Net Cost Pricing Model

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 251)

This document is updated weekly, but why is it important? Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs, and MCOs pursuant to health care reform.

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.


How to Determine if Your Company [or Client] is Overpaying

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 more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.

Pennsylvania’s Auditor General Demands PBM Contracting Transparency

Pennsylvania Auditor General, Eugene Depasquale, released a report discussing the role of pharmacy benefit managers (PBMs). The report, “Bringing Transparency and Accountability to Drug Pricing,” reviews PBM pricing practices with a critical eye.

If your pharmacy benefits management process doesn’t
resemble the Auditor General’s, blow it up. Here’s how!

The Auditor General makes ten recommendations he believes will improve PBM pricing transparency, stabilize reimbursements to pharmacies, and ultimately lower the cost of prescription drugs for Pennsylvania residents.

1) To ensure taxpayer dollars are being handled effectively and efficiently, the general assembly should immediately pass legislation allowing the state to perform a full-scale annual review or audit of subcontracts with pharmacy benefit managers.

2) To better control costs, Pennsylvania DHS should consider directly managing its Medicaid prescription drug benefits instead of contracting with managed care organizations to do so.

3) The general assembly should pass legislation that increases transparency into PBM pricing practices.

4) So the state pays only for services PBMs render, the general assembly should pass legislation requiring a flat-fee pricing model for compensating PBMs.

5) Pennsylvania’s Department of Human Services should add “good steward” language to all Medicaid-related contracts.

Hmmm…looks like someone has been reading this blog. Get the full Auditor General’s report here.

CVS Health launches “New” Guaranteed Net Cost Pricing Model

Source:  Pharmacy Benefits Management Institute 

Under the new model, CVS Health will return 100% of drug rebates to employer-sponsored groups and at some point in the future government health programs. The good news is this moves the entire industry one step closer to radical transparency. The bad news is CVS Health admits it hoodwinked all those clients it sold pass-through arrangements. Those so-called pass-through agreements were nothing more than fee-for-service [opaque] pricing models disguised as pass-through contracts.

It’s safe to assume Caremark’s (CVS Health’s PBM) gross margins will grow next year or worst case remains flat. Shareholders wouldn’t have it any other way. So it begs the question, “how?” Here are a few ideas:

1) Higher admin fees
2) Higher clinical fees
3) Leveraging the DUM toolkit to shift costs to medical drug spend in hospitals, clinics, and home infusion
4) Bigger push into urgent care through their Minute Clinics and overcharge for drugs under the medical spend
5) Larger ANRPs or Average Net Realized Price which represents the list price minus any discounts or rebates
6) Let’s not forget about drug rebates on the medical side. Are these rebates covered under the new model?

There are a host of others but one thing is certain. This new model, which isn’t new at all, doesn’t see the light of day without the acquisition of Aetna. For employers, brokers and benefits consultants there is a trade-off for radical transparency.

Services for which you’ve been accustomed to receiving for “free” will no longer be free. I have been preaching this for a decade and won’t stop even when some balk at our $5,000 price tag for a re-pricing. The truth has value and to this point non-fiduciary PBMs have hidden it [the truth] in rebates, for example.

That claims re-pricing you rely so heavily upon, which often times doesn’t hold as much value as the paper it is printed on, will have much more value. It’s free because it’s junk or at the very least a misrepresentation of facts. With more value comes a price tag which reflects that value.

One might assume with PBMs offering more transparency the burden for purchasers of PBM services to be skilled stewards of the pharmacy benefit has been lessened. Nothing could be further from the truth.

You will have greater access to information but do you have the skills to interpret it? More importantly, do you have a plan to execute on this information? Knowledge and execution will create a competitive advantage for your company.

It’s imperative to understand, beyond a functional role, how to effectively manage pharmacy benefits. We have a saying in this country, “you get what you pay for.”