Since 2011, I’ve been writing about non-fiduciary PBMs and how they’re misleading clients with regard to the gargantuan amounts of money they earn from rebates or manufacturer revenue. And at almost every turn my advice has been ignored by health insurance brokers, benefits consultants and HR executives alike. Taken from a scene in the holiday classic, A Christmas Story, I double dog dare you now to ignore the new information I’m about to share with you.  

On May 16, 2017 Express Scripts filed a Complaint against drugmaker kaleo. The Complaint revolves around the opioid overdose treatment, Evzio, which kaleo manufactures. Express Scripts’ attorneys redacted the Complaint, but did not redact some information that Express Scripts has long regarded as proprietary thus not typically made available to the public.

According to Express Scripts, it entered into rebate agreements with kaleo for Evzio that required kaleo to pay Express Scripts not just for rebates but also administrative fees. The Complaint reveals that in four of its invoices to kaleo, Express Scripts billed kaleo $26,812 in total for “formulary rebates” and $363,160 in total for “administrative fees.” That’s right, administrative fees amounted to almost 15 times more than the formulary rebates! 

While plan sponsors believe they retain as much as 95% of rebate dollars (non-fiduciary PBM theoretically retains only the 5% difference), the truth is plan sponsors are retaining far less than 50% of rebates or earned manufacturer revenue! Remember, the primary point of rebates is to reduce net plan costs (table 1). 

Table 1: How net plan cost is calculated

Rebates are not to be treated as “free” money by HR decision-makers who face budget shortfalls. In fact, I have it on good authority that is exactly what HR executives are doing not realizing that non-fiduciary PBMs rely on this sort of naivete in order to gain agreement on contracts that do not offer binding transparency. 

The impact of entering into less than true pass-though pricing arrangements goes far beyond dollars and cents. In some cases, the consequences are life and death; not just “belly buttons” as some in the biz so poorly refer to patients. It makes my skin crawl when I here consultants refer to people as “belly buttons.” The metaphor clearly illustrates how out of touch they are with what is actually happening at the site-of-care because some of the people don’t have belly buttons but I digress.

The pass-through pricing arrangement you think you have entered into is nothing more than a traditional pricing arrangement expertly disguised as a pass-through one. Before going on, I believe it’s important that we stop here and define true pass-through pricing:

Pass-through pricing: the cost of a drug after adjustments are made for any and all financial benefits the PBM might receive in the form of discounts, dispensing fees, rebates, credits, grants, etc. 

Express Scripts is not the only PBM that is playing with loaded dice. You’re safe to assume that every non-fiduciary PBM is generating huge sums of money for itself while engaging in similar secretive rebate arrangements. You, the client, are not being put first above shareholders. 

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Evzio is an auto-injector that delivers a single dose of Naloxone, a life-saving drug that, if timely administered, can reverse the effects of an opioid overdose. In 2014, Evzio cost approximately $690 for a two-pack of single use auto-injectors. Depending on dosage strength, generics made by Hospira and Mylan ranged from about $23 to about $63 for a single injectable vial. 

And there’s a third product that the FDA approved in 2015 – a nasal spray containing Naloxone called Narcan – which cost approximately $150 for a two-pack. Evzio is an innovative product that talks to those using it and explains how to use the auto-injector, as reflected in this kaleo video. But the generic injectors work just as well, as does the nasal spray Narcan (as long as a person is breathing). 

The proverbial “cat is out of the bag” so let’s dig a little deeper into the information revealed in the Complaint. Express Scripts also included an additional provision in its contracts if kaleo increased the price of Evzio. The provision is called price protection rebates. These provisions typically state something like the following: ‘If the manufacturer increases the drug’s list price by more than _%, the manufacturer must provide a price protection rebate reimbursing the PBM for all price increases above the stated amount.’ 

In one invoice, May 2016, the formulary rebate amounted to only $9937.50 while administrative fees and price protection rebates amounted to $137,162.51 and 2,286,092.01, respectively. I’ve long known that non-fiduciary PBMs profited, excessively, from drug price increases above and beyond inflation. It should now be painfully clear to you now that they in fact generate massive sums of money in the back-end all the while detesting rapid price increases in the front-end or through the media.

Because Express Scripts and other non-fiduciary PBMs are not passing manufacturer revenue in full back to clients, exposing them to higher prices, it’s the epitome of hypocrisy. The best proponent of transparency is informed and sophisticated purchasers of PBM services. PBMs will provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts. 

The point is assessing transparency is done more effectively by a trained eye with personal knowledge of the purchaser’s benefit and disclosure goals. The possibilities of eliminating hidden PBM cash flow are only limited by your level of knowledge and, of course, applicable law.

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.

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 a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

Pharmacy benefit managers and health insurance companies, in theory, should be close partners. But Anthem’s protracted litigation with its PBM, Express Scripts, and its decision in April not to renew their contract when the current one expires at the end of 2019 shows how fraught the relationship can be.

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The job of PBMs is to negotiate lower prices from drug manufacturers and pass the savings on to insurers and patients, keeping a cut for themselves. Whether PBMs are passing on enough of the savings or keeping the biggest shares for themselves is a long-running bone of contention that has created suspicion between them and their insurance company partners and among patients and elected officials worried about high drug prices.

Insurers have struggled to respond to questions surrounding PBM practices. Anthem is trying litigation against Cigna. UnitedHealth runs its own PBM, OptumRX. Cigna once ran its own, Catamaran Corp., which it sold to UnitedHealth in 2015 for just over $12 billion. While Cigna no longer offers a standalone PBM business, it still does much of its own drug price negotiation in house.

Because of the uncertainty over where PBMs best fit into the drug distribution chain, the three managers that dominate the PBM business each have a different business model. Express Scripts is the only independent among the Big Three. Optum is part of an insurance company and CVS Health, the country’s largest pharmacy chain, runs CVS Caremark.

The uncertainty has also led to continual consolidation of PBM ownership and speculation that insurers and retailers are trying to expand their presence in the business of negotiating drug prices. Express Scripts has been eyed as a possible takeover candidate after with the eventual loss of Anthem, its top customer. By some estimates, Express Scripts could fetch $60 billion from a buyer like Walgreens.

Walgreens will get to test drive the PBM business if it ever wins federal approval to buy drugstore rival Rite Aid, which bought small PBM EnvisionRx in June 2015.
Other big PBM deals in recent years include Express Scripts’ $29.1 billion acquisition of Medco Health Solutions Inc.in April 2012. Going forward, there’s talk that Cigna and Anthem may each want to operate their own in-house PBMs or acquire one that they can scale up.

“It’s a very complex industry,” said Jane Lutz, executive director at the Pharmacy Benefit Management Institute. The Big Three CVS, Express Scripts and OptumRX have three-quarters of the market share and their valuation propositions vary along with their approaches to driving drug prices lower also vary.

The process is so baffling to employers that buy insurance for employees that they seek outside help evaluating just the PBM component of their benefits package. Says Lutz, “90% of employers hire consultants to help them manage that process.”

The opacity of the PBM business, particularly because PBMs don’t reveal the prices they negotiate with their drug manufacturers even to their insurance company partners, has led to legislation on Capitol Hill to require more transparency and to activist campaigns at PBMs and drugmakers.

[Source]

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.

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 a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

 

Definition
Pass-through pricing – the cost of a drug afteradjustments are made for any and all financial benefits the PBM might receive in the form of discounts, dispensing fees, rebates, credits, grants, etc. 

In other words, even when the PBM receives any discount or benefit after the claim has been adjudicated it should be reflected in the plan sponsor’s plan cost. Sophisticated purchasers are taking into account transactions both before and after claim adjudication in order to determine actual ingredient costs. 

After watching this video I hope you begin to question the actual pricing arrangement set up with your PBM. Most likely, it is not pass-through or transparent but a traditional pricing agreement disguised as pass-through.

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.

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 a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

In the first interview since his allegations were made public, the whistle-blower, Benjamin Poehling of Bloomington, Minn., described in detail how his company and others like it — in his view — gamed the system: Finance directors like him monitored projects that UnitedHealth had designed to make patients look sicker than they were, by scouring patients’ health records electronically and finding ways to goose the diagnosis codes.

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The sicker the patient, the more UnitedHealth was paid by Medicare Advantage — and the bigger the bonuses people earned, including Mr. Poehling. In February, a federal judge unsealed the lawsuit that Mr. Poehling filed against UnitedHealth and 14 other companies involved in Medicare Advantage. “They’ve set up a perfect scheme here,” Mr. Poehling said in an interview. “It was rigged so there was no way they could lose.”

Mr. Poehling’s suit, filed under the False Claims Act, seeks to recover excess payments, and big penalties, for the Centers for Medicare and Medicaid Services. (Mr. Poehling would earn a percentage of any money recovered.) The amounts in question industrywide are mind-boggling: Some analysts estimate improper Medicare Advantage payments at $10 billion a year or more.

At the heart of the dispute: The government pays insurers extra to enroll people with more serious medical problems, to discourage them from cherry-picking healthy people for their Medicare Advantage plans. The higher payments are determined by a complicated risk scoring system, which has nothing to do with the treatments people get from their doctors; rather, it is all about diagnoses.

Diabetes, for example, can raise risk scores by varying amounts, depending on a patient’s complications. So UnitedHealth gave people with diabetes intensive scrutiny, to see if they had any other conditions that the diabetes might have caused.

As Mr. Poehling’s lawyer, Mary Inman, described it, the government would pay UnitedHealth $9,580 a year for enrolling a 76-year-old woman with diabetes and kidney failure, for instance, but if the company claimed that her diabetes had actually caused her kidney failure, the payment rose to $12,902 — an additional $3,322. Ms. Inman is with the law firm of Constantine Cannon in San Francisco.

Mr. Poehling said the data-mining projects that he had monitored could raise the government’s payments to UnitedHealth by nearly $3,000 per new diagnosis found. The company, he said, did not bother looking for conditions like high blood pressure, which, though dangerous, do not raise risk scores.

Read more >>

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.

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 a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means 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.

The most carefully guarded secrets of the PBM industry involve tens of billions of dollars in rebates they collect from drug companies. Those payments help drugmakers secure favorable spots on medication menus that PBMs offer to millions of patients.

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On average, these and other discounts mean manufacturers lop 44 percent off list prices of brand-named drugs, according to Quintiles IMS Holdings Inc. Express Scripts and CVS say they pass along to clients about 90 cents out of every dollar in rebates.

Auditing and accounting experts interviewed by Bloomberg say that while that may be the case, it is often hard to confirm. Any restriction on audits “gives an advantage to the PBM,” said Craig Garthwaite, a health economist at Northwestern University’s Kellogg School of Management. “PBMs have no reason to want to shine a light on it.”

Mark Merritt, chief executive officer of the Pharmaceutical Care Management Association, a PBM trade group, said members are faithful servants of clients, which include employers, unions, and insurers. “The plan sponsor is in the driver’s seat,” he said. Clients “set the terms of every bit of the contract, including how it is audited.”

T’s comment:  I interpret Mark’s statement above as a shot across the bow of plan sponsors and their agents. He is suggesting that they [plan sponsors] are unsophisticated purchasers of PBM services and don’t do a good job at driving disclosure of contract details important to them.. Plan sponsors 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.

Still, the terms often require a rigor associated with intelligence agencies. MedImpact Healthcare Systems Inc., for instance, doesn’t permit auditors “to copy, notate or otherwise capture the terms of any pharmaceutical manufacturer rebate contract” or to reveal them to anyone else, including clients, according to a nondisclosure agreement seen by Bloomberg News.

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How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer a fiduciary standard and instead opt for hidden cash flow opportunities such as rebate masking. Want to learn more?

Here is what some participants have said about the webinar.

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

Recertification Credit Hours: 2

• 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