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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“This has been a year of finger-pointing,” said Steven Pearson, president of the Institute for Clinical and Economic Review, a nonprofit organization that receives funding from insurance and drug companies. “They’re flooding the zone — with ‘they’ being pharma — with efforts to diffuse and deflect the focus on their role in drug pricing. Part of the policy challenge is they have a point.”

PBMs are for-profit companies that negotiate drug price discounts on behalf of insurers and employers. They include giant companies like Express Scripts Holding and CVS Health. They make money from fees paid by insurers and employers and by taking a cut of the rebates they negotiate. Drug companies have argued that the need to give larger and larger rebates to PBMs is what’s driving the list prices of drugs up.

Tyrone’s Commentary:

Recently, I had a conversation with a representative from a large biologic drug manufacturer about the gross-to-net bubble. It had introduced a new pricing strategy for a handful of specialty drugs which eliminated rebates to PBMs. To their disbelief, the pricing strategy wasn’t received as well as they had hoped. Consequently, the drugmaker reverted back to paying rebates in some cases. 

One might surmise that all of the resistance came from PBMs and they would be wrong. To the drugmakers surprise, some of the push back came from third-party payers. That’s correct some third-party payers preferred the higher list price with rebates as opposed to the lower price without rebates!

Do these plan sponsors consider rebate dollars to be “free” money? It sort of reminds me of the person in the casino bragging about how they won $1000 on the slots but fails to mention they spent $1200 to win the $1000. Rebates most often lead to higher list and net prices to the plan sponsor. 

Because rebates artificially inflate the price of prescription drugs, the person or team making the decision to accept or pass on rebates should be most interested in their company’s long-term growth and not self-preservation.

The PBMs say they typically pass along 90 percent of the savings they negotiate to customers, point to data showing no link between drug price growth and rebates — and point out drug companies are the one raising prices.

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PBMs are billed as a way to lower drug costs for employers and consumers, but they’ve increasingly come under fire in recent years as drug prices have soared. PBMs’ slice of the costs and role as a middleman is little understood.

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Critics of PBMs say the companies sometimes agree to favor high-cost drugs on the lists of medicines your insurer agrees to pay for and that they agree they won’t place quantity limits — or prior authorization programs — on the drugs. That’s despite the fact doing so could help health plans save money and make medical sense.

Tyrone’s commentary:

If integrating the medical and pharmacy benefit requires that you relinquish flexibility and cost controls, the disadvantages of integration far outweigh the advantages. Disadvantages may include:

• Plan members may pay U&C (usual and customary) prices, which are higher than discounted prices

• Formulary and rebate arrangements may not be available or are significantly limited

• Plan sponsors lack authority and flexibility and are typically unable to adjudicate plan limitations, plan exclusions, enforce generic dispensing mandates or validate appropriate drug pricing

There’s already a lack of transparency when it comes to drug prices and employers may have even less information if the insurer and the pharmacy benefit manager are the same entity. It’s going to be harder to get behind the curtain.

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If the legislation passes, pharmacies would be able to bypass a controversial rule that is often included in contracts with pharmacy benefit managers (PBMs). Thus far, Connecticut, Maine, Louisiana, North Dakota, and Georgia have all banned this practice, according to the release.

“It is this problem of pharmacists being prohibited from telling people that the price is lower from out-of-pocket insurance price,” said Vinny DeMarco, president of Maryland Citizens’ Health Initiative.

The advocacy group said that the problem with the gag clause is that a patient may be able to pay much less for a drug without using insurance. Due to contract restrictions, pharmacists are unable to inform their patient about this option, according to the release.

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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.

For veterans of the healthcare industry, the current debate over the future of the Affordable Care Act – and proposed changes that would fundamentally alter Medicaid and individual market exchanges – is a frustrating battle of ideologies with the future of healthcare at risk. Our debate over who should be eligible for expanded coverage and how we reform reimbursement is often laced with self-preservation, which in our case means preserving an employer-sponsored system that is riddled with inequities, opacity, dubious middlemen and weak public and private sector fiduciary oversight. Those who provide, pay for and/or consume healthcare are drowning under rising per capita costs while many in the middle of these transactions grow fat.

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Perhaps the worst offenders are certain larger Pharmaceutical Benefit Managers (PBMs) who engage in opaque pricing, formulary manipulation and contractual games of semantics to maximize their share of profit from drugs they neither produce nor consume. The roster of enablers magnifies the problem with consultants, brokers and agents who charge for services that they often cannot deliver in managing RX benefits. Caveat emptor to the generalist HR buyer who, in good faith, hires a generalist broker to manage a highly complicated pharmacy contract with an educated PBM.

Employers are often more focused on avoiding disruption than acting as responsible fiduciaries to drive market reforms. By abdicating to their insurers or a less than qualified advisor, employers have failed to drive fundamental market reforms that would otherwise slow or reverse the inevitable march toward a single payer system as a means to escape the unsustainable consumption and financing of healthcare. Market reform requires change agents and reformers. Its seems that only when faced with regulated or market based disintermediation does the brokerage and consulting community wake up to the need to change the system.

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Article reposted with permission from Michael Turpin a 35 year veteran of healthcare and employer sponsored insurance. He has served as CEO of Oxford and United Healthcare Northeast as well as a national practice leader for Mercer, USI, Marsh and Johnson & Higgins. He is a published author of three books and a frequent speaker and contributor to public and private forums.  

Here is what some participants have said about the webinar.

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

• Hidden cash flows in the PBM Industry such as formulary steering, rebate masking and differential pricing
• How to calculate cost of pharmacy benefit manager services or CPBMS
• Specialty pharmacy cost-containment strategies
• The financial impact of actual acquisition cost (AAC) vs. effective acquisition cost (EAC)
• Why mail-order and preferred pharmacy networks may not be the great deal you were sold

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.

Retail prescription drug expenses accounted for about 12% of total U.S. healthcare spending in 2015, up from about 7% through the 1990s. Pharmaceutical and biotechnology sales revenue increased from $534 billion to $775 billion between 2006 and 2015, according to a recent report from the U.S. Government Accountability Office. About two-thirds of drug companies saw their profit margins increase over that period, averaging 17.1%.

The GAO, along with other policy experts and government institutions, set out to identify the drivers behind one of the fastest-growing expenses in healthcare. Rising drug prices have caused hospitals and consumers to put off treatment or find workarounds that aren’t as effective. Surging pharmaceutical costs coupled with looming policy uncertainty have caused providers to cut back on hospital expenditures that would improve operations.

The GAO found that much of the rise in drug spending, which is expected to increase by nearly 8% in 2018, was fueled by the use of expensive brand-name drugs, although some pharmaceutical companies have increased generic drug prices as well. Also, limited competition has inflated drug prices while consolidation among some of the largest pharmaceutical companies has stifled research and development spending and new patents issued, research shows.

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Tyrone’s commentary:

If acquisition cost data were to be made available for generic drugs, the work is just beginning for third-party payers such as self-funded employers. First, the plan sponsor and their advisors must properly interpret the data. Interpretation of pharmacy data requires the purchaser 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. This level of understanding requires an indeterminate amount of time and energy. Are you up for it? If so, keep reading. 

Don’t rely solely on analytical software to do the job for you. USA Track & Field, which approves official events, has a 66-page manual of procedures just for certifying marathon races! It lists 13 items of necessary equipment for measuring a race including masking tape and spray paint for temporary markers, a pocket calculator with at least 8 digits, a good road bicycle preferably with high pressure tires and a Jones counter, a device which attaches to the front bike wheel and measures distance by counting revolutions.

The point is that a strong human element is required for success in assessing transparency which is done more effectively by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals. Lest I forget, don’t take for granted that the PBMs definition of a generic drug is in alignment with your plan design goals. See the snapshot below, taken from TransparentRx’s fiduciary contract, of a strong definiton for those products considered to be generic drugs.

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Ultimately, patients would pay less at the expense of pharmacy benefit mangers’ profits, researchers said. If the average prescription generic drug priced at $26 was reduced by $1, that would reduce health spending by $4 billion every year, data shows. The average price for branded drugs is $308.

The actual amounts paid to drug manufacturers for both branded and generic prescriptions, including reductions negotiated by PBMs, are protected as confidential trade secrets, according to analysis from the Leonard D. Schaeffer Initiative for Innovation in Health Policy, which is a partnership between the Center for Health Policy at Brookings and the USC Schaeffer Center for Health Policy & Economics.

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