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

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

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

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

• 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 

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

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.,

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