This topic has thus received considerable attention from policy makers, and numerous proposals are currently under consideration. The researchers say strategies to ease cost pressure in pharmaceuticals include increasing market competition, importing drugs from countries with lower medication prices, and reforming price transparency.

Tyrone’s Commentary:

Ohio’s Medicaid Director, Maureen Corcoran, said, “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.” This was in response to a question from a reporter about Ohio’s new prescription drug pricing system. Radical transparency is tough to come by when purchasers don’t fully understand key pricing benchmarks and how they play in PBM service agreements. At the end of the day, success in eliminating overpayments to non-fiduciary PBMs is relative to the purchaser’s level of sophistication.

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The JAMA researchers generated several key data points:

• Annual wasteful spending on healthcare is estimated from $760 billion to $935 billion.
• Interventions to reduce waste in the six IOM categories would result in annual savings from $191 billion to $282 billion.
• The annual cost of wasteful spending from administrative complexity accounts for the highest category of waste, estimated at $265.6 billion.
• The annual cost of waste from pricing failure is estimated from $230.7 billion to $240.5 billion.
• The annual cost of waste from failure of care delivery is estimated from $102.4 billion to $165.7 billion.
• The annual cost of waste from overtreatment or low-value care is estimated from $75.7 billion to $101.2 billion.
• The annual cost of waste from fraud and abuse is estimated from $58.5 billion to $83.9 billion.
• The annual cost of waste from failure of care coordination is estimated from $27.2 billion to $78.2 billion.

The impact of likely interventions to reduce wasteful spending are significant but limited, the researchers wrote.

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Michigan’s Department of Health and Human Services (MDHHS) announced that the state will eliminate its outpatient prescription drug coverage as a Medicaid health plan (MHP) benefit. Instead, these drugs will fall under a fee for service Medicaid model starting December 1, 2019.

This means that pharmacies and providers will instead bill prescriptions directly to the state’s PBMs at the point of sale. Previously, Medicaid health plans covered prescription drugs. There are several benefits to a PBM carve-out chief among them include:

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I’m often asked, “Tyrone why do you do this offer advice which might hurt your business?” The short answer is it doesn’t hurt my business. My business is predicated on doing what is in the best interest of our clients first. Sometimes these decisions involve lower revenues to TransparentRx. Other times it means more revenue because we don’t have to deceive our clients or tell half-truths to grow.

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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.

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Under the provisions, the health benefits provider contracting with the PBM could perform a periodic market analysis to test whether the PBM was providing “competitive benchmark pricing” to the health benefits provider. If the analysis revealed that pricing was not competitive, the PBM was obligated to negotiate in good faith over new pricing.

The court rejected the plaintiffs’ argument that the PBM’s ability to set pricing pursuant to its own interpretation of “competitive benchmark pricing” amounted to discretion over pricing, concluding that the PBM was only executing the PBM agreement’s pricing scheme.

Tyrone’s Commentary:

Why do plan sponsors continue to have their hats handed to them by non-fiduciary PBMs? For starters, your approach is wrong! The court wrote and I quote, “the PBM was only executing the PBM agreement’s pricing scheme.” In layman’s terms, the court is saying it is a lack of education which allows these pricing schemes to prevail and it [court] will not bail you out for being uneducated. In response to Ohio’s new approach to managing drug costs, Ohio’s Medicaid Director, Maureen Corcoran, recently said, “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.” Transparency starts with the contract language folks not price quotes. Win radical transparency first then lower prices follow. Ohio finally gets this do you? Here is my final point. The best driver of lowest net cost is being a highly educated purchaser of PBM services. Purchasers need to understand not only what they want to achieve in their relationship with their PBM but also the competitive market and their ability to drive disclosure of details on services important to them. 

Similarly, the court rejected the plaintiffs’ argument that the PBM’s ability to maximize the spread between the prices it paid and the amounts it billed to insurance companies and insureds made it a fiduciary, again noting that the PBM agreement contemplated such activity and did not require the PBM to pass on savings to participants.

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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.

In the blog I wrote, “Many purchasers (plan sponsors and 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.”

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.

Then today I come across an article in the Columbus Dispatch in which the state of Ohio’s Medicaid Director, Maureen Corcoran, says this in response to a question posed by a reporter…

Maureen stated exactly what I’ve been preaching for the past seven years! Yet, very smart people, from the CFO down, are having trouble grasping this approach. 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).

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These are either single or short-term therapies that can deliver clinical benefits for the rest of a patient’s life. That’s a departure from the historical norm where patients take a drug on a daily basis. If a health insurer is paying for these new gene and cell therapies just once, it’s going to be a steep price, Pearson tells Managed Healthcare Executive.

Tyrone’s Commentary:

While research and development can indeed carry large costs and span multiple years, there is simply more to pricing drugs. Many modern-day assessments cite the value that a new drug brings to patients, along with savings incurred by the health system, as more relevant factors that drive drug price. 

I’m in the camp that drugmakers set prices based on whatever the market will bear, especially since demand for some therapeutic drugs is relatively inelastic — in other words, demand does not change much in response to price changes.

Pharmacoeconomic studies, such as those offered by ICER, may seek to quantify the value of a drug by calculating the estimated cost of an intervention per quality-adjusted life year (QALY) added by the drug. Cost savings resulting from a drug are often calculated through the cost of clinical services, hospitalizations, and other less effective medications that untreated patients would otherwise incur. 

If rare value and lack of alternatives drive high cost for specialty drugs, what could cause increases in generic drug prices?

The challenge payers are facing is they’re asked to pay a significant cost during the year the patient receives treatment, but there’s uncertainty around these treatments. The biggest question payers are wrestling with is this, he says: “How can we pay so much if [we’re unsure] the cure will last or what if it wears off in a few years?”

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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.

Prescriptions for selected specialty therapy areas, 2013 and 2018  (Source: IQVIA, “Medicine Use and Spending in the U.S.,” May 2019)

Formulary management techniques continue to drive down expenditures for traditional medicines. It’s a different story, though for specialty drugs. In 2018, U.S. spending for traditional medicines fell 3.4% on a per capita basis while spending on specialty medicines trended north by 5.8%, according to IQVIA’s “Medicine Use and Spending in the U.S.” report. Total nondiscounted spending on specialty drugs was $218.6 billion, or 45.4% of total pharmacy spending of $482 billion, according to Doug Long, vice president of industry relations at IQVIA.

Nondiscounted spending includes all fees and other costs in the pharmaceutical supply chain, such as rebates and dispensing fees. Some say it is a more accurate figure for drug expenditures than, say, the net revenue of manufacturers, which is more commonly reported. Express Scripts painted a similar picture to IQVIA’s in its 2018 Drug Trend report.

In 2018, spending on traditional and specialty medicines seesawed for Express Scripts’ amalgam of commercial, Medicaid, Medicare, and ACA plans; spending on traditional medicines fell by 5.8% while spending on specialty medications rose by 9.4%. Express Scripts reported that specialty medications accounted for 44.7% of its total pharmacy expenditures, a number very close to the proportion reported by IQVIA. The company warned in its report that the specialty medicines could reach 50% of total pharmacy expenditures as soon as next year.

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