The Rise of Speciality Drugs: Is Your Health Plan Prepared?

For the better part of the last decade, pharmacy costs have generally represented anywhere from 20 to 25 percent of total health plan costs. But over the past three years in particular, noticeable and sizeable growth in specialty drugs has occurred. In 2013, traditional drug trend increased by less than 1 percent, yet overall drug trend increased by 3.8 percent.

That additional growth from “non-traditional” drugs represents the emergence of specialty drugs in a matter that will act as a primary cost driver for employer health plans moving forward, as 65 percent of new drug spending over the past two years was for specialty medication. Industry projections assume that 80 percent of the top ten drugs sold in the United States will be specialty drugs by 2016.

While estimates of growth have varied mildly, general consensus in the pharmacy management industry suggests specialty costs will quadruple to around $400 billion by 2020. This estimate seems to be supported by observations that the drug-manufacturing development pipeline is ramping up efforts in the specialty fields. Currently, 50 percent of drugs in development are considered specialty in nature and around 70 percent of new drugs that will be approved to hit the market in the near-term will be defined as specialty drugs.

Until recently, most employers looked at pharmacy costs by observing two sectors: name-brand drugs and generic drugs. Current projections indicate that specialty drug spend will eclipse 33 percent of total drug spending for a health plan by 2016. Before that occurs, employers must begin looking at drug spend in three sectors in how they analyze, determine plan-guidance and build strategy: 1) Specialty drugs 2) name-brand drugs and 3) generic drugs.

What qualifies as a specialty medication?

  • Generally speaking, a specialty medication meets one or more of the following criteria:
  • Costs per script are greater than $750 per month
  • Treats a rare and/or intensive condition not typically associated with chronic diseases
  • Requires specific handling or monitoring processes
  • Used in a limited distribution network

As of 2013, cancer, multiple sclerosis, rheumatoid arthritis, hepatitis C and growth hormone accounted for more than 60 percent of the specialty market. Given the investment in this drug category, costs in the specialty pharmacy arena will be diversified to include further drugs developed for HIV, hemophilia and other costly conditions that normally fall outside of the scope of typical disease management treatments for diabetes, hyperlipidemia and the like.

More than half of specialty drugs in the developmental pipeline are high-cost oral medications that intend to act as a substitute for other treatments, such as injectable drugs typically provided in physician practices, outpatient centers or through infusion treatment.

Click to Enlarge

What conditions are typically associated with specialty drugs? While this list is expansive, it will change and grow as further research and development occurs around other disease states and approval is provided. The percentages represent that condition’s estimated percent share of the specialty drug market:

  • Oncology/Cancer: 30%
  • Rheumatoid Arthritis: 12%
  • Multiple Sclerosis: 10%
  • HIV/AIDS: 8%
  • Inflammatory Bowel Disease: 3%
  • End Stage Renal Disease: 3%
  • Intravenous Immunoglobulin: 4%
  • Hemophilia: 3%
  • Hepatitis C: 2%
  • Growth Hormone: 3%
  • Cardiovascular:3%
  • Transplant: 1%
  • Other: 19%

Since a small percentage of an employer population (generally less than 3 to 5 percent) will have any of the conditions that qualify for specialty drug treatments in the major areas of research and development, drug spend management will skew traditional per member per month (PMPM) metrics. A large share of medical spend will be isolated in a particularly small set of members who have these conditions.

How can an employer prepare for this significant change?

Basic observations on specialty drug spend will likely mirror an often under-emphasized, yet obvious trend that commonly occurs in medical spend: most costs are pooled in a small percentage of the population (generally far less than 10 percent of total membership) that have exceptional needs that cannot be addressed through lifestyle changes. These will quickly exceed the maximum out-of-pocket employee expenditures. In those instances, personalized and coordinated care has to exist for members to:

  • Get the highest quality medical care as it relates to their needs
  • Maintain medical compliance and adhere to evidence-based guidelines for treatment
  • Gain assistance in navigating the medical continuum to offset costs related to waste, mismanagement and improper treatment

Since specialty pharmacy costs will mimic these resource demands, employers should be prepared to build metric-driven tactics to effectively address how specialty drug coverage is engaged at both the member level and how the costs are appropriately staged to minimize unnecessary cost.

Funding questions to consider:

  1. How does an employer create an opportunity to ensure specialty drugs are accessed only in situations where they are the best option?
  2. How does an employer build a process to ensure they are getting to most cost-effective method of delivery for specialty medications?
  3. How does the employer design their benefit plan to distribute the specialty medications effectively without creating an overall plan burden that will result in increased costs for the employer and overall membership base?
  4. How will an employer’s comprehensive plan design interact and impact this particular cost? Conversely, how will specialty drug usage interact and impact comprehensive plan design?
  5. How does an employer engage the specialty pharmacy process? Should it be directly through the carrier/TPA or through a vendor relationship?
  6. How does an employer ensure they are getting the best arrangement for specialty medication as it relates to overall medical costs?

Given the climate regarding this expansive market change, employers should prepare in a constructive manner by analyzing current risks within their population’s medical and pharmacy spend. They should work with experienced consultants and other health plan stakeholders that understand the progression in order to determine proper benchmarks and strategy for the next five years –the precise timeframe this specialty medication boom will occur.

by Chris Davis
Chris Davis, MPH, ACSM
Director of Health Mgmt & 
Claims Informatics
Regions Insurance Inc

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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.
 

Do you want to eliminate overpayments to PBMs now? The fastest path to pharmacy benefits cost containment starts here.

Proof: The People PBMs Hire to Hide Cash Flow From Employers

First, let me start by suggesting the position of PBM Pricing Strategy Analysis Manager is unnecessary if Anthem Inc. operated as a fiduciary rather than a FFS or fee-for-service provider. Better yet, this position is ultimately eliminated when employers across the country start to demand a fiduciary contract from their PBMs. This is a full-time position dedicated to drive PBM revenue growth. In fact, much of your PBMs margin protection occurs after you’ve signed on the proverbial dotted line!
Pay close attention to the buzzwords and phrases used in the job description such as underwriting, revenue performing below thresholds, and ASO passback. The point here is that traditional PBMs are armed with seemingly unlimited resources to maximize margin revenue from clueless employers. How much human capital and other resources are you allotting, throughout the course of the year, to stem PBM overpayments?
A retained national employee benefits consulting firm may not be enough to eliminate overpayments to PBMs. Trust me on this one. The simple fact is that most benefits consultants are not PBM experts rather really good connectors of buyers and sellers.

Self-insured employers and benefits consultants must have, at a minimum, highly trained [internal] PBM experts to address spiraling drug costs and improved patient outcomes. Those individuals with the same level of knowledge and resources available to PBMs in order to secure pharmacy outcomes aligned to plan goals.

Click the link below to view the actual job listing.

—BEGIN—

Job:  Provider Network Management
Location:  Reno
Requisition ID:  101783
Posted on: April 17, 2015

Job Description:

Anthem, Inc. is one of the nation’s leading health benefits companies and a Fortune Top 50 company. At Anthem, Inc., we are working together to transform health care with trusted and caring solutions. Bring your expertise to our innovative culture where you will have the opportunity to make a difference in peoples lives, and to take your career further than you can imagine.

The PBM Pricing Strategy Analysis Mgr is responsible for Pharmacy Services pricing and Administrative Services Only (ASO) support functions. Primary duties may include, but are not limited to:

  • Implements new processes, process improvements, and best practices related to pricing, guarantee monitoring, and ASO passback activities.
  • Creates and implements metrics and supports performance measures to establish performance objectives for revenue maximization and pharmacy pricing.
  • Creates tools and processes to monitor margin revenue, pricing accuracy, and client retention.
  • Monitors revenue performing below thresholds and implements necessary tasks to bring performance to or above targets. This is the one which should scare the hell out of Benefits Directors, CFOs and benefits consultants; those plan sponsors who don’t have an effective process to measure billed amounts against actual acquisition costs (what the pharmacy actually paid to bring prescription drugs into inventory along with full audit rights of network and manufacturer revenue agreements).
  • Implements pricing in the system related to margin.
  • Supports the Pharmacy Services team in implementing future revenue, member expansion and growth capacity.
  • Assists with developing pharmacy pricing training to underwriters and updates to underwriting guidelines.
Requires a BA/BS in Finance or related field; 5 years of experience with a Pharmacy Benefits Management (PBM), pricing, data analysis; or any combination of education and experience, which would provide an equivalent background. MBA preferred.
Anthem, Inc. is ranked as one of Americas Most Admired Companies among health insurers by Fortune magazine, and is a 2014 Diversity Inc magazine Top 50 Company for Diversity. To learn more about our company please visit us at antheminc.com/careers. EOE. M/F/Disability/Veteran.

—END—

Anthem Inc. isn’t the only traditional PBM which hires for this position. They all do so if you’re thinking “we dodged a bullet because Anthem isn’t our PBM” think again.

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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.
 

Do you want to eliminate overpayments to PBMs now? The fastest path to pharmacy benefits cost containment starts here.

6 ways to lower healthcare spend vis-à-vis specialty pharmacy

Potential Solutions in Reducing Specialty Pharmacy Costs

So, how do we contain the costs associated with specialty pharmacy drugs and actually begin to reduce spending?
  1. Care coordination – Care coordination is key not only between providers and payers but also between medical and pharmacy benefits. Currently, specialty pharmacy benefits are provided both under medical and under pharmacy programs and these tend to be done within their individual silos. In some instances, the cost to the patient is less with pharmacy benefits than medical while others the opposite is true. Integration between pharmacies and medical records can increase the coordination of care and provide higher quality care to patients and ultimately lower healthcare spending.
  2. Patient education – patient education is essential in particular with the administration of specialty pharmacy drugs. These drugs can be in the form of injectables and are often administered by a provider, which can be quite costly. Providing education to the patient as well as their family can enable these to be taken in the comfort of the patient’s home. This can help reduce healthcare spending as the cost of a doctor’s visit may not be necessary, no appointment needs to be made, and no billing/coding needs to occur.
  3. Providing care in the appropriate place – If assistance is required to administer these drugs, it is much cheaper to administer for example in a primary care setting than an emergency room or outpatient clinic which may be associated with a hospital. It is the same medication, but education as to the less expensive alternative is critical.
  4. Changes to the payment policy/reimbursement – under current fee-for-service model, providers are incentivized to prescribe more expensive medications, whether the patient really needs those particular drugs or not. Additionally, some providers are incentivized based on the total cost of the drug, in which they are reimbursed a percentage. There is also a trend of providers to purchase specialty pharmacy drugs from manufacturers and then sell them at a premium price. These incentives are not aligned to decrease healthcare spending and should be reviewed and revised.
  5. The use of bundled payments has become a trend as of late. The idea is to control the total cost of care through bundling certain services, thus lowering healthcare spending.
  6. Transparency in pricing is critical to controlling healthcare costs as well. Providers, payers and consumers should know the price, what that includes, and how the price was determined.
As mentioned, specialty pharmacy drugs are not new. Cancer treatments, for example, have been around for a long time. However, the costs associated with these drugs are contributing to the out of control healthcare spending trends. In order to reduce these costs, many mechanisms can be put into place. Providers, payers, and patients working together can begin to make a dent in the costs and increase the quality of care.

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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.
 

Do you want to eliminate overpayments to PBMs now? The fastest path to pharmacy benefits cost containment starts here.

5 Keys to Managing Your Company’s Pharmacy Benefit in a Dynamic Health Care Marketplace

Pharmacy costs is one of the fastest-growing components of health care expense and is expected to increase by 15% per annum with no end in sight. It is estimated that 75% of employers plan to increase prescription drug spend year-over-year. Unfortunately, most organizations are unaware of their excessive remuneration for PBM services. While there is no magic pill to managing the pharmacy benefit, the following five key performance indicators can help to identify a path to lower pharmacy costs while still improving member outcomes.

1.  Dump the Legacy RFP Process.  Employers must instead create their own airtight fiduciary contract and put it out for bid. How is it that a plan sponsor, regardless of size, can sign a deal which doesn’t hold its PBM accountable to a client-comes-first standard of care?


from Wikipedia

 
A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.
 
Case closed.
 
2.  Promote Limited (Preferred) Pharmacy Networks.  Most plans offer access to more than 60,000 retail pharmacies nationwide. The reality is that at any given street intersection 3 of the 4 corners are filled with pharmacies including CVS, Rite-Aid, Walgreens or others. Instead of allowing access to countless options, an employer can save 2 percent or more by narrowing the number of network pharmacies. 
 
After cost-sharing, establishing preferred pharmacy networks has been a popular approach to cost management. Limited pharmacy networks, not talked of much before 2010, are much more of a consideration after the contract dispute between Walgreens and Express Scripts.
 
Providing the broadest access to members may no longer trump the more favorable pricing of a narrowed pharmacy network. A large and growing supply of retail pharmacies makes the limited pharmacy network approach possible.
 
Caveat emptor – Ballooning is a black box tactic whereby one PBM profit center drives an unusual amount of fees when another is being squeezed. It turns out payers’ cost for mail pharmacy services may increase, when a limited pharmacy network is selected, to offset the negotiated retail pharmacy network. 
 
3.  Implement Specialty Therapy Management.  We know specialty therapies improve outcomes but we also know patients do not take medications the way they should, or in the way it was studied to produce published results. Disease specific algorithms enable us to:

  • Ensure standards of care are consistently followed thereby reducing waste 
  • Monitor therapy to detect and resolve problems; identify opportunities for referral to MTM, PFA or clinics 
  • Pro-actively identify opportunities to keep patients on therapy 
  • Help patients become better informed about their therapy so they can more actively take charge of it

These all of course improve outcomes, reduce re-admissions and prevent emergency room visits which in turn lowers overall medical costs.

4.  Keep Two Sets of Eyes on Your PBM. A key strategy to controlling prescription drug benefit costs is to understand and better manage the relationship with your pharmacy benefits manager (PBM). Given the complexity of prescription drug benefit programs, it is an attractive option to simply turn over management of the employee prescription drug benefit to a consultant, ASO, PBM or TPA.


However, it is important to realize that while they are serving clients’ needs, PBMs and TPAs are also in business to make a profit. Therefore, the actions that they take may not always be in the best interest of an employer. For that reason and others, employers are increasingly attempting to better understand the prescription drug benefit [internally] in order to develop new strategies to control costs and to maintain an affordable, quality drug plan for their employees.

Because more benefit dollars are shifting from medical to prescription drugs every year, payers whom have internal expertise in pharmacy are in a better position to assume greater control of their prescription drug benefit thereby reducing costs while improving patient outcomes.

5.  Utilization of Internal Pharmacies. To illustrate this point I use the story of Meridian Health Systems, a former customer of Express Scripts, to show the sometimes drastic difference in what PBMs charge payers to fill prescriptions and what they in turn pay pharmacies to dispense those same prescriptions. This difference often leads to greater profits for the PBM and increased costs for the employer.

 
Robert Schenk, who oversees Meridian’s spending on employee medications, dug through the employer’s bills to discover just how rampant the practice was. One such example he found were charges for generic amoxicillin — Meridian was billed $92.53 when an employee filled the prescription, but Express Scripts paid only $26.91 to the pharmacy to fill the same prescription.

That amounts to a “spread” of $65.62 for only one prescription. In another instance, Meridian was billed $26.87 for a prescription of the antibiotic azithromycin. Express Scripts paid the pharmacy $5.19 to dispense the prescription, creating a spread of $21.68.

As this practice persisted, Meridian’s health benefits costs skyrocketed, all while Express Scripts continually promised savings. In the first year alone, Meridian’s prescription benefits costs increased by $1.3 million. It wasn’t long before Meridian switched to a more transparent PBM to handle their prescription benefits.

The only reason Meridian Health was able to identify the spread is due to the internal reference or pharmacy it owned. In this case, Meridian Health acted as the middle man and was able to see both sides of the transaction. Imagine for a moment, as a payer, how powerful this tool can be. There are fiduciary PBMs willing to give clients access to the same information from which Meridian Health was able to benefit. I suggest you locate one.

 
To read more of Meridian Health System’s story click here.

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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.
 

Do you want to eliminate overpayments to PBMs now? The fastest path to pharmacy benefits cost containment starts here.

The malevolence of all health care sectors

The fundamental attribute of nearly all the major health care sectors is the relentless pursuit of profit without consideration of the larger social consequences.  Some may call that “amoral greed,” but the reader can apply his/her own terms.  Add to this reality the fact that some health care competitors also act in a manner that is clueless, while others exhibit varying levels of laziness, arrogance and spinelessness.

Consider the payer segment of health care.  These are mainly the public and private insurers and the self-funded employers that provide coverage for most Americans.  An unstated but implicit message of several postings here is that unless pharma gets its strategic orientation in order and brings its public-be-damned pursuit of profit under control, the payers will give them a thrashing.

That would seem to follow because the premise behind both Obamacare, as well as the private health care market, consists of giving payers de facto charge over system.  The Affordable Care Act/Obamacare does it by requiring everyone to get health insurance.  The thinking there was that this would oblige payers to justify their place in the system by controlling costs and improving quality as a result of constraining providers and manufacturers.

Any lingering notion that an insurance/payer-driven approach could work in the U.S. now seems increasingly improbable because most private insurers decline to take the initiatives required of them if they are to push American health care toward an affordable, effective system.

An example of that comes from sources at several large health insurers, including some Blue Cross/Blue Shield companies.  They make the point that their managements either remain indifferent to pharma pricing or mistakenly see it as benign.

Rather than actively managing their populations, their participating providers and the health care manufacturers, the insurers prefer to operate in the old, insurance sales mode of passively making money on the float while allowing costs to escalate.  By and large, they feel their recourse lies in passing higher costs along to policy holders in the form of premium increases.

A source at one BC/BS said his colleagues rarely even give any thought to pharma because they outsource that concern to their Pharmacy Benefits Management (PBM) company.   Another health insurance manager related the astounding fact that his company’s director of strategic planning actually considers pharma as a constructive force for controlling health care costs.

This strategic planner told the people reporting to him that their company’s absolute amount of “medical loss” over the past couple of years has remained fairly level.  At the same time, the relationship among the factors contributing to those medical loss expenses has changed, so that hospital expenses have declined as a percentage of the total, while pharma costs have risen substantially.

Demonstrating an incredible piece of fallacious, post hoc reasoning, the planning director then concluded that spending more on pharma decreases the larger amounts paid to hospitals. For that reason, he sees rising pharma expenditures as a good thing!

Even those private payers not challenged by basic logic shrug and say, “We can’t do anything until CMS [the Center for Medicare and Medicaid Services] acts because we need their blessing to make any tough decision stick.”  Since CMS is highly susceptible to political lobbying exerted through Congressional pressures, the payers’ decision to defer bold action is a recipe for rising costs and other deteriorating results.

Once again, several health care trends are headed in the wrong direction.  Last week, for example, the Wall Street Journal’s economic outlook for 2015 predicted (actually, “retrodicted,” since it’s already happening) substantial price increases for new and old branded drugs, as well as generics.

In an effort to project where this will lead, Kim Slocum, a health care analyst in West Chester, said, “Pharma fundamentally faces two choices.  Either the industry must find a way to play in the whole ‘value-based health care movement,’ with risk-bearing pricing contracts, or it will face a really ugly environment marked by cost-shifting to consumers that ultimately leads to price controls.”

Slocum’s “ugly” scenario for pharma would spin out the following way.  As employers and insurers ratchet up their cost-sharing approach to coverage, pharma companies will have to ease the burden of higher co-payments, deductibles, and co-insurance on patients who take branded drugs.  The pharmas will need to do that by hugely increasing the subsidies to employees and members contained in the “coupon” or “co-pay card” programs they run now.

If pharmas fail to do that, the policy studies show that patients’ will respond to cost shifting by avoiding care and not filling prescriptions.  The extent of such avoidance will cause an enormous drop in drug company sales.

But Slocum claims he ran projections showing that in an era where patients face $10,000 in out-of-pocket costs before their prescription insurance kicks in, the cost to pharmas of running these co-pay programs will seriously erode their profit margins.  “This will be the ultimate rebuke to pharma CFOs,”  according to Slocum.  “They’ll either have to watch demand drop like a rock or give up profits.”

He believes that constantly rising drug costs, unrelieved by cost-shifting coverage, will eventually lead to political demands for some form of price controls.  Since pharma managers find that anathema, they are reluctantly making feeble efforts to see how they can work in a pay-for-value system.

Providers represent another health care sector characterized by antisocial greed.  Unfortunately or fortunately, depending upon where one stands, they have been substantially smarter and bolder in their pursuit of profit.  Their fundamental effort consists of undermining the implicit public and private trend to make payers herd the providers and manufacturers.  For several years they resisted payers as hospital-based, integrated delivery networks bought up medical practices and other provider services, thereby exerting leverage over the insurers on pricing and usage volume.

The latest approach of large provider networks, exemplified by the University of Pittsburgh Medical Center (UPMC), consists of turning themselves into provider-payer systems that sell coverage as well as medical care.  They claim that with this approach, their hospitals, clinics, physicians and other medical services would have no incentive to charge their own insurance arm steep prices.

Actually the idea is approximately 75 years old as Kaiser Permanente began using it during World War II.  That point suggests one of the problems with the payer-provider approach.

At one time Kaiser was a low cost source of coverage and care on the west coast.  Today, costs to consumers at Kaiser are closer to what they have to pay elsewhere, according to Mark Smith, head of the California HealthCare Foundation.

Some of that results from the practice of “shadow pricing” in which producers in a market lacking transparency price up to a level just slightly below that of their competitors.  As a result some of Kaiser’s larger customers report annual premium increases of 20% in recent years.

The other problem is that the idea of the insurance arm and the provider arm both working to control prices is also illusory.  Insurance margins are very small.  As financial service companies, insurers make their money by aggregating capital and investing it.  Providers, on the other hand, generate huge revenues that they disperse unevenly in the form of high compensations to their top executives and high-volume practitioners.

One need only scan the skyline of cities such as Pittsburgh that recovered from de-industrialization partly by developing medical care facilities.  The enormous buildings erected by these integrated networks proclaim their wealth and influence.  In a very real sense, they are the contemporary counterparts to gothic cathedrals of the 13th century.

So if a parent company owns a low margin and a high margin business, its not hard to guess which one the parent will protect and feed.  More costly procedures and over-treatment will remain the standard in U.S. health care.

In 1980, Arnold Relman, then the editor of the prestigious New England Journal of Medicine and previously a professor of medicine at Penn, described a “medical-industrial complex” in the U.S. He wrote that the system “creates the problems of overuse…fragmentation of services, overemphasis on technology and ‘cream-skimming.” Dr. Relman passed away last summer at age 91 and it is worth noting that at the end of his life, both he and his wife, Dr. Marcia Angell, wrote that the situation has grown far worse during the ensuing 30-plus years.

Profit-seeking insurers and provider networks, according to Relman and Angell, will never permit the U.S. to develop a health care system that meets the goals of universal coverage, controlled cost and uniformly top-tier quality.  The problem lies not just with the system, but also in the conduct and capabilities of its separate sectors.  Pharma is just one part of the package that falls short of bringing Americans the health care we deserve.

by Daniel R. Hoffman, Ph.D., President, Pharmaceutical Business Research Associates

Reference Pricing: Pharmacy Invoice Cost (ACTUAL) for Top Selling Generic and Brand Prescription Drugs

Why is this document important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to healthcare reform. 

The costs shared below are what our pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to “reference pricing.” Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

How to Determine if Your Company [or Client] is Overpaying

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.
 

Do you want to eliminate overpayments to PBMs now? The fastest path to pharmacy benefits cost containment starts here.