Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 354)

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.

Tuesday Tip of the Week: 3 Ways Savings Could be Achieved by Improving Pharmacy Benefit Design and Management (Rerun)

PBMs or pharmacy benefit managers have large scale, highly automated operations to process claims and provide customer (client and member) service. The services a PBM provides can be categorized as administrative or clinical. Administrative services include benefit administration, enrollment and eligibility administration, pharmacy network administration, mail pharmacy service, claims adjudication, and manufacturer contracting and rebate administration. Clinical services range from formulary management to sophisticated utilization and disease management programs.

PBM services revolve around the drug benefit designed by the client. The benefit design determines the drugs that are covered, and the extent to which generics and formulary drugs are mandated. As a part of the drug benefit, a co-pay structure is developed which determines the cost sharing between the client and its employees or members. PBMs receive enrollment information from their clients and maintain the pharmacy benefit eligibility files. 
Plan sponsors could lower drug spending and out-of-pocket costs for enrollees by reducing the use of high-cost, low-value drugs on formularies. PBMs provide a range of services including formulary development, clinical care management, utilization management (including preauthorization), negotiations with pharmacies for drug price discounts, negotiations with manufacturers for rebates, and claims adjudication and payment. 

Plan sponsors use services depending on their individual models and preferences; administrative fees are assessed accordingly. Services with the potential to increase revenue streams to the PBM may lower administrative fees; for example, formulary design that allows PBMs to select “profitable” drugs in terms of rebates and pharmacy spread might be accompanied by reduced administrative fees. Plan sponsors have made unfavorable and often uninformed trade-offs for reduced administrative fees to PBMs. Here are three ways savings could be achieved by improving pharmacy benefit design and management. 
1) Eliminate wasteful or low-value drugs which includes me-too drugs (immaterial tweaking of a particular ingredient results in a “new” drug that adds no clinical value and often extends patent protection), combination drugs or drugs that combine two active ingredients into one pill resulting in costs substantially higher than the costs of the individual ingredients, prescription drugs offered when over-the-counter alternatives are available, and brand-name or higher-priced generic drugs offered when lesser-cost generics are available
2) Compare reduced per-member per-month drug spend that can result from an appropriate drug mix instead of the current conventional procurement processes involving consultants comparing administrative fees, rebates, and discounts.
3) Make the PBM’s management fee the #1 metric when evaluating PBM proposals and performance. The revenue a PBM keeps for itself is referred to as its management fee. In other words, it is the fee a PBM charges a client for the services it was hired to perform. PBM management fees are a hidden driver of pharmacy costs. While discount guarantees, rebates and clinical management are very important, they are also being used to distract purchasers from a key driver of their final plan costs – PBM management fees.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 353)

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.

 

Tuesday Tip of the Week: Optimize Specialty Contracting to Control Costs and Improve Patient Outcomes

Specialty drugs are the future of health care. They are becoming more curative thus require high-contact care coordination and deliberate follow up to guarantee patients stay disciplined and can manage potential side effects to optimize therapy. As a result, payers have looked to narrow their networks as a means to control outcomes, contain costs, and protect revenue which in turn dictates where patients can fill their prescriptions. Today, there is a range of pharmacy options for payers to assess. For the purpose of this blog post, a payer is both a PBM and plan sponsor (third-party), for example.

Health System Specialty Pharmacy (HSSP)

A study by the CDC showed that patients working with an HSSP had an 89% medication adherence rate compared with 74% for patients filling prescriptions at specialty pharmacies outside of their health system. Additionally, well-established HSSPs may have broader access to LDDs or limited distribution drugs compared to larger SPs. HSSPs are on track to become the fastest-growing sites of care over the next 5 years, offering a valuable opportunity for payers to broaden their reach and meet patients at the community-level. HSSPs are uniquely positioned to access both electronic health record and claims data and may provide outcomes assessment data for payers. Patients benefit from a level of high-quality, coordinated care that promotes better adherence and outcomes. It may, however, also come at a higher cost.

Independent Pharmacy

Independent pharmacies that offer specialty dispensing may provide more extensive clinical services in niche therapeutic areas. Additionally, independents often have higher agility in terms of adopting and customizing clinical programs to meet patient and payer needs. While independent SPs may be a part of certain LDD networks, they typically do not have access to the vast majority of specialty drugs on the market.

Click to Learn More

Chain Specialty Pharmacy

Chain or major retail pharmacies with specialty channels, have greater access to LDDs than independent SPs. Due to their large number of physical stores, they are a convenient option for patients. However, given the high volume of specialty prescriptions they dispense every day, chain SPs may have less time and bandwidth to dedicate to individualized patient care and follow-up. As a result, they may experience lower customer service ratings compared with other types of SPs. Finally, when the PBM, insurance carrier and specialty pharmacy are all owned by the same organization this convenience often comes with strings attached. Some plans are required to use only the chain’s SP and often forgo rebates in doing so.

Specialty Pharmacy Network

One emerging option for third-party payers is to work with a specialty pharmacy services administration organization (PSAO), a centralized contracting organization that aggregates and supports multiple types of specialty pharmacies at once. Composed of a mix of HSSPs, independent SPs, and medically integrated dispensers, specialty PSAOs create access to a larger network of high-performing pharmacies and enable payers to utilize the trust and familiarity patients have at local and regional facilities, in addition to independents. 

The pharmacy landscape has changed significantly in recent years, and payer networks must follow suit to ensure they are taking advantage of the patient benefits and quality of care each type of pharmacy provides. It’s important for payers to consider how they can evolve and optimize their specialty contracting strategies—not only to control costs, but also to increase patient access to high-quality care that leads to better outcomes.

<<Read More>> 

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 352)

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.   


 

Tuesday Tip of the Week: Money is Good, Information is Better

Three economists were critical in creating and expounding on the hypothesis of information asymmetry or information failure: George Akerlof, Michael Spence, and Joseph Stiglitz. The three shared the Nobel Prize in economics in 2001 for their commitments. 

Information Asymmetry hypothesis suggests that sellers may have more data than purchasers, slanting the cost of merchandise sold or services rendered. The theory argues that low-quality and high-quality services can command the same price, given a lack of information on the buyer’s side. 

Akerlof initially contended about information asymmetry in a 1970 paper named “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” In this paper, Akerlof gave a new explanation for a well-known phenomenon: the fact that cars barely a few months old sell for well below their new-car price. Akerlof’s model was simple but powerful. 
Assume that some cars are “lemons” and some are high quality. If buyers could tell which cars are lemons and which are not, there would be two separate markets: a market for lemons and a market for high-quality cars. But there is often asymmetric information: buyers cannot tell which cars are lemons, but, of course, sellers know. Therefore, a buyer knows that there is some probability that the car he buys will be a lemon and is willing to pay less than he would pay if he were certain that he was buying a high-quality car. This lower price for all used cars discourages sellers of high-quality cars. 
Although some would be willing to sell their own cars at the price that buyers of high-quality used cars would be willing to pay, they are not willing to sell at the lower price that reflects the risk that the buyer may end up with a lemon. Thus, exchanges that could benefit both buyer and seller fail to take place and efficiency is lost.
KEY TAKEAWAYS
PBMs know exactly how much they are charging (management fee) for their services, but self-funded employers do not. Non-fiduciary PBMs don’t want buyers (employers) to know how much revenue they generate because it would allow better decisions on the part of their customers. Those customers, self-funded employers among others, don’t realize that in many cases the PBM’s management fee contributes more to their final plan costs than does the ingredient cost! 
A large number of the difficulties self-funded employers face come about because of something they are doing or not doing, something that changing broker, benefits consultant or even PBM won’t fix. My experience reveals that their grievances about prescription drug prices and pharmacy benefits management in general stem from the self-funded employer’s choices and constraints, not a lack of options.
Self-funded employers are smart but they are unaware of or lacking information that might benefit them in improving their pharmacy benefit management decisions. Better decisions are the first step to improving their employer-sponsored pharmacy benefits results. The key then to getting to lowest net cost and maximizing efficiency in their pharmacy benefit program is eliminating information asymmetry which requires extensive pharmacy benefits management education and training.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 351)

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.  

Auditor Claims Non-Fiduciary Pharmacy Benefit Manager Hiked Drug Prices by $1.6 million with Rebate Credit Program

The Lehigh County Controller’s Office reviewed Lehigh County’s prescription drug plan administered through Highmark which lost savings of almost $1.6 million, while battling a lack of transparency and openness about drug costs. The report sheds light on the middlemen of the insurance world, Pharmacy Benefit Managers or PBMs and their power.
PBM’s directly negotiate with pharmacies to determine how much they will reimburse them for the cost of their drugs and receive rebates from pharmaceutical companies to improve the likelihood that consumers will utilize a preferred drug. These rebates should in theory be passed back to the insurer, in this case, Lehigh County.  However, this process does not always occur and savings can depend in large part on the negotiation of the contract.
Lehigh County elected to choose a fixed discount structure, meaning that it received a flat rate savings for each employee on its healthcare plan. Lehigh County is self-insured. It could have elected to take full rebate value which results from savings passed from the pharmaceutical company to the Pharmacy Benefit Manager, but chose not to do this. In 2019, Lehigh County found that the actual rebate value exceeded the fixed discount by $700,000!
Tyrone’s Commentary:

Click to Learn How

If you are a self-funded employer who has relinquished rebates to the non-fiduciary PBM in exchange for a credit of some sort, whether to the medical or pharmacy benefit, you may want to seriously reconsider that decision.  Heed the words of Controller Mark Pinsley who said, “I feel like it’s just a false narrative. It’s just what they have created, like you either get this or you get this. That’s their decision. There’s no rule that says it has to be that way.” Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the U.S. pharmacy distribution and reimbursement system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction. 

“This audit exposes what many of us have known, that our healthcare system is wasteful, lacks transparency and is subject to the greed of Pharmacy Benefit Managers that are more interested in profit,” said Controller Mark Pinsley.

Tuesday Tip of the Week: Drug Manufacturer Rebates Have Never Been the Problem

The Department of Health and Human Services on Friday agreed to push back the implementation of a controversial rebate rule until 2023. The regulation would effectively ban drug makers from providing rebates to pharmacy benefit managers and insurers — a radical change in the way many drugs are priced and paid for in Medicare and Medicaid. 

Instead, drug companies will be encouraged to pass the discounts directly to patients at the pharmacy counter. The Trump administration had backed down from issuing this rule in 2019 after it was found to raise costs for seniors and the federal government, but issued the final rule in November. 

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, sued the Trump administration to stop implementation of the rule. The group, along with America’s Health Insurance Plans, argue that it would benefit drug manufacturers. A federal judge last week put the case on hold pending a review by the Department of Health and Human Services.

Tyrone’s Commentary:

Click to Learn More

For the record, I  worked for one of the big five drugmakers Eli Lilly & Co. and can tell you these people weren’t sitting around thinking of ways to take advantage of patients or payers. Sure prescription drugs can be very expensive but they’re not as costly as the hospitalization that would be required if they didn’t exist. I’m likely in the minority on this issue, but sometimes critics of drugmakers act as if drugmakers created the diseases which cause harm to people and then manufactured the drugs to profit from their own creation. 

In fact, the opposite is often true; drugmakers develop drugs for which there may be no alternative other than surgery, chronic pain or death in order to prolong life. Having said that, this rebate rule would have been a financial windfall for drug manufacturers. The Congressional Budget Office or CBO said as much. 

Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the health care system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction. 

PBMs should not be generating a single penny of revenue for themselves from rebates or any manufacturer revenue. All negotiated cost-savings should be passed fully on to third-party payers like self-funded employers. When this happens getting to lowest net cost is within reach. One benefit is less cost-shifting to employees. I don’t expect employers to start writing drug-coverage policies and doing their own contracting. But, as seasoned buyers, they know how to negotiate with suppliers, such as insurers and PBMs — and they should not be afraid to do it.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 350)

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.