Monday, December 28, 2015

Drug Prices Are Too Damn High. Here’s How to Fix Them

IN 1990, SCIENTISTS in Italy published a study comparing the efficacy of two heart medications. After looking at more than 12,400 cases, they concluded that the newer and more expensive drug provided no significant improvement in health outcomes. The study was controversial and, not surprisingly, contested by Genentech, the company behind the costlier option. It also kick-started a conversation about the rising cost of medicines. The price tag of the new drug in the study was $2,200 per dose, after all.

How quaint. Today, many drugs cost more than $30,000 a pop. In the past 50 years, prices for cancer drugs have increased a hundredfold, and spending on specialty drugs is forecast to double yet again by 2020. The industry’s riposte to any criticism about pricing is predictable: Regulations are complicated, biology more so, and R&D is expensive. Prices have to cover the costs. Get over it, or go find a naturopath.

That is only partly bullshit. Dealing with the chemistry of tomorrow and the regulatory hurdles of today is expensive. Yet in some European countries, the same name-brand prescription meds cost about half what they do in the US, according to a 2008 McKinsey study.

How then might we come up with a reasonable way to tether prices without quashing the incentive to innovate? Well, it’s complicated. Patent law, gobs of health care legislation, insurance, taxes, lobbyists, ethics—prescription drug costs touch all of them and more. But there are steps we can take to reel prices in. First is shifting away from monopolistic pricing to a more competitive model. Second is designing mechanisms that link the cost of drugs to the value delivered to patients, insurers, society, and even science. The time to move on this issue is now, while the spectacle of a young man named Martin Shkreli is still fresh in mind.

Yeah, that guy. Earlier this year, Shkreli’s company, Turing Pharmaceuticals, increased the price of a recently acquired drug from $13.50 to $750 a pill. The medicine, Daraprim, is used to combat parasites, especially for patients with immune-system deficiencies like HIV.

Within a day, Shkreli was being lambasted on every platform and outlet imaginable. His brashness and previous job as a hedge fund manager only made the bull’s-eye bigger. “He even looks like a prick,” a fellow parent said to me on his way into a PTA meeting in late September.

Yet Shkreli wasn’t breaking any laws. As physician Peter Bach, director of the Health Policy and Outcomes program at Memorial Sloan Kettering Cancer Center, put it, the Shkreli dustup shows that the system is “so broken even a child could manipulate it.”

Bach made headlines in 2012 when he and his colleagues refused to offer patients a new drug because they didn’t see sufficient health benefit to justify the $11,000 monthly cost. Weeks later the drugmaker cut the price by 50 percent. It was a rare victory that, like the Shkreli episode, illustrates just how fragile the market for drugs really is.

In Europe, regulators refuse to approve drugs that have a poor cost-benefit ratio. In a typical marketplace, forces like competition and regulation help keep prices down. You and me? We don’t care what it costs to make a saucepan. If the product provides us with value, we’ll pay for it. If we can get the same value out of a different saucepan that’s half as expensive, we’ll buy that one.

The marketplace for medicines in the US is nothing like that. Instead of thinking of drug companies as free-enterprise actors, we should think of them as “fragile little birds that the protective hand of government carefully shields from the harsh vagaries of truly free, competitive markets,” writes Uwe Reinhardt, professor of economics at Princeton. That protection comes in the form of patents and market exclusivity, plus laws against reselling drugs. Rising drug prices across the industry force insurance companies’ costs to ratchet up too, despite their best efforts to negotiate better deals. Meanwhile, Medicare, which should have huge bargaining power, isn’t permitted to negotiate with manufacturers.

In the US, an analogous strategy for dealing with drug pricing would be to establish some kind of connection between a drug’s price and the value it confers. This past summer, Bach and colleagues at Sloan Kettering introduced an online calculator called DrugAbacus, which compares present-day costs for dozens of cancer drugs with theoretical prices determined by adjustable variables like side effects, R&D costs, predicted years of life added, and the number of people each drug could help. (Other organizations, including the Institute for Clinical and Economic Review, also have a system for calculating value-based pricing.) “This is about finding the right prices,” Bach says. “If prices are reasonable, people will be OK to pay them.”

Tyrone's comment:  Third party payers, such as self-funded employers, are better off when micro-managing the pharmacy benefit as opposed to a macro approach. Relying too heavily on TPAs, ASOs, benefits consultants and brokers may cost more in the long run. Far too often they are not PBM experts but rather connectors of buyers and sellers. One solution for drug cost-containment, develop the requisite talent in-house.

It’s a start anyway. “I don’t know if I’m missing some of the domains,” Bach says. “This is going from ‘I’d like to price based on values but don’t know how’ to having some kind of attempt to do so.” At a minimum, DrugAbacus and other cost-assessment tools put more information into the marketplace, which is healthy.

In the meantime, don’t let up on the Shkrelis of the world. Remember what happened after the avalanche of outrage? He backtracked (some). According to a 2006 paper in the Rand Journal of Economics, drug costs are influenced by the mere presence of public debate.

Who knows? Perhaps citizens of the near future will ultimately owe Martin Shkreli a debt of gratitude for inadvertently fast-tracking change to a system that once looked immovable.

by David Wolman

Monday, December 21, 2015

Employers Battle Drug Costs

At the University of Minnesota, employees with cancer face a new rule under the health plan. If they are starting on certain expensive drugs, they get just a two-week supply, half the usual amount.

Before they can get two more weeks’ worth, a nurse at the university’s pharmacy partner has to confirm they are doing well enough.

The policy, called “split fill,” is designed to avoid paying for drug prescriptions that go half-unused if patients develop side effects and must stop them. It is part of a growing effort to rein in a drug bill the university says rose 8.9% last year, roughly double the rate for other health expenses.

“I don’t want to penalize the patients, but what the drug companies have to realize is they put us in that box” by charging such high prices, said Stephen Schondelmeyer, a pharmacy professor who advises the administration on its benefits for nearly 39,000 employees, retirees and family members. Some of the cancer drugs cost as much as $13,500 a month.

Rising drug costs are forcing tough decisions on those who foot the bill for much of American health care: employers. The pinch is most acute for the many large employers that, like the University of Minnesota, are self-insured—hiring an insurance company to administer benefits but paying the bill themselves.

Employers have for years been shifting more health costs to workers, through higher premiums and deductibles. With drugs, they face a growing challenge. Specialty medications for ills such as cancer and multiple sclerosis are so pricey that despite making up only about 1% of prescription volume at the University of Minnesota, they account for 28% of its drug costs, said Kenneth Horstman, director of benefits and compensation. Pharmacy costs are about 17% of its health plan’s spending, up from less than 14% in 2013.

Nationally, employers’ pharmacy costs are rising about 9.5% this year and will go up 10% in 2016, according to Aon Hewitt, a benefits consultant. The firm expects employers’ other medical costs to rise far less, 4.5% this year and 5% in 2016.

“This is a tsunami,” said John Bennett, president and chief executive of Capital District Physicians’ Health Plan in Albany, N.Y., a nonprofit insurer with corporate clients. Pharmacy costs are “the single biggest driver of our medical inflation in the last few years.”

In tackling them, employers are becoming more aggressive. Many have expanded requirements that doctors obtain advance approval from health-plan administrators for certain costly drugs, a practice called prior authorization. For instance, about 89% of employer health plans now mandate prior authorization for certain anti-inflammatory drugs for diseases like rheumatoid arthritis, up from 61% in 2007, according to survey by drugmaker EMD Serono Inc.

Another increasingly common strategy is “step therapy,” which requires that patients be treated with lower-cost drugs before the health plan will pay for a more expensive option. This year, about 69% of employers had step-therapy rules, compared with 56% in 2011, according to the Pharmacy Benefit Management Institute, a research organization.

A newer tactic is pursuing supply contracts that cap annual price increases for drugs at a set percentage, says Jim DuCharme, CEO of Prime Therapeutics, a pharmacy-benefits manager that negotiates such deals.

The University of Minnesota’s health plan is among the more ambitious in attacking drug costs. Its efforts include resisting drug-company programs that help patients with their copays, which encourage use of expensive brand-name drugs over cheaper options.

University officials hold monthly brainstorming sessions in a Minneapolis hotel with people from about 15 other large employers to discuss cost-saving drug strategies. The university has “been able to test a number of strategies that go a lot further than other employers,” said Carolyn Pare, president and CEO of the Minnesota Health Action Group, which organizes the sessions.

As employers push back, employees sometimes feel their access to drugs is being restricted, and costs increasingly foisted upon them. The university last year increased its highest patient copay to $75 from $60, applying it to branded drugs such as Flovent asthma inhaler and the antibiotic Zyvox.

Amy Boemer, a library manager who has diabetes, said her doctor switched her to a new insulin product this year because the university made it a “preferred” drug, and her cost would have risen if she wanted to stick with her old one. She says the new insulin isn’t controlling her blood sugar as well.

“What’s frustrating to me is I was on a drug, had been on it for two years,” said Ms. Boemer. “It worked for me. It’s frustrating they’re making me change it.”

The university chose a new preferred insulin “based on price, delivery and drug effectiveness,” said Mr. Horstman, the benefits director. He said plan members can ask their doctor to file an application for coverage of a different insulin if it is medically necessary, and if the university’s pharmacy benefit manager agrees, the drug will be covered with just a $10 copay. Or the patient can take a nonpreferred insulin anyway, but for a $75 copay.

Officials don’t exclude drugs on cost alone, said Kathryn Brown, vice president for human resources. She said they make coverage decisions “in a way that allows them to provide the benefit to employees who need them, but also allows our self-insured plan to continue to be viable.”

The university’s plan has monthly premiums for family coverage of about $300. The national average is $413, according to the Kaiser Family Foundation. The university doesn’t make employees pay a percentage of the price of the most expensive drugs—a practice called coinsurance that is increasingly common elsewhere.

So far, the university has declined to pay for two new drugs—each priced at over $14,000 a year—for people who need greater cholesterol reduction than they can get from statins. It is awaiting more information on efficacy and potential discounts before deciding on coverage, Mr. Horstman said.

The university became self-insured in 2002, switching from a plan for state government employees and adopting one of its own called the “UPlan,” in a bid to get better control of costs.

At the vanguard of the cost-control effort is Dr. Schondelmeyer, who holds two pharmacy doctorates and has had 40 years’ experience studying pharmaceutical economics. Outside the classroom, the university’s health plan serves as his laboratory, where Dr. Schondelmeyer, 65 years old, tests cost-saving ideas as an adviser to the benefits and compensation department.

Employees sometimes stop him in the hall and ask, “What are you doing about the high prices that drug companies are charging us? How can we put pressure on them?” he says.

“It’s tougher personally and corporately” to make decisions about drugs that affect colleagues, he says. “I make every decision with the thought of, ‘How does this impact individuals at the institution and their loved ones?’ ” Covered by the plan himself, he declines to say what drugs, if any, he uses.

Decades ago, Dr. Schondelmeyer became an advocate of generic drugs for cost control. Research he did at the University of Kentucky on generics’ safety and effectiveness convinced him that wider use of them could hold down costs while preserving health outcomes.

The university is already close to maximizing that strategy. Its usage of generic drugs has risen to 84% of prescription volume from about 50% a decade ago, encouraged by lower copays.

A way pharmaceutical companies try to thwart the shift to generics is with coupons that can reduce patients’ copays for brands to the same level as for generic drugs, or even to zero. University officials say that while the coupons cut costs for patients, they raise them for the payer, because of how they encourage use of more-expensive branded drugs.

Dr. Schondelmeyer says some companies leave coupons with doctors and their staffs to be handed out to patients. A doctor who gives them out—telling patients the coupons are a way to save on a branded-drug prescription—may not think about the cost impact to a health plan.

“On the surface it sounds like a good deal for the employee, but a zero-dollar copay may mean the patient is using a $500-a-month drug when a $50 drug is better,” Dr. Schondelmeyer said.

The university, with his support, began plotting a response last year. It has a benefits advisory committee made up of employees, which meets monthly. At a meeting a year ago, Karen Chapin, a university manager of health programs, told members that drugmakers were using coupons to counter generics and keep patients on branded drugs. At another meeting two months later, she outlined a plan to eliminate coverage for some “heavily couponed” brands.

In the summer, the UPlan stopped covering about 90 branded drugs for which manufacturers were distributing copay coupons, including the Nasonex allergy treatment and Belsomra insomnia drug, both from Merck & Co. Patients can still get coverage if their doctors can show the drugs are medically necessary.

In an interview, Merck CEO Kenneth Frazier said, “There’s a legitimate role to be played for assisting patients with copays for medically necessary products, when there is an economic barrier to their using the products they need.” He said Merck sets prices for drugs based on their benefit to patients and the health-care system, and whether they address an unmet medical need.

Newer, high-price specialty drugs pose a particular challenge to the university because there typically aren’t lower-cost alternatives. That is where the split-fill strategy comes in.

Last year, Dr. Schondelmeyer and university officials began considering it for initial prescriptions of certain costly cancer drugs, among them Sutent, made by Pfizer Inc. Some can have side effects, such as rashes, that may cause patients to stop taking them and leave part of a one-month prescription unused.

Asked about the policy, a Pfizer spokeswoman said that “cost control interventions must consider individual patient care in order to minimize complications and burdens for patients including disruptions in treatment at critical moments in the management of their disease.”

University officials began briefing the benefits committee on a split-fill plan in the fall of 2014 and adopted it in February, for nearly 20 drugs.

A new patient gets an initial two-week supply, and then seven to 10 days later, a nurse at a specialty pharmacy the university uses to dispense such drugs calls to ask how the patient feels.

If he or she reports a serious side effect, the nurse tells the patient to stop taking the drug, then contacts the patient’s physician to discuss a dosing adjustment or alternative drug. If the patient is tolerating the medicine, the nurse authorizes the next two-week supply.

During the split-fill period, the patient faces no copay. After three months, the patient begins receiving the pills in monthly supplies, but also with a $10 copay.

Amy Monahan, a law professor on the benefits advisory committee, said some members worried the system could be burdensome because a patient has to keep going back to the pharmacy, “and this is someone obviously dealing with a very serious illness and you want to make sure you’re not imposing this horrible burden on someone.” Patients can pick drugs up at a pharmacy or have them delivered to their homes.

Samith Kochuparambil, a Minneapolis oncologist, said he agreed with the concept in principle but had practical concerns, such as that outside pharmacy nurses wouldn’t know a patient’s health history well and might mistake a patient’s pre-existing health condition for a drug side effect.

Since the program began in February, a small number of patients have had prescriptions filled this way, with no complaints so far, said Mr. Horstman, the benefits director. It is too soon to know if it is saving money, but it has done so elsewhere. Diplomat Specialty Pharmacy in Flint, Mich., installed a split-fill program for employer and insurer clients in 2010 and found they could save about 19% on the targeted drugs, said Atheer Kaddis, a senior vice president.

Given the trend in drug prices, said Dr. Schondelmeyer, “At some point, we can’t keep writing blank checks.”

By Peter Loftus

Thursday, December 17, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 98)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.





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 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.

Tuesday, December 15, 2015

Who Has the Power to Cut Drug Prices? Employers.

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Why do medications cost so much, particularly specialty drugs that treat the most serious conditions? Mostly because U.S. drug companies can price them however they want. Some of their justifications are reasonable — for instance, high prices fund research. Others, like the notion that drug treatment lowers total medical costs, are far from proven.

But pharmaceutical companies don’t deserve all of the blame for high drug prices. Lots of other actors in purchasing, distribution, and brokerage have greater incentives to keep prices high than to lower prices or choose drugs that reduce longer-term medical and business costs, like absenteeism.

We believe that employers have the greatest potential to influence some of those actors and, ultimately, to chip away at high drug prices. To appreciate the power that employers have in this area, you must first understand how competing incentives work in the world of drug pricing.

Competing Incentives

Hospitals, for example, can take advantage of the 340B pricing program, which allows them to buy drugs at 30% to 50% of the retail price but then bill at full price for patients with insurance. And even organizations that, theoretically, are paid to help hold down drug costs sometimes have incentives to do the opposite. Take insurers and pharmacy benefit managers (PBMs), which are hired to manage drug costs for employer-based health plans.

Indeed, it’s smart for employers like GE, IBM, and Google to contract with these specialist entities and have them decide which drug among several competitors their employees should get first, at what cost, and which medical policies should govern the use of that drug. After all, insurers and PBMs can spread the costs for research, negotiation, and decision making about drug-reimbursement policies across all of their clients.

However, PBMs and insurers may have business objectives that differ from those of their clients. For one, they’re not always at risk for the cost of drugs — the clients are. Also, a PBM or a pharmacy department of an insurer gets a substantial portion of its drug-related profit from rebates. These are payments negotiated with manufacturers that return, via the PBM or payer intermediary, a percentage of the drug’s price to the payer — for example, to an employer that contracts with a PBM or an insurer.

Here’s a simplified version of how these rebates work:

To get the business, the PBM or plan typically guarantees a minimum rebate on every prescription, say $60. On a $300 script, that’s a 20% net reduction in the cost to the employer (final price: $240). As an incentive for the PBM or plan to negotiate even harder — maybe get a 30% rebate (in this case, another $30) — it often takes home 30% to 50% of anything above the guaranteed rebate. In this example, if the split were 50/50, the employer would pay $225, net, for the prescription and the PBM would get $15. Not a bad deal.

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In the old days — maybe five years ago, when most prescriptions ranged from $200 to $400 — rebates worked to the employer’s advantage. But for a specialty drug, costing say $50,000, a rebate of 20% means that the employer pays a net $40,000 and the PBM pockets $10,000 (plus other fees for processing and, sometimes, for handling the prescription through a specialty pharmacy division). Meanwhile, the $60 guarantee becomes meaningless.

Now let’s assume both a smaller rebate (10%) and a lower price ($25,000) for the same drug. The $60 rebate is still meaningless, but now the net cost to the employer is $22,500 (much better than $40,000) and the PBM’s profit is just $2,500. If you’re the PBM, do you want the manufacturer to price the drug at $50,000 or $25,000?

It’s also true that very large employers sometimes get virtually the whole rebate, not a 50/50 split. But don’t cry for the plans and PBMs, which know how to tack on various fees, often including a specialty pharmacy fee of about 2%. That cost covers the overhead and profit margin of a necessary part of the distribution system. But 2% on a $500 drug is $10; on a $50,000 drug, it’s $1,000. Again, a higher drug price means a more profitable supply chain.

(Insurance companies would argue, by the way, that they shouldn’t be lumped in completely with PBMs, because most insurers manage their pass-through and full-risk businesses with the same pharmacy policies. For the full-risk business, insurers care about drug prices, at least to the extent that they can’t just raise premiums for employers.)

Options for Lowering Prices

The easiest way to lower drug prices would be with a single-payer system, which most European countries have. That payer would be on the hook for all medical costs and would therefore have the incentives — and the clout — to negotiate lower prices. But we can’t envision that happening in the U.S., where some political players would cry “socialism.” So we’re left looking to employers and the Centers for Medicare and Medicaid Services (CMS), which runs Medicare.

Changing CMS reimbursement practices is a Sisyphean task, given the congressional and lobbyist opponents. Even a relatively small proposal last year — narrowing the “protected classes” rules that, in essence, require reimbursement for all drugs in six therapeutic areas — was shot down decisively by drug companies, patient advocacy groups, and legislators.

Employers’ weak-kneed behavior is more baffling — no other group has a greater stake in buying smarter. But employers have always been reluctant actors in the health care system, as they feel out of their depth. Some companies, like Honeywell and Nielsen, have taken tough steps to control costs, with no loss in employee satisfaction. But don’t count on a sea change in employer buying behavior — when push comes to shove, they can always shift costs to their employees.

What Employers Can Do

Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have skin in the drug-pricing game.

Our sense is that PBMs, at least, are willing to listen. Express Scripts, for example, recently proposed capping its customers’ total exposure to the PCSK9-inhibitor class of cholesterol-lowering drugs. If their customers spend more than a pre-set amount, Express Scripts eats the overage. Certainly, Express wouldn’t do this without a clear idea of how much its clients would be spending. Notably, those clients must agree to follow Express’s rules about who gets the expensive drugs — and must use Express’s specialty pharmacy. But it’s a very good start.

We certainly don’t expect employers to start writing drug-coverage policies and doing their own contracting. But, as seasoned buyers, they know how to negotiate with suppliers, such as insurers and PBMs — and they should not be afraid to do it. It’s now easier to understand the tradeoffs among competitive drugs, thanks to tools like the Institute for Clinical and Economic Review’s new assessment reports, RealEndpoints’ RxScorecard, and the National Comprehensive Cancer Network’s evidence blocks.

Combine these tools with contracting that does not focus entirely on rebates, and employers may begin to change the rules of a game they will otherwise continue to lose.

by Robert Galvin, MD and Roger Longman

Thursday, December 10, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 97)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.




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 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.

Monday, December 7, 2015

Prescription Drug Spending For State Employees Runs Wild, Despite Cost-Saving Efforts

Prescription drug costs under the state employees' health plan have run so wild that even a recently touted savings of $24 million a year — resulting from new restrictions on controversial compounded medicines — has been wiped out by an overall cost increase twice that large.

As soon as officials address one problem with prescription costs, another arises. It's like the arcade game Whac-A-Mole, in which a toy mole pops his head up, and as soon as you whack it down, another pops up from a different hole, and then another and another.

New state comptroller's statistics, obtained by Government Watch, show that taxpayers funded nearly $332 million in prescriptions for the 200,000 participants in the state health benefits program during the 12 months that ended June 30 — up about $53 million, or 18.8 percent, from the previous year's $279 million.

Moreover, the cost per participant jumped by an even higher percentage — 24.7 percent — because there were fewer state employees, retirees and family members participating in the program during the more recent year.

Comptroller Kevin Lembo, the elected official in charge of running the state employees' health plan, has been using the Whac-A-Mole analogy for the past year in conversations about the problems with prescription drug costs. He did it again in a phone interview Friday.

"Something else always pops up. You always feel like you're chasing the next problem, and you're battling people sitting in rooms thinking of how to take advantage of programs designed to support the health and life of others," he said.

Tyrone's comment:  This phenomenon, "Something else always pops up..." is referred to as ballooning.  In other words, when one loophole is closed the traditional PBM will look for another loophole to account for the lost revenue.  Traditional PBMs have internal staff whose sole purpose is to drive incremental revenue from client contracts.  To make matters worse, this process of hiding cash flows doesn't begin until the ink is dry on the contract!  The only sure fire way to avoid this pitfall [overpayments] is to enter into a fiduciary agreement. 

He attributed the latest $53 million escalation to a general skyrocketing of costs in the national pharmaceutical market, something that he said the state government has little influence over and that Congress needs to fix.

"The factors behind rising pharmacy costs include market consolidation, new pricing models and outright profiteering. Projections indicate no future relief as pharmacy costs are expected to continue to rise at an exorbitant rate in the coming years. Meanwhile, pharmaceutical companies are recording historic profits," Lembo said in written testimony he submitted this past week to the U.S. House Democratic Steering and Policy Committee. It's an all-Democrat panel co-chaired by U.S. Rep. Rosa DeLauro, who represents Connecticut's 3rd Congressional District.

Based on Congress' record of dealing with major health care issues, any quick solution is doubtful. But it appears that a Connecticut problem that reared its head in the past few years has been pretty much whacked.

That $24 million problem was compounded drugs — mixtures of medicines, typically produced by big, out-of-state compounding pharmacies, often in the form of topical creams for pain. Costs to Connecticut taxpayers for those medicines had exploded from $800,000 in 2012 to an estimated $24 million this year, with charges as much as $18,000 per patient for a 30-day supply.

Those medicines, not approved by the U.S. Food and Drug Administration, also were straining the prescription drug budgets of many states as well as the U.S. military and Department of Veterans Affairs as the compounding pharmacies exploited the lack of regulation.

In mid-May, Lembo imposed a "prior authorization" requirement for compounded medicines under which a prescribing doctor must demonstrate "medical necessity" before payment is approved by CVS/Caremark, the state's health benefits manager. A patient may appeal a denial.

Costs dropped from a peak of $3.1 million in April to $36,229 in July — and the average monthly savings on compounded drugs has been $2.2 million, according to a report to the comptroller by CVS/Caremark for the period from May 15 to Oct. 31.

The State Employees Bargaining Agent Coalition notified the state months ago that it was challenging the new policy on the grounds that it creates "too much interference in medical choices between a doctor and patient." But a Sept. 23 binding arbitration hearing has been postponed indefinitely while union representatives watch how the new procedure is working.

There have been only a handful of patient appeals so far, and the high-cost, out-of-state compounding pharmacies have been pretty much supplanted by local, low-cost pharmacies, which have been mixing most of the compounded drugs still being used, Lembo said.

An investigation by the office of state Attorney General George Jepsen is "active and ongoing" into the recent spike in costs for compounded medicines, an office spokeswoman said Friday.

It's hard to trumpet the cost-savings for those compounded medicines — not in the context of a $53 million increase in the prescription costs for which state employees, retirees and their dependents are responsible for only minimal co-payments.

Prescription co-payments for a 30-day supply of medicine range from $5 to a maximum of $35. That top co-payment of $35 is for a "non-preferred brand-name drug" that hasn't been certified as medically necessary by a doctor; it drops to $20 with a physician's certification.

Lembo said in his congressional testimony that prices for name-brand medications, as well as for long-established generic drugs, are rising at an alarming rate.

He gave as an example a recent huge increase in the price of Daraprim, a medicine that has been used for 62 years to treat a potentially fatal parasitic infection. Turing Pharmaceuticals, a startup company headed by the former manager of a hedge fund, acquired the drug recently and raised the price from $13.50 per tablet to $750.

"We applaud the profit motive in our free market society as a mechanism to efficiently distribute resources and drive innovation, but excessive profits can cause significant harm when applied unbridled to essential and lifesaving medicines in an uncompetitive marketplace," Lembo said in his testimony. "High costs are pushing certain treatments out of reach for some."

He asked that Congress strengthen anti-trust laws "to limit consolidation in the pharmaceutical industry and ensure that adequate competition remains to drive competitive pricing," and to reduce a backlog in FDA approvals of generic drugs. He said the state employees' health plan spent $8 million in the past year for the name-brand drug Nexium "as a result of a significant delay in the release of a generic version of the drug."

by Jon Lender

Thursday, December 3, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 96)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.




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 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.

Monday, November 30, 2015

Specialty drugs in the pipeline: 4 heavily impacted diseases

At the Academy of Managed Care Pharmacy Conference Nexus 2015 in Orlando, Florida, Aimee Tharaldson, PharmD, a senior clinical consultant in emerging therapeutics at Express Script, presented a session “Specialty Pharmaceuticals in Development."

During the session, held on October 27, Tharaldson identified several specialty medications that are likely to be approved in 2016, and she spoke about how those medications could affect the managed care pharmacy industry.
[Click to Enlarge]
Here's a closer look at four diseases and conditions that Tharaldson says are likely to be heavily impacted by newly approved specialty medications in late 2015 and 2016.

1. Non-Small Cell Lung Cancer (NSLC)

Genentech’s alectinib is an oral ALK inhibitor that is expected to be approved by March 4, 2016, for the treatment of ALK+ NSCLC who have progressed on, or are intolerant to, crizotinib (I would use generic name here). It will compete with Novartis’ Zykadia in this patient population.

AstraZeneca’s osimertinib and Clovis Oncology’s rociletinib are oral epidermal growth factor receptor (EGFR) inhibitors that are expected to be approved by February 2016 and March 30, 2016, respectively. They are pending approval for the treatment of EGFR and T790M mutation-positive NSCLC.

2. Multiple Myeloma

Bristol-Myers Squibb and AbbVie’s Empliciti (elotuzumab) is a biologic drug that may be approved by March 1, 2016, for use in combination with Revlimid (lenalidomide) and dexamethasone to treat relapsed or refractory multiple myeloma.

Janssen’s daratumumab is another biologic drug that could be initially approved by March 9, 2016, as monotherapy to treat patients with relapsed or refractory multiple myeloma.

Takeda’s ixazomib citrate is the first oral proteasome inhibitor that may be approved by March 10, 2016, to treat relapsed or refractory multiple myeloma in combination with Revlimid and dexamethasone (all-oral regimen).

3. Severe Asthma

GlaxoSmithKline’s Nucala (mepolizumab) is an interleukin-5 inhibitor that expected to be approved by November 4, 2015, for the treatment of patients with severe eosinophilic asthma.

Teva’s reslizumab is another interleukin-5 inhibitor that is expected to be approved by March 30, 2016, for severe eosinophilic asthma.

4. Duchenne Muscular Dystrophy (DMD)

BioMarin’s drisapersen is expected to be approved by December 27, 2015, for the treatment of DMD amenable to exon 51 skipping. Sarepta Therapeutic’s eteplirsen is expected to be approved by February 26, 2016, for the treatment of DMD amenable to exon 51 skipping. Both drugs treat the underlying cause of DMD by allowing the production of a functional dystrophin protein.

There are approximately 20,000 boys in the U.S. with DMD. This rare disease is caused by mutations in the dystrophin gene, resulting in the absence or defect of the dystrophin protein. Patients experience progressive loss of muscle function, often making them wheelchair bound before the age of 12.

Respiratory and cardiac muscle can also be affected by the disease. Few patients survived past the age of 30. Up to 13% of boys with DMD have dystrophin gene mutations/deletions amendable to an exon 51 skip. Approximately 2,600 boys in the U.S. have DMD with exon 51 skip. These drugs may cost approximately $300,000 per year.

by Aubrey Westgate

Friday, November 27, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 95)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.

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 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.

Monday, November 23, 2015

Amgen Agrees to Pay-for-Performance Deal With Harvard Pilgrim Health Care Plan

Amgen Inc. and Harvard Pilgrim Health Care have agreed to a pay-for-performance plan for the new cholesterol drug Repatha, the provider announced November 9, 2015.

Repatha (evolocumab) was approved by the Food and Drug Administration in August for use in certain patients whose high levels of LDL, or bad cholesterol, have not responded to dietary and drug interventions. At full price the drug costs $14,100 per year.

Harvard Pilgrim Health Care (HPHC), which serves New England, estimates that 1 percent of its members will be eligible to take the drug, Joan Fallon, HPHC spokeswoman, told Bloomberg BNA in an interview Nov. 10.

Three Types of Discounts

The health plan negotiated three types of discounts for Repatha, Fallon said. HPHC will receive a discount simply for “preferring” Repatha, Fallon said. The health plan also will receive a rebate if the drug fails to lower the cholesterol in members to the degree indicated by the drug's clinical trials, Fallon said. Finally, if more members end up using the drug than was anticipated during negotiations, HPHC also will receive a rebate, Fallon said.

Tyrone's comment:  The pay-for-performance (PFP) model is better for payers than the fee-for-service model, but traditional PBMs will still take advantage of loopholes in this pricing model in order to hide cash flow from third-party payers.  Download my white paper to better understand the flow of money and opaque tactics employed by PBMs to disguise rebates.

Fallon declined to say how much the discount and rebates are worth and described that information as confidential aspects of its contract with Amgen.

The pharmacy benefits manager Express Scripts Holding Co. estimated that Repatha and similar drugs could cost $100 billion a year retail, given its high price and that 10 million or more Americans would be eligible for the drug. The cost to Medicare would be $27 billion, the Department of Health and Human Services estimated.

Other Arrangements 

The promise and high price of Repatha and other drugs, including some gene therapies, has sparked much debate among public and private payers about alternative pricing arrangements, including pay-for-performance and paying in installments.

For example, Spark Therapeutics Inc., of Philadelphia, is considering installment payments for its proposed gene therapy to treat blindness, and Bluebird Bio Inc., of Cambridge, Mass. is in discussions with insurers about alternative payment plans.

“Agreeing to pricing models that align payment with appropriate outcomes is critical if we are to better manage increasing drug costs. We take very seriously our responsibility to ensure that the dollars we spend on health care are used wisely and give our members access to the highest quality care,” Michael Sherman, HPHC chief medical officer, said in the Nov. 9 announcement.

Novartis Discount 

Novartis AG announced July 8 that it would offer a pay-for-performance discount to all U.S. insurers for its new drug to treat heart failure, Entresto. An Entresto prescription costs about $4,500 per year. A Novartis official predicted at the time that the industry would move toward more pay-for-performance arrangements.

Repatha is one of a class of new cholesterol busters called PCSK9 inhibitors that work differently from previous cholesterol-lowering drugs. The PCSK9 drugs inhibit a protein that blocks the body's ability to clear bad cholesterol from the blood. Repatha is given by injection, two to four times a month. Research has associated high levels of LDL cholesterol with a higher risk of stroke and heart attack.

By Adrianne Appel

Thursday, November 19, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 94)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.

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 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.

Monday, November 16, 2015

Payers: Forget specialty drug costs—generic prices are crushing our budgets, too

Each Thursday, on blog.transparentrx.com, I post our pharmacy's net invoice cost for popular generic and brand medications. Visit and monitor the price changes yourself so that you don't have to rely solely on third parties. In God We Trust, but for all others we verify.

Dive Brief:

  • According to insurers, prices for some commonly used generics have increased between 15 and 75 times their original prices.
  • Insurers and others are concerned about rising generic drug prices, because of the reliance of these drugs in the U.S. (According to a recent report from the Generic Pharmaceutical Association, 88% of all prescriptions dispensed in the U.S. are generics.)
  • Spending on prescription drugs is the fastest growing healthcare cost. In Massachusetts, spending on prescription drugs increased 13% in 2014, while overall healthcare spending increased by 4.8%. 

Dive Insight:


Courtesy of American Action Forum
It's true that some of the roughly 12,000 available generic drugs have increased in price within the last two years, including drugs such as amitriptyline, an antidepressant, which increased in price from four cents per pill in 2013 to $1.03 per pill in 2015, as well as captopril, a medication for hypertension, which increased from 11 cents for a 12.5-mg pill in 2013 to 91 cents for the same pill in 2015. And there are many other examples.

What's driving the increases? According to experts, several factors, including increasing costs of chemical and other raw materials used to produce the drugs; lack of price regulation in the U.S.; and declining competition due to increased consolidation in the generics industry.

These factors need to be addressed—especially the issue related to lack of competition. But there is also another perspective: According to the 2014 Express Scripts Trend Report, since 2008 the cost of brand drugs has almost doubled, while generic drug prices have almost been cut in half. In a separate analysis, AARP reported that generic drug prices fell by 4% in 2013. According to that analysis, generic drug prices have declined steadily in the last 10 years.

One reason that payers are still feeling the pinch and complaining about price increases is that, while some of the hikes may be declining (or are modest in nature), use of these medications stretches so far across the market that winds up being a huge cost burden anyways.

By Nicole Gray

Thursday, November 12, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 93)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.

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 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.

Monday, November 9, 2015

PBMs wed with promise of savings, but reduction in choice may hurt employers

The recent wave of mergers among pharmacy benefit managers may give those firms more power and clout, but it's unclear whether employers who work with those PBMs will be in store for better deals or major headaches.
Click to Enlarge
Much of the merger mania of the health care industry is driven by PBMs — those behind-the-scenes firms that handle prescription drug benefits for self-insured employers. They deal with drug claims information and processing and secure discounts and rebates by negotiating with retail pharmacies and pharmaceutical companies.

Tyrone's comment:  PBMs also handle prescription drug benefits for fully-insured employers.

Usually, the larger the PBM, the more influence it wields in negotiating better prices and rebates and, in theory, passing those savings on to employer clients and plan members, experts say.

If the recent wave of consolidation is any indication, PBMs have taken the “bigger is better” mantra to heart.

In July, United Healthcare Inc.'s Optum Inc. closed its deal with Catamaran Corp., making Optum the third-largest PBM based on prescription volume. In August, CVS Health Corp., parent of second-largest PBM CVS/Caremark, bought Omnicare Inc. and in June, agreed to acquire Target Corp.'s nearly 1,700 pharmacies and 80 medical clinics.

More recently, Walgreens Boots Alliance Inc. announced plans in October to acquire Rite Aid Corp., effectively scooping up Rite Aid's Envision Pharmaceutical Services, a small PBM doing business as EnvisionRx, in the process.

Consolidation among PBMs has been going on for years. Express Scripts Holding Co. secured its throne as the largest PBM after its 2012 acquisition of Medco Health Solutions Inc., and CVS bought Caremark L.L.C. in 2007.

Effects on employers

The implications for employer clients who work with a PBM that merges with or is acquired by another organization depends heavily on the type of deal, said Allan Zimmerman, national pharmacy practice leader at PricewaterhouseCoopers L.L.P. in Kansas City, Missouri.

A PBM that buys another PBM primarily gets scale and the potential for better deals with drugmakers, but improved service quality also is a possibility, Mr. Zimmerman said. For instance, the PBM being acquired may have a better technology platform that the parent PBM can utilize.

What's most interesting to watch, however, is “when you see a PBM acquiring a vertical in their supply chain” or becoming a vertical component in another organization's supply chain, he said.

“What that does is it really gives the PBM a unique opportunity to negotiate real aggressive discounts from their supply chain verticals beyond just the pharmaceutical companies,” such as at the retail stores, Mr. Zimmerman said. Those types of deals can “provide some leveragability for the PBMs to get the plan sponsor, the employer, greater discounts based on just a pure relationship of the entities.”

Examples include drugstore chain Walgreens buying Omnicare, which provides services to long-term care facilities, or Rite Aid buying EnvisionRx.

In such deals, cost savings for employers likely would be “incremental,” and employers should talk with their PBM about the possibility of a better deal, Mr. Zimmerman said.

For drugstore-owned PBMs, there's also a chance that the retail stores could be an outlet for PBM services, enhancing convenience for plan members, said Craig Oberg, St. Paul, Minnesota-based managing consultant with pharmacy benefit consultant The Burchfield Group Inc.

If Walgreens chooses to invest in its newly acquired PBM, it could follow in CVS' footsteps by allowing PBM members to pick up their 90-day supply of medication at their local store but still retain the mail-order discount.

With larger PBMs, there's also the opportunity to push back against the pricing set by specialty drugmakers, said Josh Golden, practice leader of employer consulting at Pharmaceutical Strategies Group L.L.C. in Atlanta.

A major driver of health care costs, specialty drug spending increased 30.9% in 2014, according to Express Scripts.

“Size really does matter in this part of the pharmacy supply chain, and that's because the pricing arrangements and the deals that are struck right now are really driven by targeted negotiation (by the PBM) with specific pharmaceutical companies ... in particular in the specialty drugs space,” Mr. Golden said.

Much of the value is derived from rebates PBMs are able to secure, he said. Last year, for instance, Express Scripts led the charge to push back against the atmospheric pricing of hepatitis C drugs by choosing to cover only one hepatitis C treatment in exchange for a big discount. That pit drugmakers against each other and ultimately lowered costs for other payers.

Tyrone's comment:  It's always been the case PBMs negotiate better pricing from manufacturers. This is not the issue. The issue is the payers' share of these savings which is only 10 cents on the dollar in many cases. The PBM "hides" the remaining 90% to increase their profit margin.

The same type of “formulary strategies” are occurring now with costly cholesterol drugs, called PCSK9 inhibitors, Mr. Golden said.

Of course, there are downsides to PBM consolidation. The more mergers and acquisitions that occur, the fewer PBM options employers have, Mr. Golden said.

Different PBMs have varying business models, whether traditional or transparent, so finding one to fit an employer's philosophy might be more difficult.

Tyrone's comment:  Despite what you've been told, traditional, transparent and pass-through business models are all the same. They are nothing more than a play on words. The only PBM business model which provides a client-comes-first standard of care is a fiduciary one.   

Experts say there often are service disruption and client experience issues while two firms integrate. When Express Scripts bought Medco, the disruptions “generated a lot of noise, and frankly it impacted Express Scripts' retention rates for a period of time,” Mr. Golden said, adding that the industry is anxious to see if Optum and Catamaran can merge without some of those same issues.

On the other hand, Burchfield's Mr. Oberg said his Optum clients have yet to notice any changes since the Catamaran merger, though “we're still pretty young on that deal.”

Perhaps the M&A activity won't significantly affect employers, said Randy Vogenberg, Greenville, South Carolina-based principal at the Institute for Integrated Healthcare and partner at Access Market Intelligence.

“When all is said and done, my sense is that it's not going to make that much of a difference because we're talking about drug pricing that's controlled by the manufacturer and that hasn't changed regardless of all the mergers and acquisitions,” Mr. Vogenberg said.

“As we continue to see more market consolidation, I think we're going to have to really follow that to see which way it's going to tip,” he said. “Would it end up being beneficial to an employer or have no impact or have a negative impact? It's just too soon to tell right now.”

By Shelby Livingston

Thursday, November 5, 2015

Reference Pricing: "Net" Invoice Cost for Top Selling Generic and Brand Prescription Drugs (Volume 92)

Why is this document 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 healthcare reform. 

The costs shared below are what our 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.

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 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.

Tuesday, November 3, 2015

How self-funded employers can tackle double-digit prescription drug cost increases

Click to Enlarge
Pharmacy costs is one of the fastest-growing components of health care expense and is expected to increase by 15% per annum with no end in sight. It is estimated that 75% of employers plan to increase prescription drug spend year-over-year. Unfortunately, most organizations are unaware of their excessive remuneration for PBM services. While there is no magic pill to managing the pharmacy benefit, the following five key performance indicators can help to identify a path to lower pharmacy costs while still improving member outcomes.

Dump the Legacy RFP (Request for Proposal) Process. Employers must instead create their own airtight fiduciary contract and put it out for bid vis-à-vis reverse auction. How is it that a plan sponsor, regardless of size, can sign a deal which doesn't hold its PBM accountable to a client-comes-first standard of care?

from Wikipedia...

"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents."

Case closed.

Promote Limited (Preferred) Pharmacy Networks. Most plans offer access to more than 60,000 retail pharmacies nationwide. The reality is that at any given street intersection 3 of the 4 corners are filled with pharmacies including CVS, Rite-Aid, Walgreens or others. Instead of allowing access to countless options, an employer can save 2 percent or more by narrowing the number of network pharmacies.

After cost-sharing, establishing preferred pharmacy networks has been a popular approach to cost management. Limited pharmacy networks, not talked of much before 2010, are much more of a consideration after the contract dispute between Walgreens and Express Scripts.

Providing the broadest access to members may no longer trump the more favorable pricing of a narrowed pharmacy network. A large and growing supply of retail pharmacies makes the limited pharmacy network approach possible.

Caveat emptor. Ballooning is a black box tactic whereby one PBM profit center drives an unusual amount of fees when another is being squeezed. It turns out payers’ cost for mail pharmacy services may increase, when a limited pharmacy network is selected, to offset the negotiated retail pharmacy network.

Implement Specialty Therapy Management. We know specialty therapies improve outcomes but we also know patients do not take medications the way they should, or in the way it was studied to produce published results. Disease specific algorithms enable us to:

  • Ensure standards of care are consistently followed thereby reducing waste
  • Monitor therapy to detect and resolve problems; identify opportunities for referral to MTM, PFA or clinics
  • Pro-actively identify opportunities to keep patients on therapy
  • Help patients become better informed about their therapy so they can more actively take charge of it

All of these initiatives either improve outcomes, reduce re-admissions or prevent emergency room visits which in turn lowers overall medical costs.

Keep Two Sets of Eyes on Your PBM. A key strategy to controlling prescription drug benefit costs is to understand and better manage the relationship with your pharmacy benefits manager (PBM). Given the complexity of prescription drug benefit programs, it is an attractive option to simply turn over management of the employee prescription drug benefit to a consultant, ASO, PBM or TPA.

However, it is important to realize that while they are serving clients’ needs, PBMs and TPAs are also in business to make a profit. Therefore, the actions that they take may not always be in the best interest of an employer. For that reason and others, employers are increasingly attempting to better understand the prescription drug benefit in order to develop new strategies to control costs and to maintain an affordable, quality drug plan for their employees.

Because more benefit dollars are shifting from medical to prescription drugs every year, payers whom have internal expertise in pharmacy are in a better position to assume greater control of their prescription drug benefit thereby reducing costs while improving patient outcomes.

Utilization of Internal Pharmacies or Reference Pricing. To illustrate this point I use the story of Meridian Health Systems, a former customer of Express Scripts, to show the sometimes drastic difference in what PBMs charge payers to fill prescriptions and what they in turn pay pharmacies to dispense those same prescriptions. This difference often leads to greater profits for the PBM and increased costs for the employer.

Robert Schenk, who oversees Meridian’s spending on employee medications, dug through the employer’s bills to discover just how pervasive the practice was. One such example he found were charges for generic amoxicillin — Meridian was billed $92.53 when an employee filled the prescription, but Express Scripts paid only $26.91 to the pharmacy to fill the same prescription.

That amounts to a “spread” of $65.62 for only one prescription. In another instance, Meridian was billed $26.87 for a prescription of the antibiotic azithromycin. Express Scripts paid the pharmacy $5.19 to dispense the prescription, creating a spread of $21.68.

As this practice persisted, Meridian’s health benefits costs skyrocketed, all while Express Scripts continually promised savings. In the first year alone, Meridian’s prescription benefits costs increased by $1.3 million. It wasn’t long before Meridian switched to a more transparent PBM to handle their prescription benefits.

The only reason Meridian Health was able to identify the spread is due to the reference pricing or pharmacy it owned. In this case, Meridian Health acted as the middle man and was able to see both sides of the transaction. Imagine for a moment, as a payer, how powerful this tool can be. There are fiduciary PBMs willing to give clients access to the same information from which Meridian Health was able to benefit. I suggest you locate one.

To read more of Meridian Health System's story click here