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To hold drug costs down, many private employers, insurers, and even states and the federal government use pharmacy benefit managers (PBMs). PBMs are third-party administrators of prescription drug programs. Some 266 million Americans—approximately 82% of the total U.S. population—are covered by these programs as part of their commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefit Program, state government employee plans, and Managed Medicaid plans. 

Cost-saving PBM services have evolved since they first became popular in the early 1970s. Where they once simply facilitated prescription billing, today they use complex business models to manage prescription drug program services for employers and health care insurance companies.They also negotiate rebates from drug manufacturers and discounts from retail pharmacies, offer patients more affordable pharmacy channels and more effective delivery channels, encourage the use of cost-saving generics and affordable brands, reduce waste by efficient processing of claims and improving patient compliance with medication, and manage high-cost specialty medications. 

How have PBMs performed? A February 2016 report for the Pharmaceutical Care Management Association estimated cost savings as a result of PBM services over the decade 2016–2025 will be approximately $654 billion. A June 2016 report by the National Center for Policy Analysis identified PBM services as one of the top five factors expected to affect medical costs through 2017. 

But all are not platitudes for the PBM industry. A November 2015 report for the National Community Pharmacists Association identified three legislative and regulatory concerns raised by legislators, policymakers, customers, and pharmacies about business practices in the PBM industry: 

■ a lack of accuracy and transparency in PBM revenue streams 
■ potential conflicts of interest by retail pharmacy networks with PBM-owned mail-order and specialty pharmacies 
■ unclear generic drug pricing and Maximum Allowable Cost payment calculations.

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One way the industry is responding is by diverting the national dialogue from price rollbacks to the notion of pay-for-value, which represents an area of common ground among healthcare policy stakeholders. The strategy aligns with healthcare payers’ focus on the total cost of care of their members and the pursuit of high-quality care — goals driven home by Medicare reforms that emphasize quality measurement and paying for value instead of volume.

The value discussion has intensified as drug development has shifted from primary care drugs to oncolytics and expensive specialty drugs, pressuring health plan pharmacy budgets. Health insurers and other healthcare purchasers are increasingly reluctant to pay for drugs that don’t work. That has led payers to experiment with outcomes-based contracts (OBCs) that hold pharmaceutical companies responsible for their products’ real-world performance.

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Some of the most high-profile drugs to hit the market the past couple of years — including the cholesterol-lowering PCSK9 inhibitor Repatha and the hepatitis C drug Viekira Pak — have become the subject of OBCs. In February, Harvard Pilgrim Health Care, a Massachusetts-based health plan that had already inked a contract with Amgen on Repatha, announced another contract with Amgen for its rheumatoid arthritis drug Enbrel, which is facing impending competition from a biosimilar. The contract will tie the health plan’s payment for Enbrel to an effectiveness algorithm driven by six criteria, including patient compliance, switching or adding drugs, dose escalation, and steroid interventions.

The stars appear to be politically aligning to drive further growth of the pay-for-value trend. While the Trump administration has proclaimed a get-tough stance on drug pricing, it has also signaled its willingness to tackle the regulatory impediments that payers and drug companies say are holding back innovative contracting.

The commonly cited barriers — ranging from Medicaid best-price guarantees to anti-kickback rules to FDA regulations limiting the information manufacturers can share with payers — as well as the administrative difficulties of data sharing and collection, may be limiting the reach of risk-based contracting, but not stalling it.

More than one-third of the 40 managed care organizations (MCOs) surveyed by Decision Resources Group (DRG) indicated they were involved in OBCs, while another third said they expected to do such contracting in a year.

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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.

“If we just lowered the cost of Sovaldi from $85,000 to $50,000, every payer would rip up our contract,” said Jim Meyers, executive vice president of worldwide commercial operations, in an interview with Bloomberg News.

Source: Novo Nordisk

Pharmacy benefit managers such as Express Scripts Holding Co. and CVS Health Corp. negotiate drug reimbursement, often in secrecy, for employers and health plans. While PBMs say they deliver lower prices for customers and patients, drugmakers have begun aggressively implicating the middlemen in high medication costs that have become a frequent target of Washington lawmakers and President Donald Trump.

One of the functions of PBMs is to help insurers decide which drugs to cover for their customers, and how much to reimburse manufacturers. Manufacturers use rebates to ensure they get on PBMs’ lists of covered drugs, called formularies, and the middlemen often take a cut of those rebates, often about 10 percent, for themselves before passing the rest of the savings to the insurers. Now, pharmaceutical companies are charging that PBMs prefer higher list prices, because the middlemen want to sustain their own revenues.

“I have never met, in this entire experience, a PBM or a payer outside of the Medicaid segment that preferred a price of $50,000 over $75,000 and a rebate back to them,” Meyers said in the interview.

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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.

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

See you Tuesday March 14 at 2 PM ET!

Source: Bloomberg News

A decade ago, Caterpillar Inc. looked at its employee drug plan and sensed that money was evaporating. The bills for pills had increased inexorably, so the company started to rein in its pharmacy benefit manager, or PBM. The managers are middlemen with murky incentives behind their decisions about which drugs to cover, where they’re sold, and for how much.

In a decade when the average American’s drug spending has spiraled higher, the figure has fallen at the company. By hiring its own doctors and pharmacists, among other changes, Caterpillar has saved tens of millions of dollars a year. “The model is as successful today as it’s ever been,” says Todd Bisping, a global benefits manager at the company.

Caterpillar’s experiment raises tough questions about a market that President Donald Trump recently slammed for “astronomical” prices. Pharmacy benefit managers process prescriptions for insurers and negotiate with manufacturers on one end and pharmacies on the other. The three biggest—Express Scripts Holding, OptumRx (a unit of insurer UnitedHealth Group), and CVS Health—process about 70 percent of the nation’s prescriptions, according to Pembroke Consulting.

The Health Transformation Alliance, a year-old group of more than 30 companies including IBM Corp. and American Express Co., has promised to bring down costs in part by reducing “redundancies and waste in the supply chain.”

PBMs deny raising costs and say pharmaceutical companies seek to mask their own profiteering. “Drugmakers set prices, and we exist to bring those prices down,” Tim Wentworth, Express Scripts’ chief executive officer, said on a Feb. 15 earnings call. Larry Merlo, head of CVS, sounded a similar refrain six days earlier: “Any suggestion that PBMs are causing prices to rise is simply erroneous.”

In the U.S., $15 of every $100 spent on brand-name drugs goes to middlemen, estimates Ravi Mehrotra, a partner at MTS Health Partners, a New York investment bank. The largest share, about $8, goes to benefit managers. In other developed countries, only $4 out of every $100 goes to middlemen, he says. PBMs popped up in the late 1960s as payment processors. They now draft medication menus and negotiate prices behind the scenes with drugstores, health plans, and manufacturers.

As their role expanded, so did ways to make money: Benefit managers keep about 10 percent of the rebates from manufacturers vying to get their medicines covered; they sometimes charge health-plan clients more for generics than they reimburse the pharmacies dispensing them; and they channel clients to their own specialty or mail-order pharmacies. PBMs say they vary terms to suit client needs. While the terms are agreed to in contracts, they aren’t always well-understood by clients.

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Not much help with adherence after all

However, pharmacy benefit managers, insurers, and providers have shown interest in simpler, lower-cost strategies that could potentially achieve the same outcomes. In a study published recently in JAMA Internal Medicine, researchers set out to determine whether 3 simple medication reminder devices could improve adherence among patients who were enrollees of a pharmacy benefit manager.

The Randomized Evaluation to Measure Improvements in Nonadherence from Low-Cost Devices trial, aptly named REMIND, selected 36,739 patients on chronic disease treatment regimens and 15,555 patients taking antidepressants who had been suboptimally adherent prior to the study. The patients were stratified by regimen type (chronic disease or antidepressant) and were randomly assigned to either a control group or 1 of 3 reminder devices:

• A pill bottle with a strip of toggles that can be slid after each day’s dose has been taken
• A pill bottle cap with a digital timer displaying the time elapsed since the medication was last taken
• A plastic pillbox with 1 compartment for each day of the week

After 12 months, these interventions had negligible effects on medication adherence as measured by prescription claims. For instance, 15.1% of control patients in the chronic disease group became optimally adherent at follow-up, as did an identical proportion of patients who received the digital timer cap, 15.5% of patients in the daily pillbox arm, and 16.3% of patients who had used the toggled pill bottle.

However, some of these devices appeared to be more effective than others. The chronic disease patients who used the daily pillbox had 10% higher odds of achieving optimal adherence than those who had the toggled pill bottle. Among the patients taking antidepressants, the odds of optimal adherence were 14% higher for the patients in the pillbox arm compared with those who used the digital timer cap. 

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Ballooning: click to learn more

Suits have been filed against insurers UnitedHealth Group Inc., which owns manager OptumRx; Cigna Corp., which contracts with that manager; and Humana Inc., which runs its own. Among the accusations are defrauding patients through racketeering, breach of contract and violating insurance laws.

“Pharmacies should always charge our members the lowest amount outlined under their plan when filling prescriptions,” UnitedHealthcare spokesman Matthew Wiggin said in a statement. “We believe these lawsuits are without merit and will vigorously defend ourselves.”

Mark Mathis, a Humana spokesman, declined to comment. Matt Asensio, a Cigna spokesman, said the company doesn’t comment on litigation.

“Patients should not have to pay more than a network drugstore’s submitted charges to the health plan,” Charles Cote, a spokesman for the Pharmaceutical Care Management Association, said in a statement.

Benefit managers are obscure but influential middlemen. They process prescriptions for insurers and large employers that back their own plans, determine which drugs are covered and negotiate with manufacturers on one end and pharmacies on the other. They have said their work keeps prices low, in part by pitting rival drugmakers against one other to get better deals.

The clawbacks work like this: A patient goes to a pharmacy and pays a co-pay amount — perhaps $10 — agreed to by the pharmacy benefit manager, or PBM, and the insurers who hire it. The pharmacist gets reimbursed for the price of the drug, say $2, and possibly a small profit. Then the benefits manager “claws back” the remainder. Most patients never realize there’s a cheaper cash price.

“There’s this whole industry that most people don’t know about,” said Connecticut lawyer Craig Raabe, who represents people accusing the companies of defrauding them. “The customers see that they go in, they are paying a $10 co-pay for amoxicillin, having no idea that the PBM and the pharmacy have agreed that the actual cost is less than a dollar, and they’re still paying the $10 co-pay.”

On Feb. 10, a customer at an Ohio pharmacy paid a $15 co-pay for 40 milligrams of generic stomach medicine Pantoprazole that the pharmacist bought for $2.05, according to receipts obtained by Bloomberg. The pharmacist was repaid $7.22, giving him a profit of $5.17. The remaining $7.78 went back to the benefits manager.

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Source: Blue Cross Blue Shield

The National Business Group on Health (NBGH), a nonprofit association of 420 large U.S. employers, on Monday 1/30/2017 released a policy issue brief offering recommendations designed to help stem the skyrocketing costs of “specialty” drugs. Here are the NBGH’s recommendations:

1)  Remove uncertainties surrounding risk-based and value-oriented contracting, and implement indication-specific pricing and reference pricing in public programs. 

That’s a lot of health-care jargon. What does it mean? The fee-for-service model, in which a set price is paid for a drug irrespective of health outcomes, is antiquated and inefficient, the NBGH asserts. In response, industry stakeholders are experimenting with innovative, value-oriented solutions, often thought of under an umbrella concept commonly referred to as value-based payment (VBP) arrangements.

VBPs implicitly tie reimbursement amounts for health-care providers to patient outcomes or quality-of-life improvements.

One type of VBP arrangement is a risk-sharing agreement under which drug manufacturers agree to reimburse or discount their products when they do not work as intended. However, the NBGH asserts, current public policies inhibit the willingness of drug makers to enter into risk-sharing agreements — largely out of fear of their impact on laws such as the Omnibus Budget Reconciliation Act of 1990, which established the “best price” provisions of the Medicaid drug-rebate program.

The law requires brand-name drug makers to provide the Medicaid program with the lowest price they charge for any drug to any other payer.

“The anticompetitive nature of the Medicaid best price program has been well documented by the U.S. Government Accountability Office, the Congressional Budget Office, and academic economists,” the NBGH report states. It adds, “We believe it is critically important to remove barriers to VBP arrangements, particularly those constraining the creation of risk-based contracting.”

As for the second half of the NBGH’s first recommendation, indication-specific pricing — an indication is a valid reason to use a certain medication, test, procedure, or surgery — also helps align payment for a drug to the value it delvers to a patient population.

The NBGH recommends that the Centers for Medicare & Medicaid Services (CMS) maintain an open dialogue with employers and other payers, as well as with manufacturers and providers, to identify opportunities for legislative changes to federal reimbursement policies that obstruct indication-specific pricing agreements.

And “reference pricing” is a form of defined contribution health benefits. Plan sponsors pay a fixed amount or limit their contributions toward the cost of a specific health-care service, and health-plan members pay the difference in price if they use a more costly health-care provider or service.

Some employers have successfully implemented such a policy for the use of specialty medicines where there is documented price variation based on where the treatment is administered.

The NBGH recommends that reference-pricing policies supported by clinical evidence be implemented consistently across public health-care programs.


2)  Limit the reach of Medicare Part D protected classes.

Part D subsidizes the costs of prescription drugs and drug insurance premiums for Medicare beneficiaries. No physical exams are required, and applicants cannot be denied drug coverage for any reason.

While companies widely use the design of formularies — lists of medicines covered under insurance — to control drug costs, Medicare limits the freedom of Part D plans to control their formularies through specific rules. Two such rules substantially impact the price of drugs.

For one, federal regulations require that plan formularies include drug classes covering all disease states, with a minimum of two chemically distinct drugs in each drug class. That allows drug makers to manipulate pricing based on artificial market share, according to the NBGH.

Also, plans are required to cover all drugs in six protected classes: immunosuppressants, antidepressants, antipsychotics, 
anticonvulsants, antiretrovirals and antineoplastics. What’s more, CMS has gone beyond the statute, requiring at least one drug in each subclass as well.

These rules limit the negotiating power of Part D plans and make drugs in those classes more expensive, the NBGH says.

The group recommends that Congress and CMS remove drugs from the protected classes where a sufficient generic exists. Also, it says, policymakers should work with employers and other stakeholders to gain consensus for Medicare drug-policy changes that would remove hindrances to effective negotiation of drug pricing by private payers.

3)  Eliminate perverse payment incentives to providers under Medicare Part B.

Many specialty drugs are reimbursed through Part B, as such drugs often must be administered in a physician’s office or hospital outpatient department. For that reason, Part B providers typically buy the products in advance and bill Medicare for reimbursement after administration to the patient.

This reimbursement model creates a three-part, cyclical incentive for prices to continuously rise.

First, it encourages manufacturers to set prices higher and to incentivize providers to select those drugs—and receive a higher reimbursement. Second, it also creates an incentive for providers to continuously select higher-priced drugs, even when lower-cost alternatives might be available. And third, it incentivizes the delivery of these medications in higher-priced settings, such as hospital outpatient departments.

The NBGH recommends that such incentives be eliminated and that providers and manufacturers be encouraged to assume financial risk with regard to high-priced drug utilization.

4)  Encourage the uptake of biosimilars.

A biologic drug is manufactured using a living system such as a microorganism of plant or animal cells. Historically, makers of such products were required to seek FDA approval as if they were an entirely new entity, submitting a full complement of product-specific data.

This did little to encourage market competition among the highest-price class of medications, even for similar products to treat the same disease.

The Affordable Care Act sought to alter the landscape of biologics, establishing an abbreviated approval pathway for those that can be demonstrated to be “biosimilar” to or interchangeable with currently approved biological products.

A 2014 Rand Corporation study suggested that robust uptake of biosimilar products could reduce direct spending on biologics by nearly $45 billion by 2024 by creating competition in a market that has traditionally been anticompetitive.

But the ACA has not led to a flood of biosimilar approvals. In fact, the FDA has approved only four of them since the law’s 2010 passage. By contrast, 20 of them have been approved in the European market. Safety, pricing, manufacturing, market entry, and physician and patient acceptance are all seen as tactical hurdles for stimulating competition in the biologics market.

The NBGH recommends that policymakers work with stakeholders to educate patients and providers on the safety and efficacy of biosimilar drugs.

5)  Reform permissive patent and exclusivity protocols.

After the FDA approves a generic or biosimilar drug, it may take years for the cheaper versions to come to market. That’s largely because of litigation brought by the manufacturer of the original, brand-name drug. Such claims are based on legal questions about whether the patents for these drugs can be extended through various secondary approvals.

Deciphering and understanding the patent and exclusivity terms of pharmaceutical products is complicated because the two are intertwined and work in complementary yet distinct ways. And as these product-protection terms have become increasingly important to market share and profitability, the pharmaceutical industry fiercely protects them.

Drug makers’ ability to sustain high prices hinges on the monopolistic character of the pharmaceutical market, driven by these patent and exclusivity protections, which insulate products from competition and artificially boost the industry’s negotiating power, the NBGH says.

The group recommends that the market exclusivity period for biologics be reduced from 12 years to 7 years, and that patent extensions and exclusivity periods be limited or eliminated when they serve only to expand monopoly power.

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