Tuesday Tip of the Week: PBMs Must be Fiduciaries

Approximately one year ago, Ohio’s Attorney General announced a four-part proposal calling for quick action from the state’s legislature to shine a bright light on PBM contracts. The goal was to cut down on the hidden cash flows to non-fiduciary PBMs. AG Yost’s proposal called for:

  • Drug purchases in the state to be conducted under a master PBM contract that is administered by a single contact point
  • Ohio’s Auditor of State to have full power to review all PBM contracts, purchases and payments
  • The state to prohibit nondisclosure agreements on drug pricing.
  • PBMs to operate as fiduciaries, uh-oh!

So, what is the difference between a fiduciary PBM and one that isn’t? There are some very big differences.

  1. Fiduciary PBMs must provide full disclosure
  2. Fiduciary PBMs provide more transparency
  3. Fiduciary PBMs are a better value (ex. less reliance on Rx consultants or vendors to reduce drug costs)
  4. Final plan costs are usually lower with Fiduciary PBMs
In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relationship, good conscience requires the fiduciary to act at all times for the sole and interest of the one who trusts.
A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd” and that “[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.
Pharmacy Benefit Managers whose business models are predicated on hidden cash flows will be very reluctant to provide full disclosure. A leopard cannot change its spots. However, plan sponsors who are relentless in their pursuit of radical transparency can significantly reduce pharmacy spend without sacrificing benefit levels or asking employees to pay more.

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

Click to Register

How many businesses do you know will voluntarily cut their revenues in half? This is the reason non-fiduciary pharmacy benefit managers are reluctant to offer radical transparency. Instead, they opt for hidden cash flow opportunities to foster growth. 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 streams in the PBM Industry
  • How to calculate the EACD or earnings after cash disbursements
  • Basic to intermediate level PBM terminologies
  • Pros and cons of PBM price benchmarks
  • Cost-containment strategies to implement today
 
Sincerely,
TransparentRx
Tyrone D. Squires, MBA  
10845 Griffith Peak Drive, Suite 200  
Las Vegas, NV 89135  
866-499-1940 Ext. 201


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 311)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.


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.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Formulary Exclusions are Gaining Popularity

Comparing your formulary options
Click to Learn More

Jeenal Patel, PharmD, BCGP, a formulary manager for WellDyne, said pharmacy benefit managers (PBMs) and employers are increasingly turning to formulary exclusions to control the rising cost of drugs.

Tyrone’s Commentary:

The human resources department should anticipate some backlash from employees when formulary exclusions are adopted to help manage costs. The frustration associated with formulary exclusions can be alleviated by communicating the benefits to employees before adoption. Use multiple mediums to communicate with employees such as welcome letters, mobile notifications, member portal inbox messages, and SPDs, for example. If executed properly, formulary exclusions work without sacrificing patient outcomes. The good news is employees are smart and usually make the adjustment within 90 days or so.  

Formulary exclusions are gaining popularity as a means of managing the type and cost of medications used. “Many times when you have an excluded or not-covered product, it’s perceived to be a stronger deterrent to usage versus having the product placed on a higher tier, controlled by prior authorization or step therapy,” Patel said.

Even in the specialty arena, we’re starting to see limited drugs available on formulary for narrow therapeutic areas and unique oncology indications, for example. We’re seeing decreased redundancy across the board in broader categories, such as psoriasis and arthritis,” Patel said. PBMs are finding exclusions “one of the more attractive ways to lower costs” and develop a more competitive pricing landscape, she said.

Continue Reading >>

Tuesday Tip of the Week: You Should Not Pay a PBM for Your Own Claims Data

Last week’s tip centered around accepting nothing less than full disclosure from a PBM. Along those same lines are data rights. With data rights, it’s important to consider a proper balance between the PBM and the plan sponsor. Few issues strike at the core of PBM profitability as much as do those related to rights in claims data. 

The competitive advantage represented by industry know-how, trade secrets, or unique benefit designs is translatable directly into profits. Non-fiduciary PBMs go to great lengths to protect whatever competitive advantage is attained. 

In PBM contracting, competitive advantage can easily evolve into misaligned incentives. PBM autonomy of critical claims data, manufacturer rebates, or benefit design procedures can eliminate effective performance measurement. Here is an example of a trap you don’t want to find yourself in.

CLICK TO ENLARGE

The balancing of a plan sponsor’s rights in accessing valuable claims information and know-how and the PBM’s need to hide cash flows is dictacted, in large part, by the pharmacy services agreement. The contract nomenclature, and the clauses it prescribes, must provide a mechanism by which a proper balance between radical transparency and reasonable profits to the PBM may be struck. 

Plan sponsors should not have to pay for their own data. If a PBM suggests it is their policy, it is a money grab nothing more. That cost and service should be built into their administartive fee. Oh wait, did you agree to the $0 admin fee and $0 dispensing fee? If yes, then this is the price you might pay in exchange for the artifically low administrative fees.

A radically transparent or fiduciary-model PBM makes money just one way – the administrative fee. When the administrative fee is artificially low (less than $4 per claim) the likelihood of your PBM being radically transparent is slim to none. In some form, it is generating huge overpayments or mark ups via hidden cash flow.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 310)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

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.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Tuesday Tip of the Week: A PBM Proposing Anything Short of Full Disclosure is a Non-Starter

If you are unable to win full disclosure from a PBM, just walk away. Don’t be swayed by the PBM proposal with the biggest AWP discounts, rebate guarantees or low dispensing fees and even lower admin fees. There is a price to pay later if you choose to believe the optics in any proposal that doesn’t include full disclosure. A person who follows my newsletter and works for a large pharmaceutical manufacturer wrote this to me in an email not to long ago.

“Super commentary about the State of Ohio. We have had numberous debates internally about how purchasers are asking for transparency vs just the lowest price. Contract nomenclature often obscures the real price. We get asked often about direct contracting between manufacturer and employer. Lots of barriers but conceptually something that needs to be considered and they [employers] are not asking for a lower net price vs the PBM…just better optics!”
In 2018, Ohio’s Attorney General, Dave Yost, learned PBMs earned nearly $225 million through spread pricing between April 2017 and March 2018 while operating in Ohio Medicaid. As a result, the state canceled all PBM contracts in Medicaid that used spread pricing.
AG Yost announced a four-part proposal and called for quick action from the state’s legislature to shine a bright light on PBM contracts and cut down on hidden cash flows. Yost’s proposal calls for:
1) Drug purchases in the state to be conducted under a master PBM contract that is administered by a single contact point
2) Ohio’s Auditor of State to have full power to review all PBM contracts, purchases and payments
3) The state to prohibit nondisclosure agreements on drug pricing
4) PBMs must be fiduciaries
The truth does not reveal itself simply because a PBM says it is transparent or pass-through. Non-fiduciary PBMs know what you want to see in proposals and hide what you need to see in them. The spreadsheet can be a distraction if you allow it to be. As a self-funded employer, your truth lies in the PBM contract language.
The thing is, assessing PBM transparency is more effectively done by a trained eye. Someone who knows the ins and outs of PBM revenue models, contract loopholes and has personal knowledge of the employer’s plan goals. Most employers don’t know what they don’t know so check the ego at the door.

What is the CPBS credential? A podcast with Erin L. Albert, JD, PharmD

Here are just a few of the questions I answered during the 26-minute Edutainer podcast.

1. Tyrone – how did you get to where you are today in your career?
2. What is the Certified Pharmacy Benefits Specialist (CPBS) designation, and how did it get started?
3. How is the CPBS structured? How long does it take to complete?
4. Is it a one and done certificate, or an ongoing renewable certification? If so, how often do you have to re-certify?Certified Pharmacy Benefit Specialist5. Who is the CPBS certification designed for?
6. What does your company do beyond the certification?
7. Why or how do you think your area of work is going to change considering the COVID-19 pandemic?
8. Tell us how to connect with you and your company best.

Click below to learn the answer to the question “what is the CPBS credential?”

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 309)

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.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.

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.


When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

Tuesday Tip of the Week: Who is Watching the Watcher?

If you’re reading this and work in HR or finance for a self-funded employer, never retain the services of a broker or PBM consultant who benefits when your pharmacy costs increase. Should you do so, be sure to have signed a conflict of interest disclosure form.

  1. Do you have the expertise within your company to evaluate PBM contract language? 
  2. Do you have the skillset to design a pharmacy benefit plan? Or do you need additional training in pharmacy benefits management? 
  3. Do you have the expertise and resources to manage the plan design or do you need to build in the incentives for the PBM to manage your program? 
  4. How do you want to be involved in the management of the plan after it is set up? 

In other words, hire consultants not because you lack the requisite knowledge to design or manage the pharmacy benefit plan in-house, but because you lack the time or human capital to go it alone. Plan sponsors might be surprised to learn that many so called advisers know little more than they do or worse have misaligned incentives. Who is watching the watcher?