. The implications of such actions create a price war that reduces the price of both generics in the 180-day period, thereby reducing the market share and profitability for the generic manufacturer.

The pharmaceutical industry may not face government price regulations, but it is subject to heavy safety regulations, which makes it difficult for competitors to enter the market. Because of regulations that are ofttimes correctly established for safety and efficacy, it results in extremely high barriers to entry. It could take four or five years for a generic manufacturer to develop a competing product.  A lack of competition inevitably leads to higher prices in a capitalist society.

In summary, there are at least five scenarios which lead to generic medications costing nearly as much as their brand name equivalents:

1.  Rent-Seeking
2.  Lack of Competition
3.  High Barriers to Entry
4.  Limited Distribution
5.  Intellectual Rights

In order to minimize the sting from rising drug costs, payers must do two things. First, require a fiduciary standard from their pharmacy benefit managers. It it the highest standard of care and leaves little open for interpretation or arbitrage.  Second, implement hyper-aggressive strategies to control drug costs. These include but are not limited to:  utilization management, step therapy, quantity limits, cost sharing, and carve-out.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

As one of the largest employers in the healthcare industry, the challenges for hospitals are no different. More and more hospitals and health systems are considering building in-house outpatient pharmacies to combat rising costs, adherence issues and management issues surrounding their employee benefit programs while improving care, convenience and cost for employees as well. And while health systems are finding significant benefits when it comes to offering the ambulatory pharmacy benefit, success depends on proper planning in three important areas.

Cost/benefit analysis.
Building an in-house pharmacy is a big commitment with a potentially bigger payoff. Doing so could help hospitals save 8 to 12 percent on the buy side, and employees are more likely to adhere to therapy plans if they have a convenient and cost-effective place to fill their prescriptions. The health and wellness of employees correlates directly to how much employers spend on healthcare. Plus, less sick time means happier, more productive employees – and the indirect costs of decreased productivity due to illness can significantly impact a company’s bottom line.

Build strategy and benefits planning.
Of course, building an outpatient pharmacy isn’t easy. In addition to determining cost, location, size and profitability, hospitals and health systems will need to identify the patient populations they want to target and then develop a business plan to maximize opportunities. A critical component of that business plan should be the integration of the hospital’s employee benefits into pharmacy operations.

Pharmacy benefit managers (PBMs) can play a central role in administering pharmacy benefits on behalf of employer-sponsored plans. PBMs provide pharmacy benefits to about 200 million Americans.  Traditionally, PBMs are responsible for prescription processing, claims filling, benefit plan design, drug formulary management, rebate and reimbursement administration and more. Given the prevalence and unique role of PBMs, most hospitals have an existing relationship with a PBM to administer their pharmacy benefit. The health system’s pharmacy business plan should account for partnering with a PBM to drive formulary compliance while promoting medication adherence.

Delivering value for employees.
In order for a hospital to leverage its in-house pharmacy to gain the greatest value for its employees, it is important to establish the pharmacy as the provider of choice. Considerations for positioning the health system as a healthcare destination for its employees include:

• How will the qualified, professional staff of pharmacists and pharmacy technicians thrive as part of the hospital’s team and the employee’s healthcare team?
• What collaborative care initiatives will the in-house pharmacy pursue to differentiate it as a preferred offering?
• How will the health system highlight and promote the excellent customer service and convenience of the in-house pharmacy?
• What is the best way to combine existing expertise with new resources to improve employee wellness?
• What other services (on-site delivery, education, OTC products, etc.) will the pharmacy offer?
• How will the HR/benefits team and pharmacy staff partner to position the pharmacy for success? Which team has ownership of various strategic initiatives?

Health systems are uniquely positioned to leverage their knowledge and resources to improve the health of employees. And though employee benefit costs are on the rise, building an in-house pharmacy can pay off for both the hospital and its employees. Implementing an in-house pharmacy is a significant undertaking. But it’s also a strategic investment that can save precious healthcare dollars.

By Amy Flowers

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Not a problem for its manufacturer. US revenue from the drug HAS more than doubled in That Time, up to $ 2 billion last year.

The key: Increases repeated price. The multiple sclerosis drug’s maker, Biogen Inc. raised its price an average of 16% a year Throughout the decade-21 times in all.

It is an example of drug companies’ unusual ability to boost prices beyond the inflation rate to Drive Their revenue, Even When demand for the drugs does not cooperate.

A result of this pricing power across That’s 30 top-selling drugs sold by pharmacies, US revenue growth HAS far outpaced demand in the past five years, accordion thing to a Wall Street Journal analysis of corporate filings and industry data. Revenue growth averaged 61% , three times the increasement in prescriptions.

HAS attention focused lately on new drugs with eye-popping prices and on a few Whose price a new owner abruptly raised several-fold. But what many drug companies Rely on for sales growth is a pattern of steady Increases, year in and year out, on older medicines. Wholesale Price Increases for the 30 drugs Analyzed by the Journal averaged 76% over the five-year stretch from 2010 through 2014. That was more than eight times general inflation.

For 20 leading global drug companies last year, 80% growth in net profits stemmed from price Increases in the US, According to a May report by Credit Suisse.  Pricing power helps some in the pharmaceutical industry to Compensate for sluggish demand, new competition or weak product pipelines. “Pricing HAS covered up a multitude of other disappointments over the past 15 years” in the sector, Said Geoffrey Porges, a biotech analyst at AllianceBernstein LP.

This is no cause for cheer, of course, to certainement other market participants, notably the many large companies That pick up the tab for Their employees’ prescriptions. Drug pricing HAS Helped drive up spending on benefits at Lowe’s Cos., Said Bob Ihrie, a senior vice president at the home-improvement retailer.

“It’s one thing When you read about a new drug in the newspaper, and all the costs of launching it. But when it’s drugs thathave put on the market and you see price Increases thesis, you go, ‘Why would this be?” ‘Mr. Ihrie said. “I feel like we’re really being taken advantage of.”

Pharmaceutical companies defend their pricing as helping to finance development of innovative medicines, an expensive and risky enterprise They Say would not attract investment without the potential for large returns When a new drug succeeds.

Many in the industry also say a focus on drug prices is shortsighted Because It overlooks drugs’ role in helping to contain overall health-care costs by Preventing disease complications.

Robert Zirkelbach, a spokesman for Pharmaceutical Research and Manufacturers of America, a trade group, Said That Eventually, prices for all drugs will decline sharply whenthey lose patent protection and go generic.

Avonex maker Biogen HAS Noted the central role of price boosts in the drug’s success. “For 2014 Compared to 2013, in the increasement US Avonex revenues were Primarily due to price Increases, partially offset by a decrease in unit sales volume of 10%,” Biogen Said in its 2014 financial report. A similar note HAS Appeared in its annual reports since 2005.

But Biogen points to the way this revenue funds its quest for new medicines. The company spent an average of $ 1.19 Billion Annually on R & D from 2005 through 2014, or 24% of total revenue. Besides Avonex, the company HAS brought` out two other multiple sclerosis drugs and is studying a treatment to repair nerve damage from the disease.

“Over the past two decades, All-which is the life of Avonex, we’ve done more than any other company to Improve the treatment of multiple sclerosis, as as as as” said Daniel McIntyre, a senior vice president of Biogen. “The Reality Is that revenues from therapies available today make this possible.”

Users and payers

What gives the pharmaceutical industry so much pricing power? Part of the reason is the patent protection drugmakers have on new products, competitors from offering-which keeps copies for up to two decades. “It’s Easier for Consumers to substitute a car That Meets Their Needs than it is to substitute a patented drug Because no one else can make it, as as as as “said Fiona M. Scott Morton, an economics professor at Yale University.

Another part of the answer is the insurance-based health system, in-which Consumers rarely feel the full brunt of price Increases. Click here to read more.

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

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The pharmacy benefit management industry is experiencing subtle changes, and a leadership shuffle at the country’s largest PBM has experts speculating about whether PBMs will remain stand-alone companies.

More healthcare organizations view prescription drug use as a critical element of keeping patients healthy and reducing costs, and controlling a PBM could help with a population health strategy. “You could see a pathway forward where the PBMs become more integrated with the payers,” said Jon Kaplan, managing director at Boston Consulting Group.

PBMs handle prescription drug benefits for employers and health insurers, a role that includes negotiating drug discounts with pharmaceutical companies, building pharmacy networks and creating their own drug benefit plans. They usually play second fiddle to the insurance companies that handle medical benefits, but PBMs have become more relevant in recent years due to the rising prices of brand-name and generic drugs.

Skyrocketing prescription drug spending was a major reason the growth rate of the nation’s healthcare tab increased from historical lows in 2014. Consequently, drugs have become a bigger political issue. Presidential hopeful and Sen. Bernie Sanders (I-Vt.) has proposed numerous bills over the past few years to control drug prices. Democratic presidential candidate Hillary Clinton outlined her own prescription drug reforms this week. Her plan came out right after the CEO of Turing Pharmaceuticals, a startup drug company, inflated the price of one of its drugs by more than 5,400%—a move that drew widespread ire from the public.

Express Scripts Holding Co. is the largest PBM in the country with about $100 billion in annual revenue. The St. Louis-based company has been notably outspoken about the high sticker prices of new specialty drugs that have hit the market recently, such as the hepatitis C drugs Sovaldi and Harvoni that are manufactured by Gilead Sciences. High-cost drugs have been eating into the profits of PBMs.

Paz retirement seen as foreshadowing a deal

Earlier this month, Express Scripts announced CEO George Paz will retire from his position next spring. President Tim Wentworth will take over. Although it was a somewhat routine executive move, many analysts covering the industry viewed the switch at Express Scripts as a possible step toward a sale or merger.

“We are positive it was announced sooner rather than later as it allows new management to better address challenges that lie ahead,” Charles Rhyee, a managing director at Wall Street firm Cowen & Co., said about Express Scripts in a research note this month.

One of those challenges involves Express Scripts’ contract with health insurer Anthem. Anthem has publicly said it is looking to renegotiate the contract, which expires in 2019, and expects to save between $500 million and $700 million with new terms. Anthem has some leverage because it is buying Cigna Corp. in a deal valued at more than $54 billion. Cigna uses Catamaran Corp. as its PBM, and Anthem could switch to that vendor.

Anthem could also bring drug benefit management functions in-house. “All options are open,” Anthem CEO Joseph Swedish said at a Morgan Stanley conference this month about the company’s PBM situation.

Paz and Wentworth were not available for an interview. But an Express Scripts spokesperson released a broad statement saying, “We’re focused on practicing pharmacy smarter—putting medicine within reach by being uniquely aligned with clients, and taking bold actions to make prescription drugs more affordable and accessible. Our business model of alignment resonates with our clients more than ever, our specialized care model delivers better patient outcomes, and our size and scale position us well for success in any environment.”

But industry observers say stand-alone PBMs like Express Scripts face an uphill financial battle. Aside from dealing with high drug prices, many companies have used most of the weapons in their arsenal to keep drug costs down. For instance, the national generic drug usage rate is around 78% and rising. “Most levers that the PBMs could press have been pressed,” Kaplan said.

Sundar Subramanian, a healthcare partner at Strategy&, the consulting arm of PricewaterhouseCoopers, said PBMs fall into two groups. The first is the traditional scale model, where a PBM focuses on filling as many prescriptions as possible and driving down drug costs through use of generics, tiered formularies and mail orders. Express Scripts invested heavily in this model in 2012, when it bought competitor Medco Health Solutions for $29 billion. The more popular model is a strategic one, he said. It involves companies that aren’t traditional PBMs that want to better integrate medical and drug benefits.

A quick path to value-based payments

Insurers and pharmacies see PBMs as a way to advance more quickly to value-based payments, and they can use their claims and data analytics to find out, for example, which patients need more help in adhering to their drug regimens. “You can understand specific ways to engage with those members and keep them out of hospitals,” Subramanian said. “Those kinds of opportunities never come about just from the PBM side.”

Some integration has already taken shape. CVS Health Corp. made one of the first big moves almost a decade ago when it bought Caremark Rx. UnitedHealth Group bought Catamaran for $12.8 billion this year and is fusing the company into its OptumRx subsidiary. Pharmacy chain Rite Aid acquired EnvisionRx for $2 billion in February. Aetna, which is in the process of acquiring Humana, has expressed interest in creating its own Optum-like health services unit. Humana’s internal PBM would be a major part of it.

The dealmaking has isolated Express Scripts, analysts say. “Express Scripts does not have the retail pharmacy nor the captive growth engine,” said Ana Gupte, managing director at investment bank Leerink Partners. “It’s very possible they could merge with a retail pharmacy, or they get bought by a managed-care organization.”

Rhyee speculated that Express Scripts could be a prime target for Walgreens Boots Alliance, the parent company of the national chain of Walgreens retail pharmacies. Walgreens lacks a drug benefit component after it sold its PBM a few years ago, and adding Express Scripts would immediately rival CVS, “which has been gaining share” over Walgreens, Rhyee said. Walgreens did not respond to a request for comment.

Not all healthcare groups are fans of PBM consolidation, or even PBMs in general. The National Community Pharmacists Association says PBMs often squeeze local community pharmacies with “take-it-or-leave-it” contracts even though independent pharmacists play critical roles in advancing population health in communities.

Written by Bob Herman

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.

Volkswagen, the world’s largest carmaker, admitted to installing a “defeat device” to trick U.S. regulators into believing its cars met Clean Air Act guidelines for emissions.  This device allowed it to cheat emissions tests potentially exposing people to harmful pollutants at levels 40 times the acceptable standard. The violations could expose Volkswagen to up to $18 billion in fines.

Yesterday a federal judge sentenced Stewart Parnell, former head of Peanut Corporation of America, to 28 years in federal prison. His crime? He knowingly shipped peanut butter tainted with salmonella. The resulting salmonella outbreak killed nine people and sickened hundreds more. It is the toughest punishment in U.S. history for a producer in a food-borne illness case.

In 2014, General Motors admitted it allowed an ignition switch defect to linger for more than a decade. The ignition switch defect caused small cars, mostly from GM’s pre-bankruptcy era, to turn off suddenly when jostled, cutting off engine power and disabling airbags. Today, General Motors is close to announcing it has reached a deal to resolve the federal criminal investigation into its handling of the deadly defect blamed for more than 120 deaths and massive expenses related to recalls.

Pharmacy benefit managers for the state-employee health insurance program are challenging an attempt to require them to repay $39.2 million to the Florida Department of Management Services.
Medco Health Solutions, Inc. and Express Scripts, Inc., which are subsidiaries of the same holding company have filed a series of legal petitions. Documents indicate the Department of Management Services is seeking to recoup $39.2 million in what it considers “plan overpayments” and that it decided to withhold payments to the companies as a result.

Pharmacy benefit management giant Catamaran Corporation engaged in a scheme against pharmacies to boost its own profits, Kmart claims in a lawsuit. In a complaint filed Monday August 31, 2015 in Cook County Circuit Court, the retailer claims Catamaran “improperly manipulated prescription reimbursements owed to pharmacies … inflating profits to make Catamaran a more inviting acquisition target.” Kmart says it has incurred at least $38 million in damages thanks to Catamaran’s allegedly illegal practices. Catamaran, on the other hand, has “experienced explosive growth” reporting revenues of $5 billion in 2011 to $21.6 billion in 2014, the complaint claims.

A PBM’s standard of care should be of prime concern to payers and plan sponsors as they assume the burden of getting a fair and honest deal for plan participants. Payers are relied upon to research, evaluate, and recommend PBMs. Payers and plan sponsors who are aware of imprudent PBM practices run an enormous risk by dealing with them.

Those who claim that they are not aware of such practices (e.g., regarding the creation of formulary and drug pricing) will not be excused. All forms of remuneration received by PBMs should be disclosed and justifiable with respect to the level of services rendered. All compensation paid to PBMs should be reasonable.

Under federal and state anti-kickback statutes, rebates, discounts or other remuneration paid by drug makers to an ERISA plan or its PBM may be deemed payment in exchange for arranging or recommending a particular item.

If these monies are not properly reported, a plan may face exposure under the Federal Civil False Claims Act or the state equivalent; many questionable practices and policies of PBMs may be prohibited under common-law theories of fair dealing.