In discussions with clients, we hear that their customers continue to expect more and more of them. In the benefit area, good service, technical expertise, and problem resolution have become the minimum standard that employers expect from their brokers. There are thousands of insurance sales people in this country. All can sell health insurance products and services to your firm. With that number of “suppliers” to choose from, how do you select the best organization to which you will entrust your employee benefits? Be assured, TransparentRx, LLC is committed to customer service for our clients and the employees of our clients. Competitors have said, “When it comes to service, we are just like TransparentRx.” We are proud of the comparison but encourage you to dig a little deeper. How should you evaluate the service attitude of one insurance agency vs. another? Open-ended questions are one of the best ways to get an in-depth look at someone’s service attitude. Some questions you might ask: What is the best way for my employee to resolve a claim problem? Are employees encouraged to call the agency for personal assistance or to call the insurance company themselves? What is the “problem resolution process” in your agency? A well thought out process is like a well-oiled machine; things get done and that’s what you want. With written ISO 9002 type procedures, problem resolution becomes routine and successful most of the time. Tell me about your staff. One person can only do so much; depth of staff is critical to an agency’s “service attitude”. What is your “commitment to service”? Is it written, verbal, or off the cuff? A written Commitment to Clients is one benchmark that an agency takes service seriously. Can I have a copy of your mission statement? Does the agency mission statement talk about growth and new sales or… focus on an attitude of service? What is your hiring process for service personnel? How do they uncover the “service attitude” of prospective employees… interviews, personality testing, references, or has it not been thought out? What do I do if I have a question about COBRA? COBRA is benefit related and is your largest unfunded and uninsured liability. Does the broker embrace your COBRA problems as his or her own or are you handed off like a hot potato? Q. An insured employee did not enroll her spouse for the new plan year at open enrollment. She and her spouse were separated at the time, but the divorce was not yet final. The spouse is furious that his coverage was dropped without his knowledge. What is the employer’s obligation to him? A. If coverage is reduced or eliminated in anticipation of an event, the reduction or elimination is disregarded in determining whether the event causes a loss of coverage. For example, if an employer eliminates coverage in anticipation of an employee’s termination, or if an employee cancels the coverage of his or her spouse in anticipation of a divorce or legal separation, that loss of coverage is…

In some states insurers are limited by law in their ability to increase rates or cancel group health insurance contracts that are not profitable for them. These laws protect employers with 2 to 50 employees. Insurers are able to enforce contractual provisions and enforcement could include cancellation of coverage. Is it possible that insurers have begun an effort to become more profitable by cancelling high risk groups that do not abide by all of the agreed upon contractual language? Two popular insurance companies have recently begun performing “eligibility audits” in an effort to determine if contract terms are being honored by employers. It may be a coincidence that the groups chosen for audit were groups known to have high claims and who were unprofitable for the insurer. One insurance company sent a letter to the employer asking for a great deal of confidential payroll information. Normally the broker would be copied on such a communication; however, this was not the case in this instance. The letter stated that coverage would be cancelled if the requested information wasn’t received by a specific date. The business owner intended to provide the requested information but misplaced the letter by mistake. Several days after the deadline, a cancellation letter was received from the insurer. There was no follow up letter or second request sent. Health insurance coverage was cancelled for 23 employees and families, many of whom have serious medical conditions. While this may be an isolated incident, it may also be the start of a new tactic insurers are using to deal with some of the more difficult regulations they face. Time will tell. The 51-500 employee market is somewhat different in that there are no rate caps to which carriers must abide. There is no need for a carrier to cancel a contract like in the smaller case market. Carriers simply raise rates to the breaking point for an employer. The employer will change carriers or dramatically modify benefits. Either way, the carriers profitability problem gets resolved. The lesson to be learned is that informational requests by your insurer must be taken seriously and acted upon promptly in order to protect you and your employees from a similar outcome. Act on the request immediately by bringing your broker/consultant into the loop right away. They'll help you navigate through in the “world of health insurance.” Does your company provide insured short and long-term disability benefits? Have you updated the insurance company on the earnings of your employees recently? Do you increase the maximum benefits periodically to provide adequate coverage for your higher paid employees? In the rush to get products out the door and to pay the bills, reporting salary increases to your carrier may not be a very high priority. Reporting salary increases when they occur or at least annually assures that maximum benefits will be paid to a disabled employee. This will also eliminate retroactive premium requests from the carrier. The value of rigorous and regular eligibility audits has continued to prove itself…

Administrative Fees - Per claim fees paid by clients to PBMs for services like claims processing. Also used to denote the fees paid by manufacturers to PBMs for administering formulary rebate contracts. Average Wholesale Price (AWP) – A published suggested wholesale price for a drug, based on the average cost of the drug to the pharmacy. AWP is often used by pharmacies to price prescription drugs. Benefit Administration – The administration of drug benefit designs. It includes setting up and maintaining the drug coverage and exclusions, setting limits on drug coverages, and defining member cost sharing requirements. Capitated Contract – A very rare contract among PBMs. It is used when a PBM agrees to assume financial risk for a client’s drug spending. Capitation is a set dollar amount, established by analysis of pharmacy claims data, used to cover the prescription costs for a member, usually set at a per member per month rate (PMPM). Claims Adjudication – The online processing of a prescription drug claim. Most claims are submitted electronically at the point of service (the retail or mail pharmacy). Client – A MCO, employer, or insurer that contracts with a PBM to administer their drug benefits and cost control programs. Co-pay – A fixed dollar amount paid for every prescription. Co-insurance – The fixed percentage members pay of the cost of each prescription. Deductible – A specific annual dollar amount that a member must pay out-of-pocket for prescription drugs before the drug benefit program begins. Disease Management Programs – Programs developed by PBMs to identify and categorize patients (especially those with chronic conditions) and to direct these patients towards a specific treatment protocol. Fee-for-Services Contract – The most common pricing arrangement PBMs have with their clients. Under the contract, PBMs are paid for the administrative services they provide, and they do not assume the risk for the cost of the drugs dispensed. Formulary – An approved list of branded (and generic) drugs developed by the PBM, or the client. Open Formulary – A list of recommended drugs. Under this structure all drugs are reimbursed irrespective of formulary status. However, a client’s plan design may exclude certain drugs (OTC, cosmetic, and lifestyle drugs). Incented Formulary – An incented formulary applies differential co-pays or other financial incentives to influence patients to use, pharmacists to dispense, and physicians to write formulary products. Closed Formulary – 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. Health Care Financing Administration (HCFA) – the federal agency that administers Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP). Ingredient Cost – The cost to the pharmacy for dispensed drugs (AWP – discount %). Click here to register for: "How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels." Mail Pharmacy – Mail pharmacies dispense a 90-day supply of drugs through the mail; typically used for chronic conditions. Most pharmacy benefit plans offer a mail pharmacy service as a way to promote cost savings and improve access. Managed Care Organization…

Pharmacy Benefit Managers are often known simply as “PBMs.” While they are largely unrecognized by most employees -- and even by many benefit managers -- they have a tremendous impact on US health care decision-making because they influence more than 80 percent of prescription drug coverage. The sector is dominated by a handful of very large national players, but there are smaller and regional PBMs as well. PBMs commonly operate on behalf of employers, insurance companies, and unions; they are also sometimes referred to as “third-party payors.” The original purpose of PBMs was straightforward: issue drug cards for easy ID and account tracking and offer their customer groups cost-effective services as well as reliable claims information. Over time, however, PBMs have evolved into much more complex organizations. PBMs now take advantage of various strategies associated with rapid growth, including large-scale “block purchases” of drugs and medical products that dramatically lower their wholesale costs — even as PBM fees have consistently increased for customers. Some PBM practices are, in fact, the subject of lawsuits or federal and state regulatory investigations. So how can you, as a benefit manager, make the best pharmacy decision for your employees?  How can you have confidence that your company is receiving optimum PBM value and service?  What key questions should you ask your current or potential PBM—or your health insurer contracting with a PBM?  The following 10 questions are designed to help you and other Benefit Managers select the best PBM for your organizations. 1) Do you use the same average wholesale price (AWP) and maximum allowable cost (MAC) in calculating price to clients and payments to pharmacies? Some PBMs realize hidden profits by employing a practice known as “differential or spread pricing.” Differential pricing is when a PBM establishes a discount off the average wholesale price (AWP) for the individual employee filling a prescription, but establishes a different AWP discount for retailers. Here’s an example of differential pricing in action: Your employee or group member pays AWP minus 15% PBM pays retailer AWP minus 18% PBM pockets the 3% differential Although PBM revenues derived from differential pricing can run between $5 and $8 depending on the type of program served, typical PBM disclosed fees hover at $1 per prescription. While differential pricing is a common business practice, PBMs should disclose the differential to you or your health insurer. If you have a plan governed by ERISA, you should keep in mind that the U.S. Department of Labor requires full disclosure of all compensation, fees, and income from a PBM that acts in a fiduciary capacity as an administrator and/or claims payor for an employer with a benefits plan. Recommendation: Ask to see your PBM’s contract with network pharmacies (including large chains) and compare to the PBM’s contract with your organization. The reimbursement rates should be the same on both contracts for both AWP and MAC. 2) Do you participate in rebates from drug manufacturers? PBMs often receive rebates from drug manufacturers in return for placing products on formularies and for working to increase sales volume for these drugs (rebates can…

Plan sponsors, while getting smarter about managing prescription drug benefits, continue to be plagued by drug spreads.  A drug spread is the difference between the amount paid to a PBM and the amount that should've been paid, by the plan sponsor, for the prescription drug ingredient portion of a transaction in the pharmacy benefit manager's retail pharmacy network.  This definition is very simplistic, but the strategies a PBM employs to maintain these spreads are often complicated and inconspicuous. The larger spreads generally take place with generic medications.  This is due in part to much smaller COG (cost of goods) and larger profit margins attained from generic compared to brand medications. Think about it for a second.  A generic medication may have fifteen different manufacturers (multi-source) all competing for the same purchaser while a brand product will have in most instances only one manufacturer (single-source).  This, ultimately, leads to lower costs for generic medications and much higher costs for brand medications. Supply-side economics tell you that much more money is too be had from the sell of generic medications vs. brand medications.  Don't be upset with your local pharmacist due to the high price of brand medications.  He or she has very little control, to the downside, on the price of these products. Small to medium-sized businesses are most often the victims of spreads.  Larger companies often maintain a staff (which may include a seasoned pharmacist or two) dedicated to thwarting the efforts of any PBM attempting to hide cash flows.  Make no mistake about it; spreads are an opportunity cost and hidden cash flow.  I urge you to read the pilot study conducted by American Pharmacists Association.  Here is the abstract from this study. The Spread: Pilot Study of an Undocumented Source of Pharmacy Benefit Manager Revenue Objective: To document the difference between what pharmacy benefits management companies (PBMs) charge employers and what they pay dispensing pharmacies for the drug ingredient portion of prescription transactions (the “spread”). Design: Descriptive, cross-sectional study. Participants: Two large employer groups, each of which used a different PBM, and six independent community pharmacies participating in these plans during 2002. Interventions: Two sets of financial records issued by each of two PBMs were reviewed retrospectively, including 129 line-item prescription transactions billed to the employer and the line-item transaction information that accompanies the PBM payment to the dispensing pharmacy. Main Outcome Measure: Spread between drug ingredient cost billed to the employer by the PBM and drug ingredient cost paid to the dispensing pharmacy by the PBM for brand name versus generic drug products. Results: For both PBMs, the mean (± SD) spread was $12.29 ± 27.93 per prescription, with a range of –$1.67 to $201.65. Considering all 129 transactions, the mean spreads for brand name and generic medications were significantly different from one another, with mean (± SD) spreads of $4.65 ± 10.47 and $23.45 ± 39.47 per prescription, respectively. The two PBMs differed significantly in their spreads for brand name drugs ($3.20 ± 2.85 and $5.93 ± 14.12), but the spreads for generic products did not achieve statistical significance in absolute dollars ($10.83 ± 13.58…

Faced with enrollment numbers that have been far below expectations, HHS (Human Health Services) has decided to no longer require those wishing to gain coverage in federally run high risk pools to prove they have been unable to find health coverage for at least six months, according to Kaiser Health News. Individuals applying for coverage under the high risk pools run by the federal government in 23 states and the District of Columbia will just have to show a doctor's note that says they have a pre-existing medical condition. Is there any question about the abuse this leads to from individuals that do not want to pay for coverage until they become ill? Premiums will drop as much as 40 percent in 17 of the states plus the District where the federally run plans operate, bringing high-risk premiums in those states closer to the rates that can be found in the individual market. The premium costs and the requirement to prove an inability to find insurance were two obstacles that have kept the high-risk pool enrollment to below 20,000 people when the promise was that 500,000 would enroll. There was a time when many experts believed the $5 billion set aside for high-risk pools by the health reform law wouldn't be enough to meet demand. The pools were designed to be an early carrot in the health law that would give people coverage options until 2014, when insurance carriers will no longer be able to discriminate based on pre-existing conditions. TransparentRx, LLC has over ten years experience in the health insurance industry. We have observed many carriers try to gain market share. Experience demonstrates that the quickest way to failure for an insurer is to eliminate all barriers to entry and lower prices. If HHS were faced with the same scrutiny by state insurance departments as insurance companies, they would be served with Cease and Desist Orders for the way the risk pools are being managed. On the other hand, insurance companies do not have the deep pockets of the American Taxpayer to fall back on.  This, in turn, leads to higher costs for plan sponsors.

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? Let's take a look at the two standards: Brokers (non-fiduciary) Must recommend "suitable" products, not necessarily best or cheapest Earn commissions or other transaction-based fees Advisers (fiduciary) Must put clients interests before their own Most charge a percentage of assets or a fixed fee Here is the definition of Fiduciary from Wikipedia... A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has funds entrusted to it for investment. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires the fiduciary to act at all times for the sole and interest of the one who trusts.   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. When a fiduciary duty is imposed, equity requires a different, arguably stricter, standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd" and that "[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.   I don't completely understand why all self-insured plan sponsors don't require pharmacy benefit managers to contractually obligate themselves to a fiduciary role; managers are too busy to investigate further, the C-suite isn't aware of the potential cost savings, or maybe no one cares enough to make a change.  As healthcare costs continue to climb it is increasingly important for plan sponsors to hold yourselves, brokers, consultants and PBMs more accountable.  I've spoken directly with hundreds of benefit personnel and am surprised by how little they actually know about pharmacy benefits. Brokers, consultants and plan sponsors must become…

I want to make this very clear - not all PBMs engage in deceptive practices. There is a relatively new business model some PBMS are embracing called transparent + pass-through. This essentially means that a PBM has taken the position to forgo driving revenue from hidden cash flows and instead earns revenue from a single source, an administrative fee. While this new business model benefits both plan sponsors and their employees, some traditional PBMs either can't or won't adopt the transparent + pass-through model for all of its clients. Here are four deceptive practices some PBMs use to hide cash flows from their clients thereby increasing the actual cost of the plan. Excessive mark-ups from mail-order prescriptions. It is not uncommon for some PBMs to mark-up mail-order medications as much as %500! Why do you think these PBMs push so hard to move prescriptions to mail-order from retail? A transparent + pass-through PBM will not make a profit from mail-order dispensed medications. Again, it will only charge its plan sponsor a flat administrative fee per claim. The savings are passed back to plan sponsor reducing actual plan costs. This is not to say that prescriptions dispensed via mail-order are a bad thing.  In fact, mail-order can offer quite a bit of savings. But you must be aware of the arbitrage opportunities for non-transparent pharmacy benefit managers and eliminate them. Rebates. There was a study conducted by the Pharmacy Benefit Management institute which concluded that 47% of a traditional PBM's revenue is derived from manufacturer revenue. Just think about this for a second. It is the plan sponsor driving the business for which these revenues are earned so why should they be earmarked for the PBM?  These monies shouldn't be shared with a PBM, but instead passed back to the plan sponsor 100%. Hence, the business model transparent + pass-through. Don't be duped, there are many names these PBMs may use to hide these cash flows such as reimbursements or SG&A expenses.  It doesn't matter the plan sponsor is entitled too any money awarded by a manufacturer as a result of prescriptions dispensed from its plan member.  For a rebate eligible prescription drug rebates are typically $2.00 - $3.00 per prescription. Differential Pricing or Contracting.  This is a deceptive tactic that is very common yet too many payors are unaware of its detrimental cost.  Here is how it works.  Let's say that a PBMs billing terms to a plan sponsor are based on AWP or average wholesale price for a certain generic drug.  But, the reimbursement to the network pharmacy for dispensing this medication is based on MAC or maximum allowable cost. MAC will always be lower than AWP thus leaving a difference in price or contracting.  The amount a plan sponsor is billed should be exactly the same amount a network pharmacy is reimbursed otherwise how can a plan effectively determine its actual pharmacy benefit costs. Spreads.  A spread occurs when a plan sponsor is billed the "least favorable" or…

Occasionally, I'm asked what is the difference between a traditional and fiduciary pharmacy benefit manager. I say "occasionally" only because the question isn't asked nearly as much as it should be. Many persons dealing with PBMs, either directly or indirectly, believe that PBMs are created equally and that couldn't be any further from the truth. Let's say you decide to stop at the grocery store for some staples after a hard day at the office. Milk, eggs, cheese and bread are on your grocery shopping list. As you walk through the aisles, and before placing each item in the shopping cart, you are sure to check prices for every item. This is a standard practice for most shoppers so to make sure that when one gets to the checkout counter the prices billed are exactly what were displayed.  You've agreed to pay only the displayed prices, not a penny more, once the item is placed into your cart. Now, imagine a scenario where you've placed the milk, eggs, cheese and bread into your shopping cart then walked to the checkout counter only to find out that the prices have changed!  Take it a step further.  Because the scanned prices don't display on the cash register, you're unaware of the price changes until the cashier hands you a single line item receipt which says, "groceries $100," an amount owed much higher than anticipated. The cashier simply wants you too pay whatever number he/she has been told is appropriate for that day. If you weren't aware of this potential scenario playing out prior to walking into that grocery store would you shop there again let alone pay the bill? Believe it or not this scenario plays out every single day between traditional pharmacy benefit managers and their plan sponsors. First, the plan sponsor enters into a contract with a traditional PBM which they believe offers airtight drug pricing. Why would a plan sponsor think otherwise when their consultants have told them as much? No matter what you think you know the PBM will always know more and find loopholes to increase cash flow unless it embraces the role of a fiduciary. The relative drug prices will often change as soon as the ink is dry on the contract. But, the plan sponsor is unaware of the price changes because their PBM doesn't offer full auditing rights or access to MAC price lists.  Doesn't this sound familiar to the grocery store analogy? Having access to price lists is essential to being able to confirm that you are paying exactly what you've agreed to pay and not a penny more.  Price lists are also very useful in determining the actual cost of a pharmacy benefit. PBMs: Traditional vs Fiduciary Repricing Report (Actual) [Click to Enlarge] To make matters worse, a traditional PBM may send only a single line item invoice for drug benefit costs although thousands of claims have been submitted for that reporting period.  To avoid these pitfalls do business only with a fiduciary pharmacy…

That Walgreens requires access to Express Script's patient base in order to avoid a sharp decline in gross revenue is clear. However, it appears that Express Script is in no rush to re-open its book of business to the once proud chain pharmacy partner.  This begs the question.  What is the root cause of the two parties inability to reach a mutual contractual agreement?  For most businesses it boils down to cash and this case is no different.  But, the root cause is a bit more complicated than simple greed. Many health care companies have been making subtle changes to their business strategies for a while now.  Well, at least since the prospect of a national health care program (Patient Protection and Affordability Care Act) became a reality.  While the pool of potential customers will certainly increase, as a result of PPACA, profit margins will undoubtedly decrease.  PPACA is the root cause of the two organization's unwillingness to come to a mutual agreement. In other words, without health care reform there is enough hidden cash flow to go around for everyone. I surmise health care reform is also the primary reason Express Scripts has agreed to purchase Medco.  The loss in profit margin will be compensated for, in part, with higher volume. PPACA makes it easier and less costly for those persons without existing or adequate coverage to gain access to health care thus substantially increasing the number of potential customers. The federal government is a bit more [state governments are making headway, but still have a lot to learn] prudent when paying for prescription drugs compared to private industry.  Simply put, it will not pay as much for prescription drugs as state governments and private industry nor will it allow PBMs to charge historically exorbitant fees to providers in the newly created health care exchanges. Excluding the obvious choice, buying power, there are two major reasons for these aforementioned facts: unlimited resources and accountability. Most private companies just don't know enough about pharmacy benefit management to deliver for shareholders what they expect and that is too purchase quality goods and services at the lowest possible cost.  Instead, they pass a majority of the responsibility to pharmacy benefit consultants. This is okay except when the consultant is ignorant.  In my experience most consultants lack the knowledge, tools and/or desire necessary to prevent its clients from being duped by traditional PBMs. Having said that, much of the meal ticket for traditional PBMs, like Express Scripts, will be eliminated.  This is due to fully-insured health care plans being much more impacted by PPACA than self-insured payors.  Still many self-insured employers will continue to be played for patsies by traditional PBMs and TPAs.  I've discussed the implications of PPACA on self-insured plan sponsors in a previous blog post called Health Care Reform (PPACA) Provisions that Impose Obligations on or Affect Self-Insured Health Plans. According to a WSJ article on Tuesday 1/3/2012, Walgreens as late as December 2011 offered to keep rates flat, but ESI…