How specialty drug ‘solution stacking’ can rein in pharmacy benefit costs and other notes from around the interweb:

• How specialty drug ‘solution stacking’ can rein in pharmacy benefit costs. Brokers and employer groups alike know that 5% to 10% percent of insured workers and their dependents drive 50% to 60% of the cost of pharmacy claims. A few members with prescriptions for a specialty drug with a five-figure price tag can easily represent the majority of an entire group’s pharmacy spend. These drugs are often lifesaving or provide a dramatic quality of life improvement for those who take them. No one would question the necessity of using them. But when a group can mitigate some of the cost without affecting the clinical outcome, it can be a game changer. The broker who unlocks these savings becomes a trusted ally.

• PBMs are Creating GPOs and Stirring Debate as to Why. In 2019, Express Scripts PBM (pharmacy benefit manager) formed Ascent Health Services GPO (group purchasing organization), based in Switzerland. In 2020, CVS Caremark formed Zinc GPO. And in 2021, OptumRx formed Emisar Pharma Services, based in Ireland. With pharmacy benefits for approximately 75% of U.S.-covered lives under their control, why would these PBMs need GPOs — to capitalize on their scale to get better drug prices? “In each case, there’s what the PBM said, and then you have to do your best to fill in the blanks of what could possibly be going on,” says Howard Deutsch, principal at ZS Associates, a global professional services firm with offices in Boston. “They haven’t said a heck of a lot. They’ll say things about serving customer needs, but nowhere will you find some particular customer need that is better being served by the existence of this new entity.”

• AHIP study claims hospitals charge double for specialty drugs compared to pharmacies. Hospitals on average charge double the price for the same drugs compared to those offered by specialty pharmacies, according to a new insurer-funded study released as federal regulators ponder a probe into the pharmacy benefit management industry. The study (PDF), released Wednesday by insurance lobbying group AHIP, comes as specialty pharmacies have grown in use among PBMs and payers to dispense specialty products. The study was released a day before a scheduled meeting Thursday of the Federal Trade Commission on whether to probe the competitive impact of PBM contracts and how they could disadvantage independent and specialty pharmacies. “The data are clear, specialty pharmacies lower patient costs by preventing hospitals and physicians from charging patients, families, and employers excessively high prices to buy and store specialty medicines themselves,” said Matt Eyles, president, and CEO of AHIP, in a statement.

• FTC’s PBM Study Signals Broader Federal Scrutiny of the Prescription Drug Sector. On June 7, 2022, the Federal Trade Commission (FTC) unanimously voted to initiate a study into how business practices employed by some pharmacy benefit managers (PBMs) may impact prescription drug pricing and patient access to drugs. In the pharmaceutical drug sector, PBMs administer prescription drug plans for most Americans with health coverage through employers, health insurers, unions, Medicare, and Medicaid. In doing so, PBMs negotiate with and manage pharmacy networks, as well as negotiate drug prices or price concessions with manufacturers of pharmaceutical and biologic products. The FTC announcement follows a robust public comment period during which the FTC received more than 24,000 comments from pharmacies, manufacturers, patients, and other actors that addressed concerns regarding certain PBM practices.

A pharmacy benefit manager’s (or PBM) essential job ought to be uncomplicated: act in the best interest of patients and clients while delivering lowest net cost. Instead, non-fiduciary PBMs are leveraging information failure to their financial advantage. Information failure or Asymmetric Information is a type of market failure where individuals or firms have a lack of information about economic decisions[i].

The Pharmacy Benefit Manager Transparency Act of 2022 was introduced by Senate Commerce Science, and Transportation Committee and Senate Judiciary Committee to shine a light on the Pharmacy Benefit Manager market and empower the Federal Trade Commission (FTC) and state attorneys general to stop unfair and deceptive PBM business practices. I propose three reasons why the PBM Transparency Act won’t reduce drug Costs.

1. Non-Fiduciary PBMs are Protecting Rebate Spreads by Creating Group Purchasing Organizations (“GPOs”). For example, a report[ii] by Nephron research says, “contracting entities are shifting discounts from the rebate profit pool 99% of which flows to clients to fee pools that may be retained by the PBM. In other words, non-fiduciary PBMs have shifted their management fee to GMFs or group purchasing organization management fees. They’ve also shielded themselves from spread pricing revenue loss by powering discount cards.
2. Non-Fiduciary PBMs are Protecting Ingredient Cost Spreads by Sharing Pharmacy Network Access. One initiative, called Inside Rx, offers discounts on brand name drugs to a select group of consumers typically those under age 65, aren’t on government insurance programs such as Medicaid or Medicare, or are under or uninsured. Through a collaboration that comprises drug companies, Express Script’s pharmacy network, and tech partner GoodRx, the program is designed to make drugs affordable for patients with high-deductible insurance plans, or no insurance at all. The truth is that it is a huge revenue source and in some cases the margins are larger than core PBM services.
3. Non-Fiduciary PBMs are Protecting Overall Gross Margins Leveraging 100% Markups on Medical Benefit Drug Claims. It’s no secret prescription drugs cost more under the medical benefit then they do under the pharmacy benefit. In the turf war between hospitals and health insurers over physician practices, hospitals are winning by a long shot. But they’d be ill advised to get too comfortable. A slew of recent activity shows that insurers are clawing their way back, whether by outright purchases of medical practices or targeting outpatient facilities that employ doctors. UnitedHealth Group has long led the charge to buy medical practices, absorbing several a year into its OptumCare subsidiary. National insurer Humana and, most recently, Anthem have also gotten into the game. Each of these two national insurers also maintains ownership in a pharmacy benefit manager.

Conclusion – Three Reasons Why the PBM Transparency Act Won’t Reduce Drug Costs

John F. Kennedy said, “The greater our knowledge increases the more our ignorance unfolds.” Most self-insured employers, and their advisers, don’t know what they don’t know. Pharmacy Benefit Managers provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts. The best proponent of transparency is informed and sophisticated purchasers of PBM services.

[i] Pettinger, 2022, “Information Failure”, Economics Help: Helping to Simplify Economics, https://www.economicshelp.org/blog/glossary/information-failure/

[ii] Argentieri, 2022, “Self-funding pharmacy benefits: What organizations need to consider”, The Business Journals, https://www.bizjournals.com/buffalo/news/2022/06/06/self-funding-pharmacy-benefits-what-organizations.html

Florida Takes Additional Actions to Lower Prescription Drug Prices and other notes from around the interweb:

• Florida Takes Additional Actions to Lower Prescription Drug Prices for Floridians. The Executive Order directs all executive agencies to include provisions in all future contracts and solicitations with these PBMs, services that include the following: prohibit spread pricing for all PBMs; prohibit reimbursement clawbacks for all PBMs; directs agencies to include data transparency and reporting requirements, including a review of all rebates, payments, and relationships between pharmacies, insurers, and manufacturers; and directs all impacted agencies to amend all contracts to the extent feasible with these same provisions. A copy of Executive Order 22-164 can be found HERE.

• 300 drugs now in generic ‘cartel’ probe. What started as an antitrust lawsuit brought by states over just two drugs in 2016 have exploded into an investigation of alleged price-fixing involving at least sixteen companies and three hundred drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said. His comments represent the first public disclosure of the dramatically expanded scale of the investigation. The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care. “This is most likely the largest cartel in the history of the United States,” Nielsen said. He cited the volume of drugs in the schemes, that they took place on American soil and the “total number of companies involved, and individuals.” The lawsuit and related cases picked up steam last month when a federal judge ruled that more than one million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.

• The drug rebate curtain. Lawyers for PBMs carefully define what a “rebate” means. For example, according to one template, “inflation payments” are not considered rebates. PBMs receive inflation payments from drug companies to cover year-over-year hikes to a drug’s list price. If employers don’t ask about inflation payments, PBMs keep them by default. The state of Delaware, however, modified its contract in 2015 to ensure those inflation payments are routed back to Delaware’s state employees, according to a copy of the contract that is publicly available.

• Formulary Steering Prevents Members from Accessing Generics. A suit, first obtained by Stat, was filed by Alexandra Miller, who worked at CVS for nearly two decades before leaving the company three years ago. Miller says that when she reported the behavior to a superior, she was told that the company had decided the benefits of the alleged scheme outweighed the likelihood of being caught. Miller claims that CVS’ SilverScripts Part D subsidiary as well as its Caremark pharmacy benefit manager and retail pharmacies worked together to prevent access to generics, which allowed it to pocket higher rebates because members were pushed to buy branded medications rather than lower-cost options.

A Big Three” PBM and the National Association of Chain Drug Stores (NACDS) part ways in a what seems to be a disagreement on the path forward. I can recall growing up when one kid who had the only basketball or baseball bat would storm off with his equipment when things didn’t go his way. The rest of us would be left empty-handed trying to figure out what to do next. It didn’t take us long to figure out we needed our own equipment.

When the selfish kid realized we didn’t need him anymore his attitude changed. He learned how to play fair and to stick around when things didn’t go his way. CVS Health is that selfish kid. CVS pharmacies made up almost a quarter of the nearly 40,000 pharmacies NACDS says it represents, and the CVS departure will also cost the trade group a nice chunk of change.

The National Association of Chain Drug Stores made announcements CVS Health didn’t agree with, so it decided to take its bat and ball (i.e. money) elsewhere.

• CVS Health reported paying $1.6 million in dues to NACDS last year, less than only its membership dues for America’s Health Insurance Plan, Better Medicare Alliance, and the Pharmaceutical Care Management Association.

• CVS Caremark controls the largest chunk of the market among PBMs, one of six companies that controls 98 percent of the PBM market, according to Health Industries Research.

• NACDS has applauded state legislation to regulate PBMs and last month, it praised an announcement that the FTC would probe PBM practices as contributing to momentum for PBM reforms.

Conclusion – “Big Three” PBM and NACDS Part Ways

Congress has a fight on its hands as the large PBMs won’t tuck tail and run. They will put up a strong front to protect profit margins and to ensure the survival of their companies. Wikipedia defines a broker as a person or entity that recommends “suitable” products, not necessarily the best or most cost-effective, and then earns a commission or other transactional fees based upon those recommendations. A fiduciary adviser, on the other hand, must put clients’ interests before their own. They charge a fixed fee. Like NACDS, the timing is ripe to take on more of an adviser role. In other words, recommend to your clients or purchase for your members the best services not just suitable ones.

The cat is now out of the proverbial bag. John F. Kennedy said, “The greater our knowledge increases the more our ignorance unfolds.” Most self-insured employers, and their advisers, don’t know what they don’t know. Pharmacy Benefit Managers provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts. The best proponent of transparency is informed and sophisticated purchasers of PBM services.

300 drugs now in generic ‘cartel’ probe and other notes from around the interweb:

• 300 drugs now in generic ‘cartel’ probe. What started as an antitrust lawsuit brought by states over just two drugs in 2016 have exploded into an investigation of alleged price-fixing involving at least sixteen companies and three hundred drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said. His comments represent the first public disclosure of the dramatically expanded scale of the investigation. The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care. “This is most likely the largest cartel in the history of the United States,” Nielsen said. He cited the volume of drugs in the schemes, that they took place on American soil and the “total number of companies involved, and individuals.” The lawsuit and related cases picked up steam last month when a federal judge ruled that more than one million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.

• PBMs pocketing savings from generic prescriptions, report says. The new report adds to a growing body of evidence showing that consumers overpay for generics, as “pharmacy benefit managers game opaque and arcane pricing practices to pad profits,” the white paper said. Generics make up more than 90% of prescriptions in the U.S. but just 18% of drug spending. By one estimate, the use of generic and biosimilar drugs in place of their branded equivalents saved the healthcare system $338 billion in 2020 alone. However, despite generics driving down prices relative to branded drugs, consumers are not benefiting from savings, the white paper said. “Generics are overlooked when we talk about drug pricing issues in this country,” said Erin Trish, co-director of the USC Schaeffer Center, in a statement. “But the same lack of transparency that is causing outrage over high and rising spending on branded drugs is also creating issues in the generic drug space.”

• The drug rebate curtain. Lawyers for PBMs carefully define what a “rebate” means. For example, according to one template, “inflation payments” are not considered rebates. PBMs receive inflation payments from drug companies to cover year-over-year hikes to a drug’s list price. If employers don’t ask about inflation payments, PBMs keep them by default. The state of Delaware, however, modified its contract in 2015 to ensure those inflation payments are routed back to Delaware’s state employees, according to a copy of the contract that is publicly available.

• Formulary Steering Prevents Members from Accessing Generics. A suit, first obtained by Stat, was filed by Alexandra Miller, who worked at CVS for nearly two decades before leaving the company three years ago. Miller says that when she reported the behavior to a superior, she was told that the company had decided the benefits of the alleged scheme outweighed the likelihood of being caught. Miller claims that CVS’ SilverScripts Part D subsidiary as well as its Caremark pharmacy benefit manager and retail pharmacies worked together to prevent access to generics, which allowed it to pocket higher rebates because members were pushed to buy branded medications rather than lower-cost options.

Large companies that spend billions of dollars a year on prescription drugs for their employees are hoping that the Federal Trade Commission’s inquiry into pharmaceutical benefit manager business practices will yield information that spurs major policy changes to reduce drug prices wrote Bloomberg Law. Prescription drug pricing isn’t the problem. Bloomberg Law has it wrong.

The FTC unanimously voted June 7 to conduct an inquiry into the PBM industry, sending compulsory orders to the six largest PBMs—CVS Caremark, Express Scripts Inc., OptumRx Inc., Humana Inc., Prime Therapeutics LLC, and MedImpact Healthcare Systems Inc.— to provide a wide range of information concerning the competitive impact of their contracting and business practices within 90 days. No date was set for issuing a special report from the information gathered.

Tyrone’s Commentary:

PBMs have always been tough negotiating with manufacturers and pharmacy networks for discounts. These negotiations have led to significant price concessions more than any other organization, government aside, could have negotiated for themselves. When those negotiations are completed, the pricing is set and accounts for inflation. We are hired to negotiate discounts. The problem isn’t the pricing it is the PBM’s management fee or Earnings After Cash Disbursements (EACD = AF + DF + IC + MR – CD).

The share of discounted pricing a PBM keeps for itself is its management fee or EACD. It would be like you calling up Amazon’s customer service on Prime Day and saying, “you know that 50% off deal for the Sony 75-inch television you are offering? Well, I don’t need that big of a discount, just make it 25%.” Because PBMs have superior information and knowledge, plan sponsors are giving discounts back to PBMs at the negotiating table. The focus should be on the PBMs’ management fee not pricing. This doesn’t mean that pricing isn’t important.

Until the industry standard becomes radical transparency, pricing is less important than the EACD. For example, a report by Nephron research says, “contracting entities are shifting discounts from the rebate profit pool 99% of which flows to clients to fee pools that may be retained by the PBM[i]. In other words, non-fiduciary PBMs have shifted their management fee to GMFs or group purchasing organization management fees. They’ve also shielded themselves from spread pricing revenue loss by powering discount cards.

Conclusion – Prescription Drug Pricing Isn’t The Problem. Bloomberg Law Has It Wrong

Bloomberg law writes, “among employers concerns a lack of transparency into whether PBMs are fully refunding rebates and discounts negotiated with drug manufacturers.” Non-fiduciary PBMs intentionally make it difficult to ascertain their management fee. It is easier to get away with an unfair management fee or overcharging when the purchaser has no clue what it amounts to. When a problem is misdiagnosed, the solution is inevitably wrong or inefficient.

[i] Fein, Adam PhD, Drug Channels News Roundup, June 2020: CVS’s New GPO, CMS on Copay Accumulators, GoodRx Fees, Supermarket Pharmacies, and Merck’s Ken Frazier, June 24, 2020, https://www.drugchannels.net/2020/06/drug-channels-news-roundup-june-2020.html

Formulary steering prevents members from accessing generics and other notes from around the interweb:

• Formulary Steering Prevents Members from Accessing Generics. A suit, first obtained by Stat, was filed by Alexandra Miller, who worked at CVS for nearly two decades before leaving the company three years ago. Miller says that when she reported the behavior to a superior, she was told that the company had decided the benefits of the alleged scheme outweighed the likelihood of being caught. Miller claims that CVS’ SilverScripts Part D subsidiary as well as its Caremark pharmacy benefit manager and retail pharmacies worked together to prevent access to generics, which allowed it to pocket higher rebates because members were pushed to buy branded medications rather than lower-cost options.

• PBMs pocketing savings from generic prescriptions, report says. The new report adds to a growing body of evidence showing that consumers overpay for generics, as “pharmacy benefit managers game opaque and arcane pricing practices to pad profits,” the white paper said. Generics make up more than 90% of prescriptions in the U.S. but just 18% of drug spending. By one estimate, the use of generic and biosimilar drugs in place of their branded equivalents saved the healthcare system $338 billion in 2020 alone. However, despite generics driving down prices relative to branded drugs, consumers are not benefiting from savings, the white paper said. “Generics are overlooked when we talk about drug pricing issues in this country,” said Erin Trish, co-director of the USC Schaeffer Center, in a statement. “But the same lack of transparency that is causing outrage over high and rising spending on branded drugs is also creating issues in the generic drug space.”

• The drug rebate curtain. Lawyers for PBMs carefully define what a “rebate” means. For example, according to one template, “inflation payments” are not considered rebates. PBMs receive inflation payments from drug companies to cover year-over-year hikes to a drug’s list price. If employers don’t ask about inflation payments, PBMs keep them by default. The state of Delaware, however, modified its contract in 2015 to ensure those inflation payments are routed back to Delaware’s state employees, according to a copy of the contract that is publicly available.

• Site-of-Care Management Oncology Infusion Moving From Hospital to Home. “If your institution, department or program does not have a home infusion setup for your oncology patients, you need to start working on it.” That was the message from Laure DuBois, PharmD, BCOP, pharmacy clinical coordinator at the University of Kansas Medical Center, in Kansas City, discussing the increasing trend toward site-of-care management at a session at the 2022 annual meeting of the Hematology/Oncology Pharmacy Association. “At our institution, we first observed this with Aetna wanting to transfer patients on PD-L1 [programmed death ligand-1] inhibitors to home infusion by self-injection or the physician’s office,” Dr. DuBois said. “These policies are increasingly in place for many supportive care medications, as well as some targeted therapies.”