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While Congress has taken drug executives to task with high-profile committee investigations of price increases on everything from HIV medication to EpiPens, a crucial link in the drug-price chain has gone largely unscathed: pharmacy benefit managers, who play an obscure by significant role in determining the cost paid for prescription drugs by tens of millions of Americans.

But as the new Republican Congress once again takes on the task of overhauling the U.S. health care system, the relative anonymity of PBMs might be about to come to an end.

As PBMs have grown in size, they have begun attracting an increasing amount of controversy over their how much savings they actually produce, which could make them a target for state legislatures and as part of any repeal of the 2010 health care law.

Criticism has mounted from pharmacists, consumer advocates and large employers, who claim that PBMs are abusing their position as middlemen in a complex industry to reap huge profits, while providing little in return to clients and consumers. PBMs, though hardly a household name, are nothing new in American health care.

The first ones were formed in the 1970s to serve as intermediaries between the health plans that covered pharmaceutical prescriptions and the pharmacies that filled them.  Initially this role was administrative, with PBMs merely shuffling paper between the two groups.

As drug costs continued to rise however, PBMs were able to sell themselves not just as administrative functionaries, but as managerial experts who could use their knowledge of the pharmaceutical industry to deliver more effective, less expensive prescription benefit programs.

This reinvention of PBMs has led to an explosion in their size and scope.

Today, PBM companies like Express Scripts and CVS Caremark handle everything from negotiating prices with drug manufacturers and setting co-pays, to creating pharmacy networks and determining which drugs your health plan will cover.

The added responsibilities PBMs have taken on has proven very lucrative for the industry, which pulls in roughly $423 billion in annual revenue.

Express Scripts alone — the largest PBM — earned $101 billion in revenue 2015, and is responsible for the drug coverage of more than 100 million people.

Beating the spread

The problem, says Susan Pilch, of the National Community Pharmacy Association, is the PBM industry’s lack of transparency.

Everything from negotiating with drug manufacturers, to reimbursing pharmacists is done in secret, says Pilch, which enables PBMs to charge outrageous prices to their clients, which more than make up for any discounts they might extract from drug manufacturers.

To illustrate this point, she provides the example of spread pricing, where a PBM will reimburse pharmacies for the cost of filling a prescription at one price, and then turn around and charge a higher price to their client for the same drug.

Tyrone’s comment: While I’m a critic of legacy PBMs and their lack of transparency, some of the blame for their opacity goes directly to purchasers of PBM services and the consultants they rely upon. The truth is a proclaimed benefits expert can’t simply request a claims analysis from one PBM then pass it around the country from one PBM to another looking for the best “deal.” This is what’s happening and leads to temporary price concessions only to see net plan costs rise YOY. The key to binding transparency and elimination of overpayments to pharmacy benefit managers is developing the ability to drive disclosure of details on services important to you.

“They basically make a spread for themselves,” Pilch says.  “And the plan is not necessarily privy to all of these behind the scenes things.  If you ask the plan, they would probably assume what the PBM is charging them is what they are paying the pharmacy.”

An example of this can be seen in the experience of Meridian Health Systems, a non-profit hospital system in New Jersey, which contracted with Express Scripts in 2008 to manage its employee prescription drug benefit program.  As reported by Fortune Magazine, Meridian saw the cost of its drug benefit program increase by more than $1 million after contracting with Express, despite the company’s promise to save it money.

Unlike most companies however, who are aware only of what their PBM is charging them, Meridian was able to cross-reference what Express Scripts was billing them for filling prescriptions against what they were reimbursing Meridian’s own pharmacies for those same drugs.  What Meridian found was that Express Scripts was collecting a spread on almost all the prescriptions, in some cases in excess of $60 per prescription.

And the Meridian case is hardly unique.

In March 2016, Anthem — of the nation’s largest insurers — brought a $15 billion lawsuit against Express Scripts for a similar pattern of alleged overcharging, which they claim has led to “massive damages to Anthem and an obscene profit windfall to ESI.” This charge is based on a third-party audit, which found Express Scripts was billing Anthem above competitive benchmark rates for drugs, to the tune of $3 billion per year.

Two further class action lawsuits have since been filed against both Express Scripts by members of Anthem health plans who claims these excessive prices have led to them paying far more in pharmaceutical co-pays and other expenses.

Express Scripts denied any wrongdoing and filed a countersuit against Anthem, saying it has adhered to the contractual obligations it has made to the health insurance company.

As drug costs continued to rise however, PBMs were able to sell themselves not just as administrative functionaries, but as managerial experts who could use their knowledge of the pharmaceutical industry to deliver more effective, less expensive prescription benefit programs.

This reinvention of PBMs has led to an explosion in their size and scope.

Today, PBM companies like Express Scripts and CVS Caremark handle everything from negotiating prices with drug manufacturers and setting co-pays, to creating pharmacy networks and determining which drugs your health plan will cover.

The added responsibilities PBMs have taken on has proven very lucrative for the industry, which pulls in roughly $423 billion in annual revenue.

Express Scripts alone — the largest PBM — earned $101 billion in revenue 2015, and is responsible for the drug coverage of more than 100 million people.

‘Sophisticated health purchasers’

PBMs claim that their growing stature and importance is a product of their proven ability to drive down the cost of pharmaceuticals for their clients, which they purport to do in three ways.

— The first is through pooling of their clients’ buying power to extract large upfront discounts off the list price of a drug from the manufacturers, usually running between 15 to 21 percent for brand name drugs, which are then passed on to the client.

— The second is through the designing of drug plans to make greater use of cheaper generic medications, and more efficient mail-order pharmacies.

— The third is the ability of PBMs to obtain huge rebates from drug manufacturers in exchange for agreeing to cover particular drugs, and attach to them lower priced co-pays.

But the opaqueness with which PBMs operate has raised concerns not just about the prices they charge, but also what proportion of manufacturer rebates they pass on to their clients.

Read more: http://watchdog.org/285187/pharmacy-benefit-managers-legislative-crosshairs/

Recent reports have estimated overall spending on prescription medicines in the United States to be $337 billion, in 2015. Global technology company IMS Health’s forecast of the world drug market, Global Medicines Use in 2020: Outlook and Implications, projects drug spending worldwide to reach $1.4 trillion by 2020, with U.S.-based spending totaling $560 billion – $590 billion.

Although use of lower-priced generic medications is expected to exceed 90 percent of all prescriptions dispensed in the United States over the next five years, IMS anticipates 225 new medications will be introduced to the U.S. market during this same time period. Many of these agents will be specialty pharmaceuticals, which are generally understood to be drugs that are structurally complex and often require special handling and delivery; are often administered in an office-setting; and can include complex molecules such as biologics.

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Another distinguishing feature of specialty pharmaceuticals is their high prices. Previous studies have shown that specialty drugs together account for less than 2 percent of all prescriptions written; however, these drugs make up almost one-third of total spending on prescription medications. It is common for these medications to cost thousands of dollars per patient per month.

Both the current state of prescription drug pricing and the projections of continued increases in drug spending in the years ahead have prompted a variety of proposals from both federal and state lawmakers.

In 2016 alone, 14 state legislatures — California; Colorado; Georgia; Massachusetts; Minnesota; New Jersey; New Mexico; New York; North Carolina; Pennsylvania; Rhode Island; Tennessee; Texas; Virginia and Washington State — considered bills addressing the rising costs of prescription medications. The aim of many of these legislative efforts is to gain greater transparency into the manner by which drug companies determine these exorbitant prices. Many of these bills are focused on those medications that exceed a certain annual cost threshold, often $10,000 per patient per year.

Given the steadily increasing rate in the number of specialty pharmaceuticals coming to the market, there is, more broadly, a need to assess the prevalence of high-priced drugs and begin to quantify the magnitude of their costs to the health care system in general.

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 “reference pricing.” 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 pharmacy cost 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.

High drug prices will continue to be the biggest pharmacy challenge for payers in 2017, sparked by the entry of many new specialty drugs on the market for some common chronic diseases— such as diabetes, heart disease, Alzheimer’s, and rheumatoid arthritis—and rare diseases, such as lupus and NASH (nonalcoholic Steatohepatitis, more commonly known as fatty liver disease).

Despite being used by only 1% to 2% of the population, specialty drugs accounted for 37% of U.S. drug spend in 2015 and are projected to reach 50% by 2018, according to the Express Scripts 2015 drug trend report, released in March 2016. While high drug prices will continue to plague the industry in 2017, the following four factors will exacerbate the problem:

1. Missing link between cost and outcomes

There is a lack of outcomes-based contracts with manufacturers but if you want physicians to buy into value-based reimbursement, payers need to put pressure on manufacturers to demonstrate value and look at outcomes differently.

Payer organizations are thinking about total cost of care, not just the price of single products, she says. They are looking at the continuum and range of medical and pharmacy costs tied to outcomes. One drug may be more expensive than an alternative but positively affects the total cost of care.

Outcomes-based contracting is more aligned with better health and lower costs. “We need a combination of strategies to create accessibility and affordability and align healthcare delivery and reimbursement based on value, not volume. We must hold manufacturers more accountable in contracts, creating large unit cost discounts day one and unique components to stand behind performance. If drugs don’t perform as promised, there should be more discounts.”

2. Sparse competition

“The challenge is timing in some therapeutic areas,” Fleming says. “For example, when Sovaldi came on the market 2014, as a treatment for hepatitis C, it was the only drug but by the end of the year, there were many more. The same thing is expected to happen with Alzheimer’s. There is the notion of competition to mitigate increases; with competition, payers and PBMs are able to negotiate with manufacturers, as well as improving clinical outcomes with more choices.”

Unfortunately, if some drugs don’t lose patent protection, Fleming warns there might be double-digit annual price increases. Bradbury also is concerned that the lack of competition in specialty drugs due to patent protection and too few drugs on the market for specific conditions are driving drugs to a higher price point.

3. Lack of collaboration

Numerof says there is a lack of collaboration between payers and providers—a relationship which traditionally has bred animosity and lack of trust. “But we have to get beyond that,” she says, acknowledging that physicians are more aligned with payers than ever before.

Bradbury agrees that collaboration could better ensure compliance among physicians and payers. He points out that clients using Cigna as a plan, specialty pharmacy, and PBM has resulted in a savings of $77 per member per year.

4. Crippling policies

Fleming cites another problem: Existing federal policies hinder the ability of Medicare Advantage (MA) plans to fully leverage drug management tools to achieve lower costs for beneficiaries and the Medicare program.

These polices do not allow utilization management tools, such as step therapy and prior authorization, on Medicare Part B covered drugs, he says. Instead, they require MA plans to provide the same drug coverage as fee-for-service Medicare to members in MA plans, which means that even when the evidence base supports the use of generic or therapeutic drug alternatives, MA plans have limited tools to encourage prescribers to utilize high-value drug treatments.

The next step, he says, is looking at drug approval policy set by the FDA and drug management policy established by CMS. Furthermore, the age-old problem of lack of transparency in pricing and concern about PBM transactions is still under wraps.

Read more: http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-executive/news/top-pharmacy-challenges-2017?page=0,1

Simplifying product lines requires business decisions that can improve or decrease product quality, satisfaction and costs. Similarly, employers’ health benefit decisions to streamline choices can impact health care quality, patient satisfaction, work productivity and total healthcare costs. Over the past few years, healthcare benefits and choices have narrowed to manage costs. Thus, the number of in-network providers, pharmacies, and reimbursable treatments has decreased.

Within pharmaceutical benefits, medication choices can be limited using exclusive or restrictive formularies. Exclusive formularies cover only a subset of treatments for a condition. For example, patients who need alternatives excluded from the formulary pay the full cost. Restrictive formularies limit when medications are reimbursed based upon meeting certain criteria, such as liver damage from Hepatitis C treatment.

The criteria used to determine what is on formulary often assume a “one-size fits all” approach to medication management. Preferred treatments are selected based upon what works for the “average” patient, regardless of disease severity, age, gender, race or patient preferences. Because these restrictions or exclusions narrow treatments for common conditions, such as diabetes, asthma, hypertension and immunology, these formulary designs can affect many plan members.

Rather than improving healthcare quality and lowering costs, limited health choices without thoughtful consideration can have unintended consequences by lowering healthcare quality and raising costs.

“Super-sized” benefits, or too much flexibility in medication choices, can lead to higher costs without improved care. “Minimized”, or a “one-size fits all”, approach to treatment choices can lead to unintended consequences. As we learn more about biological, genetic, and predictive analytic approaches to personalized medicine, ensuring pharmacy benefits are “right sized” is an important and complex task.

To understand how to “right-size” benefits, the National Pharmaceutical Council conducted interviews and focus groups that included researchers, clinical experts, employers, and health plan pharmacy and medical directors. These experts agreed that the need for treatment flexibility for a particular condition should drive the flexibility permitted in the benefit design.

While no magical balancing algorithm emerged, a framework was identified based upon the interviews and subsequently tested in focus groups. The answers to the following questions in this framework can help employers and health plans determine when benefit designs for particular conditions are “super-sized”, “minimized” or “right-sized.”

Read more: http://www.benefitnews.com/opinion/pharmacy-benefits-super-sized-minimized-or-right-sized

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 “reference pricing.” 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 pharmacy cost 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 latest wrinkle in the fight against rising drug prices involves insurers and pharmacy benefit managers asking drugmakers to accept lower prices for the latest medicines emerging from their labs when they don’t achieve the desired results.

Insurers like Aetna, Cigna and Harvard Pilgrim Health Care, as well as pharmacy benefit managers such as Express Scripts, are engaging major manufacturers including Novartis, Merck and Astra Zeneca in these risk-based deals because many of the latest blockbusters drugs are lacking long-term benefits data.

In most of the deals, insurers agree to offer reimbursement for a drug at a set price as long as the drugmaker agrees to pay a penalty if certain metrics aren’t met. Drugs for combating diabetes, hepatitis C and heart disease are prime targets for the new pricing arrangements, where biomarkers like cholesterol, blood glucose or virus eradication can be used as measurable benchmarks.

Payers say the deals give them assurance that they won’t be left holding the bag if a drug doesn’t deliver its promised medical benefit. Drugmakers are willing to go along because it helps get their products to more patients more quickly.

Manufacturers also like the deals because they usually don’t have to compromise on the price of their latest drugs, which often come to market at significantly higher costs than older medications for the same condition. Sometimes the pay-for-performance arrangements are even tied to exclusive or preferred-provider status, which can guarantee a steady stream of patients.

Although the deals seem like a win-win, the devil is in the details. Outcomes-based deals can be complicated. The usually antagonistic relationship between payer and supplier can interfere with reaching an agreement on metrics and how they are measured.

It also involves sharing data on outcomes. Payers and manufacturers say the necessary data infrastructure—such as a payer’s ability to gain access to patients’ cholesterol or blood glucose levels—simply isn’t where it needs to be to make most of these deals work.

“The data underneath the metrics are a real issue for both sides,” said Patrick Davish, associate vice president for global market access at Merck & Co. “Even the most sophisticated payers don’t have all the data you’d imagine them to have. … It’s also administratively burdensome.”

Read more: http://www.modernhealthcare.com/article/20161210/MAGAZINE/312109949/pay-for-performance-drug-pricing-drugmakers-asked-to-eat-costs-when

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?

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

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 “reference pricing.” 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 pharmacy cost 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.

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We hear from more and more people living with diabetes about the challenges they face affording healthcare, including the medicines we make. We take this issue seriously and have been thinking about what we can do to better support patients. This has become a responsibility that needs to be shared among all those involved in healthcare and we’re going to do our part.

As a first step, we’ve taken a position on affordability, outlining three tenets that will be our focus. One is creating more pricing predictability so customers like pharmacy benefit managers (PBMs) and payers can effectively anticipate and budget for our price increases. We will support that by limiting any potential future list price increases for our medicines to no more than single-digit percentages annually. This is one action we are taking immediately.

A second area of focus is transforming the drug pricing system, which is incredibly complex and has resulted in a lot of confusion around what patients pay for medicines. News reports on drug prices have left the public with an impression that companies like ours realize all the profits from the “list price” increases we’ve made over the last decade.

In other words, a list price increase by XX percent leads to an automatic XX percent profit for the drug maker. We believe that is misleading and here’s why: As the manufacturer, we do set the “list price” and have full accountability for those increases.

However, after we set the list price, we negotiate with the companies that actually pay for the medicines, which we call payers. This is necessary in order for our medicines to stay on their preferred drug list or formulary. The price or profit we receive after rebates, fees and other price concessions we provide to the payer is the “net price.” The net price more closely reflects our actual profits.

Tyrone’s comment: When asked, “what percentage of rebate dollars are you getting?” most Benefits Directors or CFOs will shout 90%! Or if it is a pass-through pricing arrangement they will be proud of the fact there is no spread yet are completely unaware of the cost for eliminating the spread. In other words, the non-fiduciary PBM will make up for lost margin, on the ingredient cost, with manufacturer revenue or rebates. My big takeaway from this article is that it gives self-funded employers an idea of just how much money is being left on the table from rebate dollars. I wasn’t sure why drugmakers were making this information available until now. They want purchasers of PBM services to fight back! Of course, some of their logic is self-serving but at the end of the day binding transparency serves each of us better.

In the graphic showing our insulin, NovoLog®, you’ll see the difference between list price, which increases a lot after 2010, and the net price. The list price increases after those negotiations translated year-over-year to mid-single digit price increases for all our insulins, even when you don’t account for inflation.  And when you do, those net prices were closer to the Consumer Price Index – Urban, a common measure of the average price of goods.

So that probably prompts two questions: what does that mean for patients? And, what’s the point of increasing the list price if the drug maker is not necessarily realizing that profit?

Read more:  http://press.novonordisk-us.com/leadership-perspectives?item=1