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.

Source: Berkeley Research Group

Prescription drug benefit costs are steadily increasing for employers. Many mid-size to large employers work with pharmacy benefit managers (PBMs) to help them deliver generic and brand name prescription drugs to their employees in a cost-effective way. PBMs play an important role in providing access to high-quality medications to employees in today’s healthcare delivery model.

But what seems like a straightforward process of delivering generic and brand name drugs at agreed-upon prices can easily become murky. Sometimes, complicated contracts may define some generics as brand name drugs and exclude others from savings, costing employers tens of thousands, or even hundreds of thousands of dollars.

How brand and generic drugs are categorized

One benefit to working with a PBM is that they can save employers money through significant buying power. These savings are passed along to customers in the form of discounts that are often referred to as percent savings from the average wholesale price (AWP). PBMs typically offer a performance guarantee on factors like the brand-generic mix sometimes called generic fill rate (GFR) and percentage savings on brand name drugs, as well as a certain percentage of savings on generic drugs. If a PBM doesn’t achieve the agreed-upon performance guarantees —for example, 16% savings on brand name drugs and 60% savings on generic drugs and or 78% generic fill rate — the employer is reimbursed a specific amount.

This may seem like a simple agreement; however, PBMs can also dictate what they consider a brand name drug and a generic, and which drugs are excluded altogether from a performance guarantee. One of the largest PBMs in the country uses a term called the Brand Generic Algorithm, and the specific algorithm could differ from PBM to PBM.

For example, PBMs may exclude all single-source generic drugs from performance guarantees. Why? If a generic drug comes from a single source manufacturer, it could be considered a brand name drug, or excluded from the performance measurement altogether, even though it’s marketed to consumers as a generic.

One recent example is when the makers of the popular drug Crestor, which is used to treat high cholesterol, launched its generic version Rosuvastatin after the patent ran out on Crestor. Although a generic, Rosuvastatin was often considered a brand drug or excluded from the performance guarantee altogether of certain PBMs. Crestor and its generic Rosuvastatin are among the most prescribed drugs in an average workforce population. Therefore, you can see how one drug can skew performance guarantee results.

Excluded drugs can cost you

Manufacturer rebates for pharmaceutical drugs are another way PBMs can help employers save money. The first key to these cost savings is ensuring that the PBM is passing through 100% of rebates directly to the employer, rather than keeping all or a portion of rebates.

The second key to ensuring rebate cost savings is defining which drugs are actually eligible for rebates. For example, a close inspection of your PBM contract may include a 100% pass-through rate for rebates, meaning all manufacturer rebates are passed directly to you without the PBM retaining a percentage of the rebate. However, another part of your contract may state that specialty drugs are not eligible for rebates or that a certain percentage of the rebates on specialty are retained by the PBM. Specialty drugs tend to be more costly than typical brand name drugs; being ineligible for rebates might mean missing out on significant savings.

An example of the major impact that rebates can have on drug costs is the widely prescribed Hepatitis C drug Harvoni, which has a 90%-plus cure rate of the disease when taken properly. Under most prescription plans Harvoni would cost the plan sponsor around $100,000 for a standard course of treatment. What many employers don’t know is that the rebates from Gilead (the company that developed Harvoni) could be in excess of $35,000 per prescription. If your prescription drug contract excluded specialty rebates you could lose out on significant savings to the plan.

In both of these instances, the total costs and savings rates may look great when compiled in a spreadsheet beside other PBMs, but there are important details to consider that might change the actual savings. This doesn’t even take into consideration the impact of pricing inflation caps, utilization review and management, patient outreach, the most appropriate delivery channel, and other factors.

In today’s complicated healthcare environment, it’s almost a guarantee that employers will see increasing pharmacy costs even when the plan is negotiated and managed properly. That’s why it’s important to review PBM contracts carefully. An experienced, unbiased consultant can advocate for you with the PBM while ensuring you understand the nuances of the contract, you’re getting the right rebates, and that brand name vs. generic drugs are clearly understood and defined.

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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.

Click to Enlarge

Employees face growing challenges in paying for expensive specialty drugs, according to a new report that examines initiatives by employers and policymakers to control rising pharmaceutical costs.

The National Business Group on Health (NBGH), a Washington, D.C.-based association of 420 large U.S. employers, recently released Policy Recommendations to Promote Sustainable, Affordable Pricing for Specialty Pharmaceuticals. The report notes that spending for specialty medicines, including biological drugs manufactured using living organisms, is projected to overtake spending for traditional pharmaceuticals over the next several years.

“With spending on specialty drugs skyrocketing, large employers, and employees who use these medications, are struggling to manage rising costs,” said Brian Marcotte, NBGH president and CEO. “Most employers we surveyed now rank specialty pharmacy as the No. 1 driver of rising costs” for health care.

In November 2015, the AARP Policy Institute in Washington, D.C., prepared a study of 115 specialty drugs and found that:

• In 2013, the average annual price of therapy for specialty prescription drugs was 18 times higher than the average annual price of therapy for brand-name prescription drugs ($53,384 versus $2,960, respectively) and 189 times higher than the average annual price of therapy for generic prescription drugs ($53,384 versus $283, respectively).

• Retail prices for 64 chronic-use specialty drugs increased cumulatively by an average of 161 percent from January 2006 through December 2013. General inflation in the U.S. rose 18.4 percent during the same 8-year period.

Since the study, the rising costs for specialty drugs haven’t slowed, benefit specialists say.

What Can Employers Do?


“Specialty pharmacy is different from other medications in many ways, including having a tendency to be much more expensive—some meds cost in the tens of thousands of dollars per treatment,” said Steve Wojcik, NBGH’s vice president of public policy. “As a result, we are seeing growing numbers of employers, along with their health plans and pharmacy benefit managers, implementing many [cost-control] techniques.”

NBGH’s annual Plan Design Survey of large employers, noted in the group’s report, found that respondents were:

• Putting in place more aggressive use-management protocols for specialty drugs (74 percent of large employers).

• Requiring that specialty medications be obtained through a freestanding specialty pharmacy (69 percent).

• Using a specialty drug tier in the plan design, to require greater cost-sharing by employees (38 percent).

Produced by Katie Wedell

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

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.

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 a study conducted by Berkeley Research Group, the investigators found that pharmaceutical companies only realize 39% of initial gross drug expenditures.

Prescription drug spending has skyrocketed in the last few years, which has caused many stakeholders to demand increased pricing transparency. Pricing scandals, such as the recent outrage over EpiPen, has caused Americans to become skeptical about the reasoning behind dramatic drug price increases.

Certain measurements of drug costs do not show the whole picture, and can lead to an inaccurate picture of the gross spend by the customer, and an overstatement of the profits made by manufacturers, according to the study.

Although the chain of payment can be complicated, it can be summed up by 3 transactions: initial gross spending on the drugs by patients and insurers, discounts, and rebates/fees paid by the manufacturer. This multi-step chain of wholesalers, pharmacies, and other entities can create confusion about drug costs.

Wholesalers purchase the drugs that are then sold to pharmacies and healthcare providers, and pharmacy benefit managers (PBMs) negotiate lower prices through their buying power for certain health plans or employers.

Due to the lengthy supply chain, prices inflate down the line, which leads to patients paying higher prices for their prescription drugs. However, manufacturers do provide rebates and discounts to certain patients, health plans, or PBMs, which results in lower costs.

Additionally, manufacturers are required to provide significant discounts to government health plans and other government institutions, such as Medicare or Medicaid. This acts to reduce net spending by the government, but also reduces profits realized by pharmaceutical companies, according to the study.

In the study, the investigators considered rebates, discounts, and fees paid, to show a more complex picture of pharmaceutical manufacturers’ profits and spending.

See more at: http://www.specialtypharmacytimes.com/news/pharmaceutical-companies-not-seeing-majority-of-drug-revenue#sthash.HNdgqrIY.dpuf