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

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

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

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

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

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

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

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

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.


Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

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

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

1. Missing link between cost and outcomes

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

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

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

2. Sparse competition

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

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

3. Lack of collaboration

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

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

4. Crippling policies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.


Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

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

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

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

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

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

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

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

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

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

How many businesses do you know want to cut their revenues in half? That’s why traditional pharmacy benefit managers don’t offer a fiduciary standard and instead opt for hidden cash flow opportunities such as rebate masking. Want to learn more?

A snapshot of what you will learn during this 30 minute webinar:

• Hidden cash flows in the PBM Industry such as formulary steering, rebate masking and differential pricing 
• How to calculate cost of pharmacy benefit manager services or CPBMS
• Specialty pharmacy cost-containment strategies
• The financial impact of actual acquisition cost (AAC) vs. effective acquisition cost (EAC)
• Why mail-order and preferred pharmacy networks may not be the great deal you were sold

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

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

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.


Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our pharmacy cost then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.

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

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

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

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

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

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

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

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

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

Managed care executives should attend to the comprehensive management of drugs that are covered on both the pharmacy benefit and medical benefit because both benefits contribute significantly to cost trends, according to one industry expert. 

Figure 1. Stylized Procedure for Using Episode Groupers to Evaluate Provider Efficiency

Executives should care because specialty drugs used to treat many common chronic conditions are covered under both benefits; managing in the silos sub-optimizes clinical and cost management,” said John Fox, MD, senior medical director at Priority Health, who spoke at an online workshop from the Academy of Managed Care Pharmacy and The Pharmacy Group.

“Further, integration of utilization data, benefits, and management allows application of common principles across all benefit designs regardless of whether or not the drug is covered under the medical benefit, the pharmacy benefit or a separate specialty drug rider,” Fox said.

Top Integration Advantages

• Creation of a single P&T committee

• Guiding principles can be applied across benefits

• Management of disease states rather than benefits

• Application of cost-containment levers regardless of benefit

• Step therapy across benefits

• Presentation of a common formulary to consumers and providers regardless of benefit

• Optimization of rebates

• Reduction in adverse selection by adoption of comparable tiering and cost sharing structures on both the medical and pharmacy benefit

Michigan-based Priority Health, a nonprofit health plan offering a broad portfolio of health benefit options for employer groups and individuals, including Medicare and Medicaid plans, recently saw that more than half of the premium price increase was due to drug trend. 

Almost 40% of the drug spend is on specialty drugs yet only 0.9% of patients utilize specialty drugs, said Fox. As such, it is imperative that it uses any reasonable tool to ensure that the drug spend is clinically and financially appropriate.

At Priority Health, the top four chronic conditions in specialty drug spend for commercial and Medicaid products are:

1. Multiple sclerosis

2. Psoriasis

3. Rheumatoid arthritis

4. Inflammatory bowel disease (IBD).

For multiple sclerosis, 8% of spend is on drugs covered under the medical benefit and for IBD, 38%.

In Medicare, the top spends are multiple sclerosis, leukemia, multiple myeloma and macular degeneration. For multiple myeloma, 16% of the spend is on Part B drugs and for macular degeneration, 100%. 

“These data highlight the importance of having an integrated strategy for managing across medical and pharmacy benefits,” Fox said. “For example, in IBD, the plan requires failure of the pharmacy-benefit drugs before use of alternative drugs covered on the medical benefit.”

Prior to implementing this tactic, the spend for medical benefit drugs was more than 50% and cost PMPM significantly higher, according to Fox. “For macular degeneration, all drugs are managed through a prior authorization process that monitors dose, frequency and response to therapy and requires use of preferred agents in a step therapy process,” he said. 

“For cancers and hematologic malignancies, there is no preference for a medical benefit drug or a pharmacy benefit drug, but selection is influenced by cost sharing on the preferred and non-preferred specialty tiers on both the medical and pharmacy benefit. Providers and patients alike can access the integrated web-based formulary and any limitations across both benefits.”

Priority Health integrates data from the medical and pharmacy benefits through the Symmetry Episode Treatment Grouper (ETG). The grouper assigns all claims, both medical and pharmacy, into disease-specific ETGs (see figure 1). 

The ETGs are then searched for any specialty drug. A list of drugs included in each ETG is then compiled and represented graphically or tabularly. Total spend and trend changes are monitored on a monthly basis by the drug trend management group.

By Tracey Walker