Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 289)

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.

Wasteful Spending in Healthcare Estimated at $760B to $935B

Waste accounts for about 25% of U.S. healthcare spending, new research in JAMA indicates. Reducing spending in the second-highest wasteful category [pricing failure] poses daunting challenges because of the rising prices of pharmaceuticals, the researchers wrote. “New high-cost specialty drugs, which will soon exceed 50% of pharmaceutical spending, are raising new questions about how to maintain affordability.”

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 wants to save $40 million by cutting non-fiduciary PBMs out of Medicaid

Michigan is the latest among state Medicaid programs to back away from pharmacy benefit managers (PBMs), choosing instead to enable fee for service drug payments billed to Michigan’s health department through a single, state-contracted PBM.

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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Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 288)

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.

Courts Look Closely at the Contractual Relationship Between Plan Sponsor and PBM

In re Express Scripts/Anthem ERISA Litig., 285 F. Supp. 3d 655 (S.D.N.Y. 2018), the district court concluded that pricing provisions in the relevant PBM agreement did not give the PBM discretion over pricing, as the plaintiffs alleged.

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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.

Continue Reading >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 287)

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.

New prescription drug pricing system reins in non-fiduciary pharmacy benefit managers

It took hundreds of millions of dollars wasted, but the state of Ohio finally gets it. Before I address what “it” is allow me to revisit a blog I wrote just yesterday. The timing of that blog couldn’t have been any better.

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…

“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.”

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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Milton Friedman’s Shareholder Theory Is Wrong Afterall

In 1970, Milton Friedman’s article “The Social Responsibility of Business is to Increase its Profits” set the standard that has long been followed. The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders.
The Business Roundtable recently changed its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.
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.

Non-fiduciary PBMs subscribe to Mr. Friedman’s philosophy. They will overcharge for their services if plan sponsors continue to put financials over contract language in a PBM services agreement. Consider this, non-fiduciary PBMs know how you evaluate proposals and tailor their pitches to your procurement strategy.

A fiduciary is the highest standard of care yet shouldn’t be the goal for every plan sponsor. The goal for every plan sponsor should be radical transparency. Once a plan sponsor acquires superior market knowledge and overcomes information asymmetry, they are winning radical transparency. Sometimes though it requires walking away from the free dispensing and free admin fee proposals that non-fiduciary PBMs are putting in front of you. Not an easy thing to do unless you attain superior market knowledge. 
It is a myth that the Big 5 offers better price savings just because of their size. Sure, they have more purchasing power, but their clients often don’t realize the full benefit. For example, if my rebate aggregator pays us a $3000 rebate for drug “A” every penny goes back to the client with an audit trail. The Big 5 might earn $4000 on that same drug, but retains $1200 in-house. The plan sponsor pockets an additional $200 working with a radically transparent, albeit smaller, PBM. A similar scenario plays out in mail, specialty and retail pharmacy networks.
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.

If you’ve never considered the PBM service fee in how you procure pharmacy benefit management services, watch the 5-minute video. The PBM service fee isn’t what you think it is. It is the fee a PBM recoups for providing their services to plan sponsors. For non-fiduciary PBMs, the bulk of this fee is buried in the final plan pharmacy cost.

How to Assess the Value of Cell and Gene Therapies: ICER’s Founder

According to Steven Pearson, MD, founder and president of Boston-based Institute for Clinical and Economic Review (ICER), science is producing a growing number of gene and cell therapies to treat spinal muscular atrophy, leukemia, and other conditions, but payers and providers don’t have the information they need to determine what they should pay for these treatments.

Image result for USA cell and gene therapy market growth

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?”

Continue Reading >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 286)

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.