Of the estimated $349.1 billion that insurers and patients paid for brand-name drugs in 2015, $218.6 billion, or 63 percent, was realized as revenue by drugmakers, according to an analysis paid for by the Washington drug lobby, Pharmaceutical Research and Manufacturers of America. In 2013, pharma companies kept $177.5 billion, or 67 percent, of the $264.9 billion in gross expenditures for brand-name drugs.

Pharmaceutical companies are facing pressure from Washington lawmakers and patients over increasing prices for medications such as insulin, which diabetics need to survive. At a press conference last week, President-elect Donald Trump said the industry is “getting away with murder” and threatened to force companies to bid for government business. Drugmakers say significant discounts and rebates paid to middlemen, such as pharmacy benefit managers that negotiate prices for insurers and other payers, reduce their revenue.

“Manufacturers are offering greater and greater rebates to gain access to patients,” Aaron Vandervelde, managing director at the Berkeley Research Group consulting firm and the report’s lead author, said in an interview. “That is largely offsetting the list price increases.”

Overall, branded drug makers paid $106.4 billion in discounts, fees and rebates to health plans, pharmacy benefit managers and U.S. government health programs in 2015, up from $67 billion in 2013, according to the report. The Berkeley analysis is one of the first attempts to add up the variety of rebates and discounts paid on brand-name drugs, exact details of which are closely guarded trade secrets.

The consulting group also estimated markups and fees taken at various stages of the drug supply chain, including by distributors, pharmacies and the health-care providers who administer medications. Overall, the analysis found that branded drug companies paid $57.7 billion in rebates to pharmacy benefit managers and health plans in 2015, up from $33.2 billion in 2013. In addition, the companies paid $28.3 billion in rebates under the Medicaid program for the poor, up from $19.1 billion in 2013.

“Much of the media and much of the public discussion is focused on the list price” for drugs, Stephen Ubl, PhRMA’s CEO, said in a telephone interview. “This study is the first to show what happens when list price meets the forces of the private market.”

Pharmacy benefit managers have said their negotiations help keep drug prices in check, in part by pitting rival drugmakers against each other to get better deals.

The report “shows something that we’ve been saying all along: that payers have been demanding and getting bigger and bigger discounts and rebates as drug prices rise,” said Mark Merritt, CEO of the Pharmaceutical Care Management Association, an industry association that represents PBMs.

While individual clients of PBMs can get rebate information, Merritt said that it would undermine competition in the market to publicize detailed information on rebate amounts.

By Robert Langreth

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.

At the same time, employers are pursuing retail networks that sell a 90-day supply of medication, point-of-sale rebates and more granular formulary strategies to further hone their 2017 strategies and manage a benefit that’s been getting some unfavorable public attention.

“I think 2017 will be a very active year for contracting and price negotiation in the industry,” says Josh Golden, area senior vice president, client development at Arthur J. Gallagher & Co.’s Solid Benefit Guidance consulting arm.

Click to learn more

“Clients are realizing that annual contract housekeeping is needed to keep pace with the financial dynamics of the industry,” Golden tells DBN. “The past year has brought about significant changes in industry economics — the growth of inflation protection [clauses], increasing reliance on patient-assistance funding — and employers are rightfully worried that their contracts are out of sync with the realities of the marketplace.”

In particular, specialty pharmacy management has been moving beyond what Golden calls the “basic blocking and tackling” of prior authorizations and formulary management.

“Our larger clients are now starting to manage specialty holistically across their pharmacy and medical plans, pursuing site-of-care strategies to optimize cost, and balancing their benefit designs to ensure proper alignment,” he says. “And more progressive plan sponsors are exploring drug-specific specialty copays, specifically tailored to capitalize on patient-assistance funding that’s available from manufacturers.”

David Dross, national pharmacy practice leader, Mercer Health & Benefits, also has seen this trend. He tells DBN there’s a lot more interest among plan sponsors about managing specialty pharmacy across the continuum of medical and pharmacy benefits.

“We’re starting to look at it by disease state — which one [medical or pharmacy benefit] is doing a better job on a particular disease state,” Dross says. “If we find a pharmacy plan is doing a better job managing multiple sclerosis than the medical plan, then we may say that those medications aren’t covered under the medical plan.”

Mercer last month partnered with Envolve Pharmacy Solutions and Magellan Rx Management to offer a new specialty pharmacy solution, with competitive pricing, targeted clinical management, patient-assistance program facilitation and access to limited-distribution drugs (DBN 10/7/16, p. 8).

“It appeals to consumers and is higher-touch patient management,” Dross says. Specialty pharmacy is garnering additional attention for the 2017 plan year, with a focus on tighter and more exclusive specialty formularies and recognition that specialty is a big cost driver.

Robert Ferraro, principal, national pharmacy practice at Xerox Corporation’s Buck Consultants, agrees that the issue of how to manage specialty drugs going forward is the main issue he sees for 2017.

Should Specialty Rx Be Run Separately?

“You’re starting to see larger employers consider the notion of unbundling specialty drug fulfillment and management from the PBM,” Ferraro says. “The question is whether it makes sense to bundle those services together or whether you can get better outcomes and get better management by unbundling” and hiring a closed-door specialty pharmacy such as those run by Diplomat Pharmacy Inc. or Walgreens Boots Alliance Inc.

Another question cropping up for plan sponsors in 2017 is whether a third party should provide prior-authorization services rather than the PBM, Ferraro says. “Does it make sense to have the same entity manage and approve claims when that entity stands to benefit when claims are approved?” he asks. As an alternative, plan sponsors can hire a utilization management company to handle those services.

At this point, only the largest employers are considering this issue, he says, but “there could be a lot of fast followers,” given that specialty pharmacy costs and claims for tens of thousands of dollars in drug spend are on plan sponsors’ minds.

For PBMs, all this may not be good news. “We see the prevailing model of bundling all services within the PBM one of the past, particularly for larger employers with the capacity to manage multiple vendors,” Ferraro says. “For smaller employers, that’s probably not a good model for them.”

Continue Reading >>

PBM disclosure is earned not given. Click to learn more.

The 2014 law forces pharmacy benefit managers to disclose pricing methodology to Iowa’s insurance commissioner and to allow pharmacies to comment on and appeal pricing decisions. The Eighth Circuit on Jan. 11 found this law to be unenforceable as preempted by the Employee Retirement Income Security Act because it interferes with the uniform administration of ERISA plans nationwide.

The Pharmaceutical Care Management Association, the PBM industry association that challenged the law in court, called the decision a “shot across the bow” for other states that might be considering adopting similar laws.

The decision “sends an important signal that states can’t impose a patchwork of costly mandates on employers and unions that offer pharmacy benefits,” Mark Merritt, president and chief executive officer of PCMA, said in a Jan. 11 statement.

The National Community Pharmacists Association—which in 2016 filed a brief urging the Eighth Circuit to uphold the Iowa law—said in a statement that it was “deeply disappointed” with the ruling. NCPA CEO B. Douglas Hoey vowed to continue supporting policies like Iowa’s, which he praised as an attempt to “bring transparency to a PBM industry that has exploited secrecy to reap record profits at the expense of hardworking Americans.”

In striking the law, the Eighth Circuit said that forcing PBMs to report data to state officials about their role in administering ERISA plan benefits runs counter to Congress’ goal of national uniformity in the administration of employee benefit plans. The Eighth Circuit relied on a recent U.S. Supreme Court decision using ERISA to partly invalidate a Vermont program that collected health claims data.

Continue Reading  >>

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 Learn More

What are employers worried about? Here are a few issues to watch:

Tax-deductibility of employer-sponsored health insurance: This has to be the No. 1 and immediate issue. Currently, this is worth $260 billion per annum in tax benefits. If it were to be chipped away at, either in the form of the current law’s planned reinstatement of the Cadillac tax or some Republican proposals to scale back deductibility, this will have a significant negative effect on employers.

Pharmaceutical costs: Rising drug costs are a huge issue for employers and indeed for almost every health care stakeholder I work with. In most commercial health insurance plans (including self-insured plans), per-member, per-month drug costs now exceed inpatient hospital costs. The shift to specialty pharmaceuticals and price gouging, even on generics, is taking its toll. At a recent PBGH or Pacific Business Group on Health board retreat, the top issue raised by all participants was specialty pharmacy, not only because of the salience of the cost (explaining perhaps a full quarter of the increase in trend) but because the private sector options to control pharmaceutical costs are minimal. Trump recognized the drug cost issue in his campaign, but after he won the election, his website no longer speaks of controlling prices of drugs. Instead, there are visionary statements about innovation. Pharma may be getting a pass, as evidenced by the easy passage of the 21st Century Cures Act. But for employers, this issue is not going away. 

As Lansky of PBGH told me: “Employers aren’t just mad about price gouging but have looked very hard at the pharmaceutical supply chain in order to restructure it — even to the point of talking directly to manufacturers. They want to challenge the very nature of the business: formulary placement, the split between medical benefit and the drug benefit, rebates to pharmacy benefit managers, coupons that insulate consumers from cost sharing, intellectual property and patent rules, etc. They know that beating up on the pharmacy benefit managers (like beating up on the health plans) is not productive; the system needs re-engineering, and no one is motivated to do it except the employers who are paying.”

The inevitable cost shift: It may be off in the distance, but if coverage is eroded for the 20 million or so who benefited from the ACA and if the federal money for Medicaid expansion and exchange subsidies is geared back, providers will seek to replace that revenue from employers. Good luck with that, to all concerned.

Employers stepping up to manage their health costs directly: Many sophisticated employers will double down on their management efforts with narrow networks or using ACO arrangements and direct contracting. Others, like Apple, will expand their on-site clinic operations and corporate wellness initiatives (although the track record on wellness saving money is spotty at best).

Deja vu: The new administration has already signaled greater emphasis on consumerism, transparency, health savings accounts, shopping tools, personal responsibility and “skin in the game.” Most sophisticated employers would say, “Been there, done that, bought the T-shirt.” They believe much of this stuff, and they have done it already, so what do they do for an encore?

Partners in value: Sophisticated employers believe that health care does indeed need to migrate from volume to value (but they also expect to pay less if volumes subside). They recognize that opportunities for cost reduction exist within the delivery system, and they do not have the clout as individual employers in any geographic market to demand meaningful change in payment and delivery reform. That is why groups like PBGH have been active partners with the Centers for Medicare & Medicaid Services in promoting value-based reimbursement and innovation. These sophisticated employers want to know if they still have a partner in value in the federal government. For example, PBGH has for six years promulgated the ambulatory intensive care unit model, including a $20 million Center for Medicare & Medicaid Innovation project to extend the model to Medicare, and is now doing the same with Medi-Cal (California’s Medicaid program) using a “health homes” approach. As Lansky noted, “It’s an example where a very small idea can be aligned with national, over-65, low-income and other public programs to drive actual care transformation.”

Looking for the exit: Finally, depending on what comes out of the sausage-making machine in Washington, employers (especially the compliance police) will take a hard look at the rules of the road and reconsider their ongoing commitment to health benefits. Nothing makes corporate chief financial officers more misty-eyed than thinking they could really write a check for $10,000 a year and kiss this issue goodbye forever in a defined contribution. As PBGH’s Lansky stressed, “Either the system gets serious about re-engineering, or the exit is the only sensible path.”

Continue Reading >>

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 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.

[Click to Enlarge]

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/

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.

Click to Enlarge

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.