Tip of the Week: Think Twice Before Joining a PBM Drug Pricing Coalition

Documents provided to Axios reveal a new layer of secrecy within the maze of American drug pricing — one in which firms that manage drug coverage for hundreds of employers, representing millions of workers, obscure the details of their work and make it difficult to figure out whether they’re actually providing a good deal. 

Figure 1: Explanation for coalitions withholding data


How it works: Employers hire pharmacy benefit managers to handle the drug coverage in their workers’ health insurance plans. PBMs negotiate prices with drug manufacturers and decide which drugs get preferential treatment.
Big consulting firms work with PBMs to organize drug pricing coalitions, pulling Fortune 500 companies and other large employers into purchasing agreements that, in theory, maximize negotiating power. But it can be difficult for employers to determine the financial upside of these arrangements. So what are employers not seeing within coalitions? The data on prices, and understanding whether those prices are a good deal.

Tyrone’s Commentary:

I’m not opposed to coalitions per se. I am, however, opposed to information asymmetry in health care. Information Asymmetry or “Information Failure” is a term that refers to when one party in a business transaction is in possession of more information or knowledge than the other (see figure 1). In certain transactions, sellers might take advantage of buyers because information asymmetry exists whereby the seller has more knowledge of the good or service being sold than the buyer. The best proponent of transparency is informed and sophisticated purchasers of PBM services. If a coalition is engaging in information asymmetry, employers in that coalition are leaving money on the table.

Pharmacy Benefit Managers are Outwitting Attempts at Accountability, Tougher Rules [Weekly Roundup]

 News and notes from around the interweb:

  • The case for “unbundling” self-funded health benefit programs. They [employers] can unbundle their plan and choose a fully transparent PBM that makes sure all of the rebate dollars get back to the plan within certain time frames and their contractual obligations are potentially different than they might have been within the bundled plan. That unbundling could save the employer a significant amount of money without negatively affecting the services provided to plan participants.

  • Key Drugs in Specialty Pharmacy Slated to Launch in 2022. Ray Tancredi, RPh, MBA, divisional VP of specialty pharmacy development and brand Rx/vaccine purchasing at Walgreens, addresses key drugs in development that are slated to launch in 2022, key drugs in development that are slated to launch in the future of note, and some of the promising and unique medications to keep an eye on that are expected to be approved in the specialty pharmacy space.
Join the Movement!
  • Pharma Grapples With Best Price Accumulator. A new CMS policy, issued in December 2020 with an effective date of Jan. 1, 2023, requires pharmaceutical manufacturers to “ensure” the benefit of copay assistance programs goes only to patients to maintain the exclusion from best price reporting. If a coupon’s full value doesn’t accrue to the patient, the pharmaceutical manufacturer must count it as a discount to the drug’s Medicaid price.
  • Pharmacy and PBM Leader Deloitte Consulting: Specialty Drugs Rely on Personalization for Optimal Outcomes. The high cost of specialty drugs makes it important to use companion diagnostics and other tests to make sure the drug is going to the right patient, said George Van Antwerp, MBA, managing director, Deloitte Consulting. When we look at the cost of specialty drugs, and especially some of the cell and gene therapy drugs, which are really all about precision medicine, those costs mean they have to work. They have to be focused on and personalized to the individual.
The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 391)

This document is updated weekly, but why is it 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 health care reform.

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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

Tip of the Week: Don’t Opt-Out of Step Therapy Programs

Step therapy is a process that requires physicians to prescribe more costly drugs, usually brand drugs, only after a less costly drug treatment has been tried and failed with a patient. Step therapy is just one tool in the drug utilization management (DUM) toolkit which includes drug utilization review, quantity limits, prior authorization, refill too soon, and mandatory generic enforcement programs just to name a few. Step therapy programs evoke strong emotions in both support and opposition.

Click to Enlarge
Positions in Opposition of Step Therapy Programs

Coalition of State Rheumatology Organizations: Step therapy can lead to serious negative patient outcomes and increased costs if not carefully managed. Step therapy needs to be regulated by nationally recognized clinical practice guidelines. Physicians should have the authority to override step therapy protocols based on a patient’s medical history. Override protocols should be clear and abbreviated.

Patient Rising: Step therapy prevents patients from accessing treatments prescribed by their doctor, and instead mandates a course of treatment mandated by their insurance carrier. Patients start with older, cheaper treatments, and if they are not effective, patients “step” to another treatment. Some patients suffer terribly during this process, becoming sicker when denied prescribed treatments. For this reason, it becomes abundantly clear why patients across the country have another description for step therapy: “fail first.” When a patient has to fail first on a drug before being allowed to take the medication originally prescribed, the patient, physician and public health suffers.

National Psoriasis Foundation: Because of the rise in costs of conventional medical treatments, many patients nowadays are beguiled by their health insurance companies into undergoing considerably less expensive options such as step therapy. This “wealth before health” kind of thinking is actually futile and unwise, at best, since step therapy is never a good option in treating life-threatening diseases.

According to a new study, led by researchers at Tufts University, tracked the application of step therapy protocols across 17 payers. Across those insurers, 38.9% of coverage policies deployed some kind of step therapy protocol. On average, insurers required 1.5 steps in their protocols, with 66.6% of policies requiring a single step. Of the remaining policies, 22.7% required two steps, 7.6% were three steps and 3.1% included four or more steps, according to the study. 

Here’s the part few opponents talk about

Before I owned a mail-order pharmacy and fiduciary-model PBM, I was a pharmaceutical sales representative. Yes, whatever you’ve heard about drug sales reps it is likely true. It was a good gig with a great company. Eli Lilly and Company had a big sales force and effective marketing machine behind it. It took me 1.5 years but I took a territory ranked something like 600 out of 612 to #12 in the country. 
I did it by asking doctors to prescribe a new brand oral antidiabetic, Actos, as a first line drug therapy or in combination with metformin. It wasn’t any more complicated than that.  
Looking back, there were thousands of prescriptions written for an expensive brand drug when the “old” tried and true generic metformin would have been as efficacious at 1/100 the cost. Multiply that by the tens of thousands of other drug sales reps across the country doing exactly the same thing. I’ll dig deeper into direct-to-consumer advertising as a key sales driver in a separate post. But don’t kid yourself. A lot of people see a TV ad then go into the doctor’s office and say, “I want to try that.” Simply put, pharmacy benefit managers deploy step therapy as a tool to manage drug costs.
Step therapy programs are not created equally. Some PBMs run better, more efficient step therapy programs than others. That said, no PBM wants to put patients in harms way. Opponents of step therapy programs aren’t cutting the checks which cover the high costs of biologics, cell or gene therapies. Sure, health plan sponsors can opt out of step therapy programs but in doing so you expose your company to massive FWA. 

Pharmacy and PBM Leader Deloitte Consulting: Specialty Drugs Rely on Personalization for Optimal Outcomes [Weekly Roundup]

 News and notes from around the interweb:

  • Key Drugs in Specialty Pharmacy Slated to Launch in 2022. Ray Tancredi, RPh, MBA, divisional VP of specialty pharmacy development and brand Rx/vaccine purchasing at Walgreens, addresses key drugs in development that are slated to launch in 2022, key drugs in development that are slated to launch in the future of note, and some of the promising and unique medications to keep an eye on that are expected to be approved in the specialty pharmacy space.
Join the Movement!
  • 2021 Kaiser Family Foundation Employer Health Benefits Survey. The researchers found that 56 percent of small companies structured their prescription drug cost-sharing in 2021 to have at least four tiers. Meanwhile, slightly more than half of the larger companies surveyed could say the same. Nearly four out of ten large employers implemented three tiers (39 percent) compared to less than three out of ten small employers (28 percent).
  • Explaining the Prescription Drug Provisions in the Build Back Better Act. On November 19, 2021, the House of Representatives passed H.R. 5376, the Build Back Better Act (BBBA), which includes a broad package of health, social, and environmental proposals supported by President Biden. The BBBA includes several provisions that would lower prescription drug costs for people with Medicare and private insurance and reduce drug spending by the federal government and private payers. The key prescription drug proposals included in the BBBA would…
  • Pharmacy and PBM Leader Deloitte Consulting: Specialty Drugs Rely on Personalization for Optimal Outcomes. The high cost of specialty drugs makes it important to use companion diagnostics and other tests to make sure the drug is going to the right patient, said George Van Antwerp, MBA, managing director, Deloitte Consulting. When we look at the cost of specialty drugs, and especially some of the cell and gene therapy drugs, which are really all about precision medicine, those costs mean they have to work. They have to be focused on and personalized to the individual.
The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 390)

This document is updated weekly, but why is it 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 health care reform.

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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

Tip of the Week: How Hospitals and Specialty Pharmacies Get Paid – The 340B Math

Section 340B of the Public Health Service Act requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients. These organizations include community health centers, children’s hospitals, hemophilia treatment centers, critical access hospitals (CAHs), sole community hospitals (SCHs), rural referral centers (RRCs), and public and nonprofit disproportionate share hospitals (DSH) that serve low-income and indigent populations. While most patients never know about the program, they are at the center of how it works.


Source:  Hannah Norman/KHN; Getty Images

Under the law, drugmakers who want their drugs covered by Medicaid and Medicare Part B must sell them at a discount in the 340B program. According to pharmaceutical manufacturers, large hospital systems, for-profit pharmacies and other middlemen have co-opted a program meant to help patients and turned it into one that boosts their bottom lines. Click here to learn more about the 340b program.

Medicaid Specialty Drug Trend Finally Surpasses 50% of Pharmacy Spend in Most Recent Pharmacy Trend Report [Weekly Roundup]

 News and notes from around the interweb:

  • New Report: Anti-Competitive Practices Lead to High Prescription Drug Costs. The report, conducted by the research firm Visante, examines certain drug manufacturer anti-competitive tactics that affect many different types of prescription drugs. For example, some manufacturers of specialty drugs, which include many cancer medications, and orphan drugs employ tactics to take extra advantage of government-established monopoly status and exclusivity. In 2017, 80% of prescription drugs approved were specialty and orphan drugs, doubling from just 40% of approvals in 2001. Currently, the average launch price for drugs in these categories is more than $200,000 per patient per year.
Join the Movement!
  • 2021 Kaiser Family Foundation Employer Health Benefits Survey. The researchers found that 56 percent of small companies structured their prescription drug cost-sharing in 2021 to have at least four tiers. Meanwhile, slightly more than half of the larger companies surveyed could say the same. Nearly four out of ten large employers implemented three tiers (39 percent) compared to less than three out of ten small employers (28 percent).
  • Comer: Congress Must Review PBMs’ Role in Rising Prescription Drug Prices. In his opening remarks, House Committee on Oversight and Reform Ranking Member James Comer outlined how PBMs’ consolidation has negatively affected competition in the marketplace, leading to higher drug prices for Americans. He concluded his remarks by calling on PBMs to provide greater transparency about their practices and urged further review of proposed legislation to determine any changes needed to decrease the costs of prescription drugs and benefit patients.
  • As Big Pharma and Hospitals Battle Over Drug Discounts, Patients Miss Out on Millions in Benefits. Companies that want their drugs covered by Medicaid or Medicare Part B are required to offer 340B discounts, typically 25% to 50% off what they might otherwise pay. Hospitals and clinics buy the drugs at the discount and then are reimbursed by an insurance company, Medicare or Medicaid at the higher negotiated rate. The difference is kept by the hospital or clinic to use as it sees fit. The law does not require patients to benefit directly, a nuance that has fueled great conflict about how the program works and should be regulated.
The Certified Pharmacy Benefits Specialist (CPBS) educational offering includes knowledge that is critical to effective management of the pharmacy and medical drug benefit. If you want to learn more, click here.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 389)

This document is updated weekly, but why is it 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 health care reform.

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 acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.


Tip of the Week: PBMs that make money through hidden cash flows do so at the expense of client savings and health of members

The PBM works with the client to decide the pharmacy benefit that it will offer, including the drugs that will be covered, the beneficiary’s cost-sharing requirements, and the pharmacy network. The client then retains the PBM to administer the pharmacy benefit for its members or employees. How much cash the PBM actually generates for itself, on a per client basis, is information that is overlooked in far too many PBM contracts.

Is it unreasonable to know exactly how much revenue your PBM is keeping for itself on the services it provides to your organization? Traditional and pass-through pharmacy benefit managers alike will bark at this notion. The reality is clear: non-fiduciary pharmacy benefit managers intentionally make it difficult to ascertain their management fee. They know what you’ll learn will not allow them to maintain the status quo.

RETAIL COST COMPONENTS

Administrative Fees

  • These are the fees PBMs charge for claims adjudication (processing). They are often artificially low, from $0.00 to $1.50 per claim, but later augmented with cash flows from hidden sources. If you are not paying at least $5.00 – $10.00 per claim, you can be certain that the PBM is making up the difference elsewhere. This practice is frequently referred to as ballooning.
  • Administrative fees associated with claims adjudication are different from the administrative fees paid by pharmaceutical manufacturers to PBMs. More on that in the rebate section of this white paper.


Dispensing Fees

The professional dispensing fee, which compensates for costs beyond the ingredient cost of a covered outpatient drug, is gained at the point of sale or service each time a covered outpatient drug is dispensed. The Centers for Medicare & Medicaid Services (CMS) states that it only includes pharmacy costs related to ensuring that appropriate covered outpatient drug possession is transferred to a beneficiary. According to the CMS, reasonable expenses related to a pharmacist’s time that fall under the category of pharmacy costs include, but are not limited to:

  • Looking up information about a patient’s coverage on the computer
  • Carrying out drug use reviews and preferred drug list review activities
  • Measuring or mixing the covered outpatient drug
  • Beneficiary counseling
  • Physically giving the beneficiary their completed prescription
  • Special packaging
  • Overhead associated with facility and equipment maintenance necessary to the pharmacy’s operation

The CMS also adds that administrative costs incurred by operating covered outpatient drug benefits—including systems costs for interfacing with pharmacies—are not a part of the professional dispensing fee. This detailed list of pharmacist activities included in the professional dispensing fee is intended to reflect the value of practitioner work.

Where an acquisition cost–based system has been implemented in PBM retail pharmacy networks, the dispensing fees have been in the $9 to $15 range per prescription. Like administrative fees, dispensing fees can be artificially low. This leads to the PBM making up for the lost revenue somewhere else.


Spread Pricing – Hidden Cash Flow


Brand Ingredient Cost

Despite what the name may suggest, the AWP is not the average of the amounts actually paid by retail pharmacies or PBMs to wholesalers for a particular drug.  Instead, it is a published wholesale price or “list price” suggested by the manufacturer of the drug. A wholesaler may sell specific drugs to all pharmacies at prices below the AWP or may grant a general discount to certain pharmacies. 

Thus, although PBMs frequently use the AWP as a cost basis for pricing purposes, it does not represent the actual cost of acquiring the drug.  It is merely a wholesale list price that can be used as a benchmark in comparing retail and wholesale prices.  A PBM may contract with a retail pharmacy at AWP minus 20% and then offer its client an average AWP discount of minus 17%. This is called differential contracting also referred to as differential pricing.