Should Specialty Drugs Be Shifted From Medical to Pharmacy Benefit?

Specialty drugs have been a house divided. Oral medications have been managed under the pharmacy benefit while medications that are infused or injected have been managed as a medical benefit. Self-injected medications have been a muddle, landing on both sides of the benefit divide.
Common sense and convenience recommended this arrangement. If health plans and other payers were paying providers under the medical benefit for injection and infusion services, why not cover drug being injected or infused as part of the same claim?
Besides, specialty drugs have been a secondary concern, so the medical–pharmacy benefit split just hasn’t been that big a deal. Until recently, oral medications have been the category in need of management, and they are clearly the province of the pharmacy benefit, accounting for the lion’s share of pharmacy expenditures.
And the oncologists, rheumatologists, and other specialists who regularly prescribe and administer specialty drugs haven’t been complaining. When they buy medications and bill for them, that has added an income stream into their practice. For some, that stream has turned into a torrent as the number and cost of the specialty drugs has increased.
Now that specialty drugs have become budget busters, health plan executives and pharmacy benefit managers are questioning the wisdom of covering specialty drugs in two different ways and, more particularly, whether more medications should be moved from the medical benefit to the pharmacy benefit as one way to rein in costs.
According to the 10th edition of EMD Serono’s Specialty Digest, the switch is under way. A survey of 91 health plans that provided the data for the digest found a significant shift to the pharmacy benefit for the medications for hemophilia, respiratory syncytial virus, and, as a group, the intravenous immune-modulating medications for rheumatoid arthritis, Crohn’s disease, and psoriasis (figure, below).
Shift from medical benefit to pharmacy benefit (2011, 2013)
% of plans with RX benefit coverage
Source: EMD Serono Specialty Digest, 10th Edition
Moving medications to the pharmacy benefit won’t win prizes for innovation or box-departing thinking. The fact is that it has been talked about for years. Patrick Gleason, PharmD, director of health outcomes for Prime Therapeutics, the Minnesota-based pharmacy benefit manager, says there have been fewer changes than all the talk might suggest: “It isn’t so simple. That’s why it hasn’t happened very much.”

Four advantages

There have been some early adopters, such as Blue Cross & Blue Shield of Rhode Island (BCBSRI). The insurer acted well before the current trend, moving many specialty medications over to the pharmacy benefit six years ago.
BCBSRI contracts with Walgreens to supply and help to manage the specialty medications, while Catamaran pays the claims as the pharmacy benefit manager. Control of the formulary stays with the health plan, says Donna Paine, PharmD, MBA, a specialty pharmacy program manager for Blue Cross & Blue Shield of Rhode Island: “It’s our formulary. It’s our criteria for coverage.”
Four themes emerge when Paine and others talk about the advantages of moving specialty drugs to the pharmacy benefit.
  • First, comparisons are easier when medications are on the same benefit. Oranges-to-apples become apples-to-apples because the billing procedures and benefit structures are the same. The anti-inflammatory medications for rheumatoid arthritis and other inflammatory conditions are used to illustrate the medical–pharmacy divide. Infliximab (Remicade) tends to be paid for and managed as a medical benefit because it is infused, while adalimumab (Humira) and etanercept (Enbrel) tend to be managed as a pharmacy benefit because they are self-injected.
“But you shouldn’t treat Remicade differently than you do Humira or Enbrel, and that can happen when they are under different benefits,” says Paine. “If they are all under the pharmacy benefit, then they are managed similarly, and now you can decide, truly, what is best for the patient.”
  • Advantage number two: Moving specialty drugs into the pharmacy benefit often involves “white bagging” — medications normally administered by a physician come directly from a specialty pharmacy in a metaphorical white bag at the correct dose for a particular patient. The insurer pays the specialty pharmacy for the drug. White bagging effectively eliminates the traditional buy-and-bill arrangement whereby providers buy the drug and bill for the cost plus a markup. 

“Having doctors and hospitals buy a drug and bill for it is adding another link in the supply chain,” says Tony Dodek, MD, vice president for medical quality and strategy at Blue Cross Blue Shield of Massachusetts. As with any other process, Dodek adds, adding links to a supply chain means additional cost. What’s more, providers are influenced by the income bump from buy-and-bill. It’s not that they prescribe the wrong medication, says Paine, but the financial incentives built into buy-and-bill may affect medication choices.

  • Another advantage of what might be called the “pharmatization” of specialty drugs is the specificity of the National Drug Codes (NDC) used to make and pay claims when medications are under the pharmacy benefit. The 10-digit NDC code identifies the “labeler” — which can be the manufacturer, relabeler, or distributor — as well the strength, dose, formulation, and package size of the medication. All that information can add layers of precision and sophistication to data analysis and utilization review. 

If a medication is paid for under the medical benefit, the claims use J codes — they are part of the Healthcare Common Procedure Coding System (HCPCS) — and J codes are blunt instruments compared with NDC codes. There’s often a lag in assigning J codes, so new drugs may share an “unlisted” designation for months, Paine notes. Brand and generic drugs share a J code, and package size is not included. If you need to track medication use and cost, J code data will give you a fuzzy picture; the NDC codes, a high-res one.“How many different growth hormones do we have — five, six, seven? Most would have the same J code.”

  • Finally, once specialty drugs are on the pharmacy side of the benefit divide, all those cost-controlling gadgets in the pharmacy management toolkit — prior authorization, utilization management, preferred networks, tiered pricing if there are choices — come into play. Medical benefit coverage doesn’t preclude use of the same management strategies and techniques, but they may not be as well developed. 

For example, prior authorization is tighter with pharmacy benefit coverage. If your doctor writes a prescription and you go to get it filled and it is not on the formulary, the pharmacist is not going to dispense it — unless you pay out of pocket. On the medical side a doctor may infuse a drug before seeking authorization. Because the service is already delivered, it is a bit harder to manage. And if the health plan were to decide the service isn’t medically necessary, the patient could be held financially responsible.

Pick-and-choose approach

But hold on. There are some good reasons for not migrating medications over to the pharmacy benefit — or, at the very least, for doing so in a thoughtful, case-by-case way.
Gleason says the company has recently helped several Blue Cross Blue Shield plans move hemophilia therapy from the medical benefit to the pharmacy benefit and to a narrow network of specialty pharmacies that provide home infusion services. But, he says, health plans and the PBMs that work for them need to tread carefully: “There is no moving them wholesale — that is a mistake.”
For one thing, Gleason points out, depending on the drug and other factors, hospitals and physicians can sometimes buy medications at a lower price than specialty pharmacies because of class-of-trade pricing. If enough of that saving is passed on to health plans, then moving those medications to the pharmacy benefit could backfire and wind up costing, rather than saving, a health plan money.
Gleason uses infliximab (Remicade) as an example: “If we think Remicade is the right drug for you and it can be administered in a doctor’s office, and the doctor can buy it for less than the community pharmacy or a specialty pharmacy, we would like to see it remain on the medical benefit, billed by the doctor on an agreed fee schedule at the lowest net cost per unit.”
But how much a health plan and its beneficiaries benefit from lower class-of-trade prices varies. Paine cautions that it can be difficult — and potentially ruinous for good relations — for health plans to start aggressively negotiating specialty drug prices with hospitals and other providers if they haven’t done so in the past because specialty drugs have often been a major source of revenues for providers.
The switch could also alienate beneficiaries if their out-of-pocket expenses go through the roof. Whether they actually will depends on the finer details of benefit design. In the past, keeping drugs on the medical benefit was often a good deal for beneficiaries because their out-of-pocket expenses were less than under the pharmacy benefit.
Another reason to go slow on switching medications to the pharmacy benefit is variable dosing, which is a common practice for the infused medications, especially the oncology drugs. J codes and medical claims allow providers to bill for less than the full package. Without some kind of adjustment, there would be a lot of expensive waste if the patient only needed a partial vial under the pharmacy benefit because pharmacies only dispense full vials.
It’s complicated, though, because some insurers are now allowing physicians paid under the medical benefit to bill for full vials, even if they administer a partial vial. If that’s the case, then there might be less of an advantage to the medical benefit, depending on the insurer.
Health plans have to be very careful about angering providers who depend on buy-and-bill income. A health plan in New England reversed course when oncologists threatened to leave en masse if the plan moved ahead with moving cancer medications to the pharmacy benefit, according to Dodek. “We have to be sensitive to the needs of the members but also to the needs of the providers in the network.” Yet there are some providers who may welcome health plans moving drugs to the pharmacy benefit. Buy-and-bill can tie up a lot of capital as the number and price of specialty drugs has increased.

A house divided can stand

But here’s another take: Maybe all this fretting over the medical–pharmacy divide is a bit misguided. Rather than yanking specialty medications over to the pharmacy benefit and weathering the disruption that causes, why not just smooth out the hassles that come from having some medications covered under the medical benefit and others under the pharmacy benefit?
So while Gleason says medical and pharmacy management are woefully siloed, he also says his company has been working on aligning the medical and pharmacy benefit management so they do, in fact, cohere: “You can connect the silos,” says Gleason. “We have done it successfully, and our clients are seeing the benefits.”
Perhaps all that is really needed is some well-designed software. That’s what Alan Lotvin, MD, thinks. “There is a solution,” says the executive vice president for specialty pharmacy at CVS Health. “It just requires the right tools.”
Lotvin touts the software developed by NovoLogix, a company acquired by CVS, as an example of such a tool. After criteria are developed, the software can guide decisions on which drug to use and whether to route the claim down the medical benefit or pharmacy benefit channel.
In Lotvin’s telling, smart software like that of NovoLogix also solves the J code fuzziness problem because it “cross walks” J codes with NDC codes. Even if specialty medication claims are paid with J codes, the software collects data at the granular NDC code level that can be analyzed later. “You pay under the J code but you ask for the NDC code on the claim — that takes care of your problem,” says Lotvin.
Gleason has a different perspective. He says it has taken years for Prime Therapeutics to develop the acumen needed to analyze data from J code claims together with NDC claims data. He voices skepticism about PBMs that swoop in, saying that it can be done quickly. “You are losing the advantage of a dedicated team that can analyze your medical and pharmacy claims together.”

Dueling consultants’ analyses

Earlier this year, Milliman produced a report for CVS Health on the possible savings of moving medications from the medical to the pharmacy benefit. By Milliman’s reckoning, a little over half (53%) of total specialty medication costs were paid through the medical benefit and a little under half (47%) through the pharmacy benefit. Yet the consultant’s calculations show that specialty drugs as a whole account for just 6% ($20 out of $360) of a typical commercial health plan’s per-member, per-month (PMPM) cost compared with 24% of the pharmacy benefit allowed costs. The consultant’s report is based on an analysis of 2012 claims. The FDA approved sofosbuvir (Sovaldi) in December 2013. It’s likely that specialty drug spending is now a larger percentage of medical and pharmacy costs.
Milliman’s analysis found that spending on self-administered specialty drugs (oral, inhaled, and injected) and those injected or infused by a provider together accounted for about 16% ($3.22 out of $20) of spending on medications covered by the medical benefit. By moving 90% of those drugs from medical benefit to pharmacy benefit, health plans could cut those costs by 19.7%, on average, by Milliman’s figuring.
The consultant didn’t do this math, but that works out to $0.63 PMPM or $7.56 per member per year. Sure, that’s a savings when you add it up over many members over many years, but it is just 0.2% of the $360 PMPM. A spokesman for CVS noted that Milliman limited its analysis to potential savings from managing the site of care, so a raft of other savings opportunities from utilization management, preferred drug pricing, and so on, are not reflected in this number crunching.
Milliman analyzed infused medications separately. Oncology drugs, which many acknowledge are a world unto themselves because of the power of the provider group, the mortality of the disease, and other factors, were excluded from the analysis. Moreover, because infused drugs are more complicated to administer, the consultant presumed a 75% medical-to-pharmacy “conversion” instead of 90%. With these provisos, Milliman’s analysis showed that the allowed $5.43 PMPM for nononcology, provider-infused medications could be reduced, on average, by 12.3%. Do the math, and that comes out to $0.67 PMPM — and so, again, a nice savings, but not a huge one.
A month before the Milliman report came out, Artemetrx released an analysis of the medical-to-pharmacy switch that arrived at an entirely different conclusion. Crunching the numbers for 2012 claims for five specialty drugs for 10 health plans, Artemetrx found the average allowed price was 4% to 38% higher under the pharmacy benefit. The likely reason: lower acquisition costs for physicians because of class-of-trade pricing. Artemetrx’s takeaway is that health plans ought to take a close look at actual prices before they start moving medications to the pharmacy benefit.
One major difference between the Milliman and Artemetrx studies is that Artemetrx deliberately excluded outpatient hospital pricing, which is much higher than physician office pricing. In Milliman’s calculations, a large part of the savings from a medical-to-pharmacy switch came from moving specialty drugs away from the pricey hospital outpatient setting. Patrick Gleason, PharmD, director of health outcomes for Prime Therapeutics, points out that site-of-service decisions can be made apart from the medical–pharmacy benefit choice.

Milliman analysis

The consultant showed that moving medications to the pharmacy benefit produced savings. The first column is the allowed per-member, per-month (PMPM) cost before the savings. The second is Milliman’s estimate of average savings from a medical-to-pharmacy benefit switch.
Self-administered and provider-injectable medications* (Allowed cost savings by therapy class)
Therapy class Allowed PMPM Average savings (%)
Hemophilia and related disorders $0.84 24.7
Oncology 0.47 21.2
Osteoporosis 0.26 28.4
Botulinum toxins 0.20 21.5
Autoimmune 0.20 4.8
Retinal disorders 0.16 8.9
Multiple sclerosis 0.16 17.6
Allergic asthma 0.14 6.7
Respiratory syncytial virus 0.14 12.9
Infertility 0.14 45.8
Hormonal therapies 0.13 18.0
Pulmonary arterial hypertension 0.11 12.8
Hematopoietic growth factors 0.10 4.7
Immune thrombocytopenic purpura 0.05 30.4
Other 0.12 8.2
Total $3.22 19.7
*Assumes a 90% conversion from medical to pharmacy benefit.
Non-oncology provider-infused medications* (Allowed cost savings by therapy class)
Therapy class Allowed PMPM Average savings (%)
Autoimmune $2.06 11.8
Immune deficiency 1.18 7.0
Lysosomal storage disorders 0.83 17.6
Multiple sclerosis 0.56 13.5
Hereditary angioedema 0.26 4.3
Paroxysmal nocturnal hemoglobinuria 0.26 25.4
Alpha-1 antitrypsin deficiency 0.19 13.8
Systemic lupus erythematosus 0.09 21.8
Total $5.43 12.3
*Assumes a 75% conversion from medical to pharmacy benefit.

Artemetrx analysis

This consultant found that specialty medications in the pharmacy “channel” are more expensive.
Average allowed amount per unit, by channel
Epoetin Neulasta Tysabri Remicade Xolair
Physician/home infusion $12.06 $3,333 $3,597 $7.21 $4.54
Pharmacy $16.68 $3,775 $3,890 $7.77 $4.74

How much more expensive is pharmacy?

The percent difference between pharmacy and medical, according to Artemetrx

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.

When It Comes to New Drugs, If Providers and Payers Snooze, They Lose

Three conditions — hepatitis C, diabetes, and cancer — show how budgets can be busted (and patients harmed) if providers and payers don’t astutely manage the use of costly new drugs

Every profession has its maxim for survival. For academics, it’s “Publish or perish.” For lawyers, it’s “Bill or move on.” What should the maxim be for employer and health plan executives in charge of providing and paying for prescription coverage benefits?  Recent drug developments make the answer clear: Monitor — and comprehensively address — marketplace changes or imperil your plan’s assets and your participants’ health.

Too long for a bumper sticker, for sure. Perhaps “You snooze, you lose” might be better. But regardless of the maxim’s length and pithiness, what’s clear is that in the fast-changing, high-cost prescription drug market, pharmacy benefit managers (PBMs) and payers must continually monitor and quickly and wisely respond to new drug developments.

A look at three therapeutic categories proves the point. The continual stream of new drugs for hepatitis C, diabetes, and cancer has created astronomical cost exposure for payers. Therefore, PBMs and payers must scrutinize all drugs, determine those few that have demonstrated they are better than less expensive alternatives, and then implement well-grounded formulary decisions and effective prior authorization, step therapy and quantity limit programs.

If payers are to control their costs, they must also ensure that their PBMs are providing and passing through the strongest available discounts and rebates, maximizing the benefit of coupons, and taking full advantage of patient-assistance programs.

High cost of new diabetes, cancer drugs

Eight of the newly approved drugs during the past two years were for diabetes, including four last year: Farxiga (in January), Tanzeum (in April), Jardiance (in August), and Trulicity (in September). Those approvals followed FDA approvals in 2013 for Invokana, Kazano, Nesina, and Oseni.

Given that about 29 million Americans have diabetes — and that several manufacturers launched extensive promotional campaigns for their new diabetes drugs — large numbers of plan beneficiaries are already taking these drugs. However, all these drugs are far more expensive than the tried-and-true generic diabetes medications, including metformin and the three sulfonylureas (glyburide, glimepiride, and glipizide).

The generics may cost health plans from $4 to $50 per 30-day prescription. The new drugs are likely to cost several hundred dollars for the same treatment period. Comparing the average wholesale price (AWP) by unit: For metformin, the unit AWP ranges from $0.70 to $1.44 (depending on dosage level); for Jardiance, it’s $12.04; and for Invokana and Farxiga, it’s $12.48.

Drugs to treat cancer are also putting enormous financial pressures on health plans, patients, and their families. According to a recent newspaper investigation, the FDA approved 54 new cancer drugs during the past decade. Those drugs had an average monthly cost of $10,000, with four priced at more than $20,000 and one at $40,000 (Fauber 2014).

While politicians, providers, and payers raised a hue and cry about Sovaldi’s $1,000-a-day price tag, there’s been barely a murmur about the cost of Celgene’s two multiple myeloma drugs. Pomalyst costs about $147,000 per patient per year and Revlimid costs about $126,000 (Palmer 2014). Merck’s advanced colon cancer treatment, Erbitux, is in the same league, with a price tag of about $138,000 per patient per year (Helfand 2014).

Because of the staggering costs of an ever-increasing number of drugs, providers and payers can’t afford to be caught flat-footed when new drugs hit the market. They must respond and do so quickly. The question is: What can — and should — they do?

Newer isn’t always better

Often with medications, the latest may not be the greatest. So the first step every provider and payer should take is to ascertain the facts about the efficacy and safety of every new high-cost drug.

Sovaldi and a few other high-cost products, like Gleevec, the chronic myelogenous leukemia drug, represent remarkable medical advances that can improve health and extend life with limited side effects. Payers and providers alike must do what they can to ensure that people who can benefit from such drugs have access to them.

That’s not true for all new drugs. When the FDA approved the eight new diabetes drugs mentioned above, the FDA — as is so often the case — did not require any to show that it was better than diabetes treatments that were already available. In fact, almost no new drugs are tested against anything other than a placebo. Thus, at the time of approval, there was no clinical basis for any physician, patient, or health plan to believe that these new high-cost diabetes drugs are superior to generic drugs that are far less expensive.

Moreover, when the FDA approved these diabetes drugs (as with most new drugs), there was little known about their mid- and long-term safety and side-effect profiles. New drugs are typically tested in clinical trials that enroll between 600 and 3,000 volunteers and last a matter of a few weeks or months. That is not a large enough sample size — or enough time — to get a full picture of a medication’s safety and side-effect profile.

PBMs should share Information

While many PBMs may have staff members who know the efficacy and side-effect profiles of newly approved drugs, PBMs make little, if any, of that information available to payers and tend to share even less with plan participants. Why PBMs stay silent is difficult to understand, considering the benefits that would result were they to speak up.

If basic information about drug efficacy and side effects was provided, payers would likely be more willing and adept at implementing cost-control measures like formulary exclusions and step therapy. With clear, concise information at their disposal, beneficiaries might be more accepting of health plan strategies to manage pharmacy costs. And with a steady diet of solid efficacy and side-effect data, physicians might also shift their prescribing patterns.

Information dissemination by PBMs might also have a positive influence on drug manufacturers. If PBMs posted information about each high-cost drug on their Web sites, openly stating when accurate that there’s no evidence that a new drug is better than generic alternatives, wouldn’t drug manufacturers have a greater incentive to test their new drugs against generic drugs? And wouldn’t millions of people with cancer be far better off if PBMs posted explanations of the efficacy and side effect profiles of cancer drugs?

Every PBM should consider generating and disseminating such information. If they don’t, payers should consider pressuring them to do so.

Better information needed

With better information about each new drug, payers would be better positioned to manage the use of these drugs. Consider the following facts about hepatitis C that make clear that its use should have been managed as soon as it hit the market:

Most people with hepatitis C are asymptomatic and not at risk for suffering a serious health problem because of the disease. A significant proportion (15% or more) of people with hepatitis C are likely to clear the infection spontaneously. The remainder are not likely to become symptomatic or harmed in any way from the disease for many years.

The cost of hepatitis C treatment was likely to decline in the future because several other treatments were likely to be approved, and some of the treatments were likely to be an improvement over Sovaldi. Knowing the above facts, as soon as Sovaldi entered the market in December 2013, all PBMs and payers should have implemented effective programs to curtail use immediately. They should certainly have such programs in place by now. Many still don’t.

A study of state Medicaid plans showed that, as of late last year, only 35 of 50 states had taken steps to manage Sovaldi dispensing (Viohl 2014). Moreover, in many cases the steps taken were inadequate, as reflected in the following information about those 35 states’ prior authorization efforts:

Implementing strict treatment criteria. Most of the 35 states have a prior authorization program requiring a liver biopsy to determine disease severity. Only if the threshold for treatment is set high will liver biopsies have the intended effect of guiding treatment to the approximately 25% of individuals who need immediate treatment and delaying treatment for the approximately 75% who do not.

Imposing an abstinence period before Sovaldi treatment. Many hepatitis C patients have a history of substance and alcohol abuse, which can eliminate the utility of Sovaldi. Therefore, it makes sense to rely on urine tests to verify that Sovaldi candidates have abstained from drug or alcohol use for three months. Alaska imposes such a requirement, but most states do not.

Precluding use of certain other products. Sovaldi’s effectiveness may be reduced if people take Sovaldi at the same time as certain other medications. Illinois has numerous prior authorization criteria to address such concerns, but most states do not.

The researchers who conducted the review of state Medicaid programs also found that few states have implemented effective quantity limit programs. Illinois limits dispensing to two weeks. Louisiana dispenses 28 units at a time. Most other states have no such requirements. Because almost 1 in 10 patients appear not to finish their treatments (Brennan 2014), it makes no sense to dispense a full 12- or 24-week Sovaldi regimen.

Payers can also take steps to make sure other new and expensive drugs are used appropriately. For example, each of the eight previously mentioned diabetes drugs should be placed on a higher tier, unless the PBM can demonstrate that rebates will decrease the cost of one of these drugs to the point where it’s the same or less than therapeutically similar, lower-cost products.

Effective step therapy programs should also be implemented, requiring beneficiaries to try lower-cost diabetes drugs first. Also, if a participant does try a first-in-line, lower-cost treatment and is then allowed to use a new higher-cost drug, it should be dispensed in relatively small quantities. A new medication may not be effective or may have adverse side effects. As a result, there may be significant waste of the high-cost drug if no quantity limits are imposed.

Health plans should also require their PBMs to implement partial-fill programs for oncology drugs to prevent potential waste. A recent survey of 91 health plans showed that less than half had implemented these programs.

Minimizing new drug costs

Along with effective formulary and saving programs, payers must also ensure that their PBMs will dispense all new drugs at the lowest possible net cost to payers and patients. There are at least three basic ways to reduce a drug’s costs (assuming a PBM–client contract contains the appropriate terms, which frequently is not the case):

First, every PBM–client contract should impose multiple discount requirements on PBMs, including a requirement that the PBM provides the following:

  • A contractually binding, aggressive AWP discount guarantee for every existing specialty drug
  • A “default discount guarantee” that the PBM must automatically provide for every new-to-market specialty drug
  • The right for the client to renegotiate and improve any specialty drug discount if a better price becomes available in the market
  • The right for the client to carve out any drug and have another entity dispense it if the currently contracted PBM is unwilling to improve its discount when better prices become available

With such contract terms in place, every plan executing a contract after Sovaldi entered the market would now have in place an aggressive AWP discount for Sovaldi of at least AWP minus 17%. Moreover, when the FDA late last year approved two new hepatitis C drugs, Gilead’s Harvoni and AbbVie’s Viekira Pak, every plan would have known that its PBM would automatically provide a default discount when the first prescription of each drug was dispensed.

Payers would have also known that they could quickly negotiate improved discounts on Harvoni and Viekira Pak if such discounts became available. If a PBM wouldn’t provide a competitive discount, a payer would have known it could carve out drugs like Harvoni and Viekira Pak and have another specialty pharmacy dispense them.

The second way for a client to reduce its drug costs is to contractually require its PBM to pass through and disclose to the client 100% of rebates, as well as all other third-party financial benefits (like discounts) that the PBM receives. Unfortunately, even if a PBM–client contract requires a pass-through of rebates, it often doesn’t require the pass through of other financial benefits or drug-by-drug disclosure of the amounts passed through. As a result, most PBM clients can’t compare the net costs of therapeutically similar drugs.

As this article went to press, Express Scripts announced that it had received a “significant discount” from AbbVie in exchange for Express Script’s agreeing to make Viekira Pak its preferred hepatitis C drug. That’s a welcome move by a large PBM that might help slow down the momentum of rising costs of expensive drugs. Express Scripts has neither disclosed the amount of its negotiated discount nor disclosed the form of its “significant discount.”

If it’s a rebate, Express Scripts will likely pass on most of the savings to its clients, but if it’s some other form of financial benefit (like a discount), then it may not. Thus, unless payers’ contracts with Express Scripts mandate a 100% pass-through of all financial benefits that Express Scripts receives — and full disclosure of all such financial benefits — payers may not be able to discern whether their net cost for Viekira Pak will be higher or lower than their net costs for Sovaldi or Harvoni.

Finally, a third way PBM–client contracts can be written to save clients money is to make sure that they let clients take full advantage of marketplace coupons. There are now approximately 560 coupon programs for more than 700 brand drugs (Starner 2014).

The current Sovaldi coupon covers up to 25% of the drug’s cost. For diabetes drugs Jardiance, Farxiga, and Trulicity, there are coupons that can result in savings of up to $325 per month, $373 per month, and $150 per month, respectively. There are also coupons for numerous oncology drugs.

PBM contracts should let plans use a coupon’s value to decrease the plan’s total costs, the beneficiary’s copayments or coinsurance, or both. Suppose, for example, a drug costs $500 per month, and a participant would normally be required to contribute as a copayment, say, $60. Normally a plan would be left to pay the remaining cost of the drug, or $440.

If the plan requires the PBM to use a coupon that is worth “up to $300 monthly” to benefit the plan, the PBM would be required to raise the participant’s copayment to $360 (the previous $60 copayment plus the coupon’s value of $300). This would mean that after the participant uses the coupon, his copayment would still be $60, but the plan’s total cost would only be $140 ($500 minus $360) instead of the $440 the plan would have otherwise paid.

Alternatively, a plan could require the PBM to use the coupon to benefit both the participant and the plan, in which case the PBM would artificially raise the participant’s copayment to $300. This would mean that when the coupon was used, the participant would pay nothing, but the plan would be left to pay only $200 ($500 minus $300) instead of the $440 the plan would otherwise have paid.

While PBMs may not be positioned to process all — or even most — available coupons, PBMs certainly can do so for those drugs that represent their clients’ largest costs and that are being dispensed by PBM’s mail and specialty drug pharmacies.

Sovaldi and other high-cost drugs also show why every plan should ensure that its next PBM contract requires the PBM to provide information about patient-assistance programs (PAPs). There are now hundreds of PAPs. Plans with lower-income beneficiaries may be able to exclude high-cost drugs from coverage entirely, and instead have their beneficiaries rely on a PAP to obtain access to expensive medications.

Unfortunately, many PBM contracts don’t contain any of the above described provisions, and virtually no contracts contain all such provisions. ln fact, in my experience reviewing hundreds of PBM contracts, almost none contain a list of every existing specialty drug with a mandated AWP discount for each drug. Very few contracts require PBMs to pass through and disclose 100% of all third-party financial benefits, not just rebates. New-to-market default discount guarantees are virtually nonexistent, as are the rights to renegotiate and carve out drugs. Almost no PBM contracts say a word about PBM responsibilities related to coupons and PAPs.

It’s time for payers to demand all these contract provisions so that they are positioned to address the explosion of high-cost drugs.

written by Linda Cahn

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.

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 Makings of a Good Drug Formulary

A formulary is a list of drugs favored by the PBM for their clinical effectiveness and cost savings. Pharmaceutical manufacturers of specialty and branded drugs often promise financial incentives to have their drugs featured on the formulary. Drug formularies can be open, incented, or closed.

  • An open formulary is a list of recommended drugs. Under this structure, most drugs are reimbursed irrespective of formulary status. However, the client’s plan design may exclude certain drugs (e.g., OTC, cosmetic and lifestyle drugs). Physicians, pharmacists, and members are encouraged by PBMs via mailings, electronic messaging, and other means to prescribe and dispense formulary drugs.
  • An incented formulary applies differential co-pays or other financial incentives to influence patients to use, pharmacists to dispense, and physicians to write prescriptions for formulary products.
  • A closed formulary limits reimbursement to those drugs listed on the formulary. Non-formulary drugs are reimbursed if the drugs are determined to be medically necessary, and the member has received prior authorization.

In general, self-insured employers and insurance carriers outsource both administrative and clinical services to a PBM. Managed care organizations (MCOs) and some insurers may elect to retain formulary and clinical control, including manufacturer contracting, and outsource only administrative services such as claims processing and benefit administration to a PBM.

 
There are five factors necessary for a drug formulary to work effectively. These include: 

Example of a tiered formulary (click to enlarge) 
1. An enforcement mechanism
2. A specific (tiered) list of drugs
3. Understanding how the drugs are assessed
4. A firm dispute resolution process
5. An expedited appeal process
An enforcement mechanism is particularly important. Certain drugs require prior authorization before they are covered under the drug benefit. Prior authorization is the pre-approval of a drug by the PBM before a pharmacy can dispense it.
Currently, prior authorization of prescriptions is used only for a few chosen drugs. These are drugs that are very expensive and have major off-label uses not approved by the FDA, such as growth hormones, or drugs that require medical justification before coverage is approved, such as Viagra or Cox-2 Inhibitors.
Before authorizing dispensing of one of these drugs, the PBM may ask the physician about diagnostic tests, symptoms, and other clinical measures that would establish the appropriateness of the drug according to evidence-based protocols. If the physician can’t produce the evidence it is unlikely the PBM will reimburse the pharmacy for dispensing the drug.
In addition, PBMs use co-pays as a mechanism to shift some responsibility of utilization to the member by making them sensitive to the cost of their utilization. Co-pays are also used to provide incentives to encourage the use of generics or formulary drugs.
There needs to be consensus among stakeholders involved in constructing a drug formulary. The biggest contributor to success is that all stakeholders in the system are part of the process. If the formulary is developed solely by the PBM, without any input from the payer, it’s unlikely the payer will fully benefit from the improved patient outcomes and cost-containment opportunities a formulary exists to deliver.

Sources:  PwC Study of Pharmaceutical Benefit Management 

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.


Click here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]

Mild to aggressive; remedies for reducing prescription drug prices

At last the mass media have turned their attention to the reality of excessively high drug prices in the U.S.  It wasn’t that reporters and editors, during the past several decades, failed to notice how drug prices here are double and triple those of other advanced countries.  In fact, for twenty years or more, they published news stories about seniors taking bus rides to Canada to buy their medications, even as some people regularly faced the dilemma about whether to buy food or drugs.

But since drug ads provide a major revenue source for media outlets, mass journalism largely failed to treat the matter as a major, persistent social problem.  Instead, the stories about trips to Canada and rent-versus-drugs usually lacked useful context, instead appearing as quaint pieces of human interest or as quizzical parts of the passing fanfare.

Recently the media have been running stories where health care analysts, physicians, administrators at provider networks and other observers eagerly discuss their respective ideas for curtailing drug prices.  Four recent approaches to the matter deserve some attention.

The first was prompted by last week’s announcement from Britain’s National Health Service that the number of therapies its Cancer Drug Fund covers would be cut by 30% to contain unsustainable costs.

Graphic by Bloomberg Business Week

Cancer drugs stand in the front line of soaring drug prices.  As the United Nations predicts the number of people worldwide over age 65 will triple between 2010 and 2050, the older population will spike the incidence of age-related diseases such as cancer.  The WHO predicts a 70% increase in the number of cancer cases during the next 20 years. Global spending on cancer drugs already has more than doubled in the past decade, according to IMS, a pharma data collector.

This led pharma consultant Bernard Munos to tell the Financial Times that “the cost of these drugs is not sustainable…[and] what is happening in the UK today will happen in America tomorrow.” Mr. Munos claims the best answer lies in ending Big Pharma R&D and outsourcing the function to smaller, nimbler biotechs and startups with lower expense levels.

That sounds reasonable but it is unlikely to contain spiraling drug costs.  Big Pharmas are already moving in that direction by buying biotechs or making deals to subsidize research at the smaller companies.  The entire thrust of research across the range of specialty products in areas such as oncology, auto-immune diseases, and virology already involves research by university medical centers and small biotechs.

Munos’s suggestion fails entirely to get at the heart of the matter.  As leukemia specialist Hagop Kantarjian, at Houston’s MD Anderson Cancer Center, told the Financial Times, “no amount of innovation can justify the doubling in average US prices over the past decade to more than $100,000. ‘It is profiteering and greed,’ he says.”

A second line of analysis proceeds by ignoring growing drug costs and, instead, recommends giving everyone a vastly more generous prescription drug plan.

This month, in the American Journal of Public Health, researchers at Brigham and Women’s Hospital in Boston published their analysis of more than a score of studies that appeared between 1990 and 2013.  They found that better insurance for prescription drugs could help reduce total health care costs by lowering the levels of sickness and death.

The authors point out that although more generous benefits would create some higher initial costs, they claim the reductions in “preventable patient morbidity and mortality” would more than offset those costs.

Although less sickness and death do represent the goals of health care, the fact is that obtaining such desirable outcomes without controlling drug costs would provide pharma with a blank check to gouge every public and private payer.

Funding for the generous prescription plans recommended by the authors would have to come from somewhere and, ultimately, that means the American consumer and taxpayer would foot the bill to enrich pharma.  By failing to give drug cost control equal consideration with coverage enhancement, the authors relegate their study to the category of blue sky irrelevance.

As long as drug companies can pay their pharmaco-economic analysts to make the case that a drug’s total of direct, indirect and implied costs reduce higher spending somewhere down the line, pharma will abuse the results.  They will try pushing expensive products intended for a select number of patients on the vast majority.  The emerging class for LDL cholesterol, PCSK-9’s, represent a clear example of that.

Once pharma launches its PCSK-9 inhhibitors, the industry’s flacks among medical opinion leaders will scare up business for their sponsors and grants for themselves under the-lower-the-better banner by recommending the new class for everyone, not just the familial homozygous.  Pretty soon, a $1,000 a pill will seem cheap.

But other analysts offer a bit more hope for controlling drug prices.  In last week’s New York Times, Dr. Peter Bach, a physician and the director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes in New York, moved a step beyond a blank check for the drug companies.

Dr. Bach essentially recommended that public payers such as Medicare and Medicaid manage their drug formularies similarly to the way Express Scrips, the largest pharmacy benefit manager for private payers, has started to do.

According to Dr. Bach, the law requiring public payers to cover all approved drug products permits pharma to maintain its pricing cartel, rather than obliging brands in the same category to compete on price.  By competing for reimbursable status on restrictive drug formularies that cover a limited number of medications, drug companies would have to offer optimal cost-effectiveness.

A third, fourth or fifth competitor in a class wouldn’t get covered by a prescription plan if it offers comparable effectiveness at a similar cost to what’s already available.  Lacking a substantially better clinical profile, a company would have to compete on price to get its product covered.

According to Dr. Bach, the mere threat by European countries to deny reimbursement contributes significantly to the fact that their drug prices are half as much as what the U.S. pays.

If the action holds and isn’t reversed by the country’s business-fawning prime minister, it will mean generics companies there such as Natco will be able to sell the medication for $1 a pill instead of the $1,000 that Gilead extorts from U.S. payers.  Leena Menghaney from Doctors Without Borders praised the effort to deny Sovaldi a patent, claiming it would allow open market competition in India.

Now here Dr. Bach’s observation holds true in that just the threat of compulsory licensing, exercised only rarely, can be enough to curb pharma’s unmitigated greed.  That enables a range of remedies for controlling drug prices, from mild and regular to harsh and infrequent.

Alas, the successful containment of drug costs, whether through these or other means, demands an aggressive vigilance and some public empathy on the part of politicians and payers.  Unfortunately, it remains unlikely that the majority in Congress, in thrall to the moneyed interests of pharma and major hospital networks, possess any public empathy outside their duck dynasty and C-suite constituencies.

Health insurers, for their part, remain too contented paying enormous compensations to their senior executives while costs for the middle class continue to grow.  Meantime, as health care costs expand the sector from its current 18% of GDP to 20% and beyond, no safeguard exists for preventing pharma from jeopardizing the very qualities their products are supposed to improve — the length and quality of life.

Written by Daniel R. Hoffman, Ph.D.,

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.


Click here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]