Thursday, September 23, 2021

Reference Pricing: "Gross" Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 381)

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.

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.



Tuesday, September 21, 2021

Tip of the Week: What is spread pricing, and how does it affect a PBM’s revenues?

Knowing which factors influence revenues for commercial health plans and pharmacy benefit managers (PBMs) helps health insurance brokers and PBM consultants provide the right mix of solutions to their customers. But deciphering annual reports and financial statements can be tricky if you’re not a CFO. What’s more, these resources rarely provide a complete picture of a PBM’s revenue model.

How important are rebates to a health plan’s or PBM’s bottom line? How do commercial plans earn revenue on premiums? What is spread pricing, and how does it affect a PBM’s revenues? You can find the answers to these and other questions in our recent webinar, “Benefits of Working with a Fiduciary-Model PBM.” This off-the-shelf webinar recording explains the main sources of PBM revenue and key expenses for health plan sponsors. 




And for the short term, payer financials may be especially challenging to decipher, given the impact of COVID-19. For example, many health insurers have reported strong earnings because they have had to pay fewer claims, as patients have delayed care or canceled elective procedures. Whether this trend holds as the country faces additional surges is unclear.

Thursday, September 16, 2021

Reference Pricing: "Gross" Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 380)

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.

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.


Tuesday, September 14, 2021

Tip of the Week: How PBMs Help Rein in Drug Spending

Figure 1
Pharmacy benefit managers (PBMs) are hired by employers or organizations to act as the middleman between drug manufacturers and pharmacies. They essentially seek to bring together the entire pharmacy supply chain, while helping to improve patient outcomes through clinical and cost-saving programs. The United States spent an estimated sum of approximately $500 billion on medications in 2019. This number combines all insurance types as well as cash-paying patients. This is a $200 billion increase over the past 10 years. 

There is no telling what this number would be without PBMs. PBMs seek to control that spending while providing the most effective care to their members. These negotiation skills have the potential to provide significant value. There is nothing more a CEO from a drugmaker would love than to remove PBMs from the negotiating table. Point-of-sale rebates, for example, might reduce member cost share but any lost revenue, by non-fiduciary PBMs or health plans, will be shifted elsewhere. A CBO (Congressional Budget Office) report happens to agree. Reducing PBM purchasing power (negotiating rebates) would allow pharmaceutical companies to offer discounts 15% smaller than their current rebates. There are a few additional ways in which PBMs can help their clients (see figure 1):

1) Administer and process claims
2) Provide pharmacy networks
3) Provide mail order services
4) Negotiate with manufacturers
5) Optimize plan performance of clients
6) Ensure safe, cost-effective, appropriate medication utilization

Tyrone's Commentary:

The primary goal of a PBM is to contain its clients' cost. We do that by negotiating with drugmakers and pharmacies for better pricing, managing utilization and product mix. There is a direct correlation between transparency and value transfer in pharmacy benefits. To the extent a PBM's cost-containment practices benefit commercial and public sector employers, unions, health plans and health systems, matters a great deal. When a PBM is successful in cutting costs and doesn't transfer those savings to the client, it increases revenue for the PBM but in turn increases costs to employers and employees, for example.

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