Tip of the Week: How to Eliminate Huge PBM Markups and Reduce Pharmacy Costs by 50%

Generating more than $400 billion annually, the PBM industry offers a valuable service, providing pharmacy benefits to nearly 250 million Americans. Unfortunately, very few people outside of the industry fully understand how much money PBMs keep for themselves after the bills are paid.  

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PBM clients include, but are not limited to, commercial and public sector employers, unions, health plans and health systems just to name a few. All of the different PBM business models will profess how much money they can help plan sponsors save or that they are the most effective at improving your pharmacy benefit plan. However, very few of them share how much revenue they retain. Neither do they disclose their management fees. 

Only two PBM business models will share their management fee – fiduciary or radically transparent PBM models. I mean, who are we kidding? Traditional, pass-through, and transparent PBM business models are for the most part the same. Do any of them reveal how much money they are being paid for their services? Think about this for a second. Contracts between pharmacy benefit managers and pharmaceutical manufacturers and pharmacies are pretty much set in stone. Unless a PBM significantly outperforms its contract, the terms between the PBM and manufacturer or pharmacy network will not change until the contract ends. 

“The PBM’s Management Fee is the #1 metric in evaluating proposals and getting to the lowest net cost during an RFP.” 

PBM Management Fee = AF (Administrative Fees) + DF (Dispensing Fees) + IC (Ingredient Costs) + MR (Manufacturer Revenue) – CD (Cash Disbursements)

For a PBM to outperform a contract with a pharmaceutical manufacturer, would require a significant change in market share, for example. Given this reality, what health plan sponsors are really negotiating for during renewal is what part of the discounts a PBM has secured you will allow that same PBM to keep. The part a PBM retains is its management fee.

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The Untold Truth: How Pharmacy Benefit Managers Make Money [Free Webinar]

How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer a fiduciary standard and instead opt for hidden cash flow opportunities such as rebate masking. Want to learn more?

Here is what some participants have said about the webinar.

“Thank you Tyrone. Nice job, good information.” David Stoots, AVP

“Thank you! Awesome presentation.” Mallory Nelson, PharmD

“Thank you Tyrone for this informative meeting.” David Wachtel, VP

“…Great presentation! I had our two partners on the presentation as well. Very informative.” Nolan Waterfall, Agent/Benefits Specialist


A snapshot of what you will learn during this 30 minute webinar:

  • Hidden cash flows in the PBM Industry
  • Basic to intermediate level PBM terminologies
  • Specialty pharmacy cost-containment strategies
  • Examples of drugs that you might be covering that are costing you
  • The #1 metric to measure when evaluating PBM proposals

Sincerely,
TransparentRx
Tyrone D. Squires, MBA  
10845 Griffith Peak Drive, Suite 200  
Las Vegas, NV 89135 
Office: (866) 499-1940
Mobile: (702) 803-4154


P.S.  Yes, it’s recorded. I know you’re busy … so register now and we’ll send you the link to the session recording as soon as it’s ready.   

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 378)

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: Drugmakers circumvent health plan sponsor benefit designs, at the switch, to get high-cost brand drugs dispensed

Why aren’t more people up in arms about this? Brand drugmakers are circumventing pharmacy benefit plan designs by offering eVouchers or electronic vouchers for expensive drugs at the “Switch.” The switch is what routes the third-party prescription claim to the PBM or health plan associated with the prescription. Within seconds, the script leaves the pharmacy, goes to the switch and then is received at the relevant PBM.


When the benefit design has soft UM or no utilization management protocols, such as mandatory generic enforcement, it allows drugmakers to bypass a tier 1 drug for a tier 2-4 drug or even worse a non-formulary drug, with eVouchers (see process flow diagram below). The two largest switch companies are RelayHealth and Change Healthcare. As Relay Health tells the story, its electronic voucher program is a Win-Win-Win solution:
  • Doctors “set aside concerns over costs”
  • “Patients benefit from lower copays” and “increased adherence”
  • Manufacturers benefit from increased “scripts written”, “the likelihood patients will fill and adhere to them” and “increased brand loyalty”
But what about you the health plan sponsor? You are conveniently left out of the equation even though you cover most of the cost. I teach in our CPBS Certification course how plan sponsors fund the entire USA prescription drug system but know the least about how it works. Simply put, it is your checkbook they are after. The financial impact of switch operators’ eVoucher programs to health plan sponsors is significant and growing with each passing day.

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There are two ways to prevent the scenario above from happening:

(1) PBM puts language into its contract, with the Switch company, preventing the action.
(2) Benefit design maximizes the drug utilization management toolkit including step therapy and mandatory generic enforcement programs.

Number two is sticky as many plan sponsors are hellbent on employees getting the drug they want without any scrutiny (i.e. step therapy). I don’t agree but it’s not my checkbook. The point is to make people happy through better outcomes not for the sake of avoiding the pain that comes with running an efficient health plan. In a sense, drugmakers, and non-fiduciary PBMs for that matter, are leveraging HR’s desire to keep employees “happy.”

For TransparentRx the choice is simple, either you want an efficient pharmacy benefit program or you don’t. If you [health plan sponsors] don’t want an efficient pharmacy benefit program then expect to pay $1000 for a drug when a $100 drug would have provided the same level of efficacy, for example. eVouchers, especially when supported with direct-to-consumer TV ads for high-cost brand drugs and soft utilization management protocols, are an expensive proposition for health plan sponsors yet lucrative one for brand drugmakers.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 377)

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.

Ohio awards contract worth billions to the same company it accused of fraud and was later paid $88 million as a result

Ohio is again in business with a company that only recently it was accusing of massive fraud. The state’s leaders seem reluctant to explain why. Two months ago, Ohio Attorney General Dave Yost announced that Centene, the largest Medicaid managed-care provider in the United States, would pay Ohio $88.3 million to settle a lawsuit claiming that Centene had defrauded taxpayers of tens of millions of dollars. 

In a regulatory filing, the company said its overall settlement of those and expected fraud claims was much bigger than that. It set aside $1.3 billion to settle such claims across the country, the filing said. An analysis commissioned by the Ohio Department of Medicaid showed that in 2017, drug middlemen owned by Centene was charging the state $20 million for services that it was already paying CVS for. It’s a claim they both denied.

Tyrone’s Commentary:

There are probably details the public is not privy to, but lets assume for a second that isn’t the case. If I had to do it all over again, I would pick up golf. It seems relationships matter more than results for some.

The suit AG Yost filed against Centene in March made a similar allegation. It said that Buckeye had defrauded taxpayers of tens of millions of dollars by working through a chain of middlemen to overcharge for prescription drugs. On Friday — a day when government entities are known to put out news they want to bury — Medicaid issued a brief press release. It touted the news that Centene’s Buckeye would become the state’s seventh managed care provider by saying it “will give customers more options.”

It didn’t make any mention of fraud; it just said the lawsuit was settled, so it’s time to get back into business with Centene.

Continue Reading >>

10 Definitions, Related to Prescription Drug Prices, All Purchasers of PBM Services Should Know

The first half of 2021 has seen more brand-name drug list price increases than all of 2020, according to an analysis by 46Brooklyn, a nonprofit drug research firm. The increases reverse the downward trend in brand name drug price increase frequency that’s been observed over the last decade, 46Brooklyn reported. Through July 10, there were 78 list price increases of brand-name drugs, a number nearly equal to the full amount of July price increases occurring in the last three years. 

But despite 2021 having more list price increases than 2020, there is no change in the weighted average brand name drug price increase. This suggests that though increases are happening more frequently than last year, the size of the increases is comparable to those over the last several years, 46Brooklyn reported. 

The price increases in July 2021 have a modest weighted average increase of 2 percent, representing about $1.3 billion in prior year Medicaid expenditures. Net prices have been declining despite list price increases, according to 46Brooklyn. For more on this, check out the Gross-to-Net Bubble update. 

Below are ten definitions, related to prescription drug prices, all purchasers of PBM services should know.

  • Acquisition Cost is defined as the invoice price to the pharmacy for a prescription drug dispensed to a patient, minus the amount of all discounts and other cost reductions attributable to such dispensed drug.

  • Average Manufacturer Price (AMP) is the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and by retail community pharmacies that purchase drugs directly from the manufacturer. The health reform law excludes payments and rebates or discounts provided to certain providers and payers from the calculation of AMP.  
  • Average Sales Price (ASP) is a manufacturer’s unit sales of a drug to all purchasers in the United States in a calendar quarter divided by the total number of drug units sold by the manufacturer in that same quarter. The ASP is net of any price concessions such as volume, prompt pay, and cash discounts; free goods contingent on purchase requirements; chargebacks; and rebates other than those obtained through the Medicaid drug rebate program. Certain sales are exempt from the calculation of ASP, including sales at a nominal charge.

  • Average Wholesale Price (AWP) is not based on actual transactional, marketplace price data.  Despite its name and its sometime use as a price index, the published AWP is not an average of actual wholesale prices. It is not intended to represent, and cannot be assumed to reflect, actual transaction prices. A wholesaler or other direct purchaser from a pharmaceutical manufacturer may agree to sell its products to one or more of its customers at prices that on their face are effectively lower than the published AWP. AWP information does not reflect any such lower pricing that may be made available in actual purchase transactions through a variety of methods, including, but not limited to, purchase, prompt-pay or other discounts, volume or other rebates or credits, or a variety of other price reduction arrangements.

  • Direct Price (DP) is the price directly reported to AWP publishers by a manufacturer as the list price at which non-wholesalers and healthcare providers may purchase drug products from that manufacturer. These publishers generally do not receive a reported DP for drugs that are sold by a manufacturer exclusively through wholesalers, although in some cases both a DP and a WAC may be provided at the manufacturer’s discretion. Like AWP, DP does not represent an actual sales price in any single transaction or group of transactions between a manufacturer and a non-wholesaler or healthcare provider, as any manufacturer may agree to sell its products to one or more customers at a lower price through any number of methods, including, but not limited to, discounts, rebates, credits or other net price reduction arrangements.

  • Federal Supply Schedule (FSS) are prices paid to manufacturers by the VA, other federal agencies, and certain other entities, such as Indian tribal governments, are set by the Federal Supply Schedule (FSS). Under the Veterans Health Care Act of 1992, manufacturers must make drugs available to covered entities at the FSS price as a condition of eligibility for Medicaid reimbursement.  FSS prices are negotiated with manufacturers by the VA.15 In general, the FSS price may be no higher than the lowest contractual price charged by the manufacturer to any non-federal purchaser under similar terms and conditions. In order to determine this price, manufacturers supply the VA with information on price discounts and rebates offered to different customers and the terms and conditions involved. Under certain conditions, the VA may accept an FSS price that is higher than the price offered to some non-federal customers. According to the GAO, average FSS prices are more than 50 percent below the non-federal average manufacturer’s price.
  • Ingredient Cost is the cost to the pharmacy for dispensed drugs.
  • Maximum Allowable Cost (MAC) list generally refers to a payer or PBM‐generated list of products that includes the upper limit or maximum amount that a plan will pay for generic drugs and brand name drugs that have generic versions available (multi‐source brands). Essentially, no two MAC lists are alike and each PBM picks and chooses products for their MAC lists, using different criteria to derive and apply prices to the list.  

  • Suggested Wholesale Price (SWP) is the price that a manufacturer suggests wholesalers charge when selling the manufacturer’s drug to the wholesaler’s customers, as reported by the manufacturer. The SWP does not necessarily represent the actual sales price used by a wholesaler in any specific transaction or group of transactions with its own customers. Wholesalers determine the actual prices at which they sell drug products to their respective customers, based on a variety of competitive, customer and market factors.

  • Wholesale Acquisition Cost (WAC) is the price directly reported to publishers, like Wolters Kluwer Health, by a manufacturer as the list price at which wholesalers may purchase drug products from that manufacturer.  WAC does not represent an actual sales price in any single transaction or group of transactions between a manufacturer and a wholesaler, as any manufacturer may agree to sell its products to one or more customers at a lower price through any number of methods, including, but not limited to, discounts, rebates, credits or other net price reduction arrangements.
Education is key to use of lowest net cost drugs in pharmacy benefit plans. Only the most sophisticated purchasers of PBM services will have the knowledge and confidence to bind lowest net costs for prescription drugs into contract language and benefit design. Hence, your competitive advantage includes executing good analysis of the correct information then deciding what all of this suggests for your organization. 

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 376)

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: The health plan sponsor hiring a PBM always has the final say on contract terms

Many purchasers of PBM services or their advisers select the PBM vendor who puts the “lowest price” on the table. Lowest price involves several variables including admin fees, rebate guarantees, AWP discounts and most important contract language. The problem is plan sponsors are putting a premium on the “numbers” and largely discounting the contract language. 

The Pharmaceutical Care Management Association (PCMA) is an American national trade association representing pharmacy benefit managers. Greg Lopes, an Associate Vice President of the Pharmaceutical Care Management Association, said “The health plan sponsor hiring a PBM always has the final say on contract terms.” Seasoned executives or brokers can be seduced into placing more emphasis on the spreadsheet instead of the contract language. 

For example, price quotes are simply an estimate of what the plan sponsor would have spent had the historical utilization matched that of the proposing PBM (a lot in this sentence). Furthermore, the future actual cost is unknown. As a result, the plan sponsor’s PBM contract is the most important tool to address the actual level of spend – not cost projections.

Following up on a newspaper investigation, The Ohio Department of Medicaid commissioned an analysis of its 2017 drug reimbursement data and found that two PBMs billed the state almost a quarter billion dollars more for generic drugs than it paid the pharmacies that dispensed them. Ohio’s Medicaid Director, Maureen Corcoran, sad this in response to a question posed by a reporter, “Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on” necessary changes “in an educated way.”

I’m often asked, “Tyrone, tell me again why the proposal with the lowest cost isn’t necessarily the lowest cost?” The simple answer is the contract language sets the foundation for all of the financials – not the other way around. It is through continuous PBM education you become a more sophisticated purchaser of pharmacy benefits which inevitably leads to radical transparency in your PBM relationship(s).

Continue Reading >> 

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 375)

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.