Pharmacists sworn to secrecy as PBMs force customers to overpay for drugs

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Suits have been filed against insurers UnitedHealth Group Inc., which owns manager OptumRx; Cigna Corp., which contracts with that manager; and Humana Inc., which runs its own. Among the accusations are defrauding patients through racketeering, breach of contract and violating insurance laws.

“Pharmacies should always charge our members the lowest amount outlined under their plan when filling prescriptions,” UnitedHealthcare spokesman Matthew Wiggin said in a statement. “We believe these lawsuits are without merit and will vigorously defend ourselves.”

Mark Mathis, a Humana spokesman, declined to comment. Matt Asensio, a Cigna spokesman, said the company doesn’t comment on litigation.

“Patients should not have to pay more than a network drugstore’s submitted charges to the health plan,” Charles Cote, a spokesman for the Pharmaceutical Care Management Association, said in a statement.

Benefit managers are obscure but influential middlemen. They process prescriptions for insurers and large employers that back their own plans, determine which drugs are covered and negotiate with manufacturers on one end and pharmacies on the other. They have said their work keeps prices low, in part by pitting rival drugmakers against one other to get better deals.

The clawbacks work like this: A patient goes to a pharmacy and pays a co-pay amount — perhaps $10 — agreed to by the pharmacy benefit manager, or PBM, and the insurers who hire it. The pharmacist gets reimbursed for the price of the drug, say $2, and possibly a small profit. Then the benefits manager “claws back” the remainder. Most patients never realize there’s a cheaper cash price.

“There’s this whole industry that most people don’t know about,” said Connecticut lawyer Craig Raabe, who represents people accusing the companies of defrauding them. “The customers see that they go in, they are paying a $10 co-pay for amoxicillin, having no idea that the PBM and the pharmacy have agreed that the actual cost is less than a dollar, and they’re still paying the $10 co-pay.”

On Feb. 10, a customer at an Ohio pharmacy paid a $15 co-pay for 40 milligrams of generic stomach medicine Pantoprazole that the pharmacist bought for $2.05, according to receipts obtained by Bloomberg. The pharmacist was repaid $7.22, giving him a profit of $5.17. The remaining $7.78 went back to the benefits manager.

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How to Rein In the Soaring Costs of Specialty Drugs

Source: Blue Cross Blue Shield

The National Business Group on Health (NBGH), a nonprofit association of 420 large U.S. employers, on Monday 1/30/2017 released a policy issue brief offering recommendations designed to help stem the skyrocketing costs of “specialty” drugs. Here are the NBGH’s recommendations:

1)  Remove uncertainties surrounding risk-based and value-oriented contracting, and implement indication-specific pricing and reference pricing in public programs. 

That’s a lot of health-care jargon. What does it mean? The fee-for-service model, in which a set price is paid for a drug irrespective of health outcomes, is antiquated and inefficient, the NBGH asserts. In response, industry stakeholders are experimenting with innovative, value-oriented solutions, often thought of under an umbrella concept commonly referred to as value-based payment (VBP) arrangements.

VBPs implicitly tie reimbursement amounts for health-care providers to patient outcomes or quality-of-life improvements.

One type of VBP arrangement is a risk-sharing agreement under which drug manufacturers agree to reimburse or discount their products when they do not work as intended. However, the NBGH asserts, current public policies inhibit the willingness of drug makers to enter into risk-sharing agreements — largely out of fear of their impact on laws such as the Omnibus Budget Reconciliation Act of 1990, which established the “best price” provisions of the Medicaid drug-rebate program.

The law requires brand-name drug makers to provide the Medicaid program with the lowest price they charge for any drug to any other payer.

“The anticompetitive nature of the Medicaid best price program has been well documented by the U.S. Government Accountability Office, the Congressional Budget Office, and academic economists,” the NBGH report states. It adds, “We believe it is critically important to remove barriers to VBP arrangements, particularly those constraining the creation of risk-based contracting.”

As for the second half of the NBGH’s first recommendation, indication-specific pricing — an indication is a valid reason to use a certain medication, test, procedure, or surgery — also helps align payment for a drug to the value it delvers to a patient population.

The NBGH recommends that the Centers for Medicare & Medicaid Services (CMS) maintain an open dialogue with employers and other payers, as well as with manufacturers and providers, to identify opportunities for legislative changes to federal reimbursement policies that obstruct indication-specific pricing agreements.

And “reference pricing” is a form of defined contribution health benefits. Plan sponsors pay a fixed amount or limit their contributions toward the cost of a specific health-care service, and health-plan members pay the difference in price if they use a more costly health-care provider or service.

Some employers have successfully implemented such a policy for the use of specialty medicines where there is documented price variation based on where the treatment is administered.

The NBGH recommends that reference-pricing policies supported by clinical evidence be implemented consistently across public health-care programs.


2)  Limit the reach of Medicare Part D protected classes.

Part D subsidizes the costs of prescription drugs and drug insurance premiums for Medicare beneficiaries. No physical exams are required, and applicants cannot be denied drug coverage for any reason.

While companies widely use the design of formularies — lists of medicines covered under insurance — to control drug costs, Medicare limits the freedom of Part D plans to control their formularies through specific rules. Two such rules substantially impact the price of drugs.

For one, federal regulations require that plan formularies include drug classes covering all disease states, with a minimum of two chemically distinct drugs in each drug class. That allows drug makers to manipulate pricing based on artificial market share, according to the NBGH.

Also, plans are required to cover all drugs in six protected classes: immunosuppressants, antidepressants, antipsychotics, 
anticonvulsants, antiretrovirals and antineoplastics. What’s more, CMS has gone beyond the statute, requiring at least one drug in each subclass as well.

These rules limit the negotiating power of Part D plans and make drugs in those classes more expensive, the NBGH says.

The group recommends that Congress and CMS remove drugs from the protected classes where a sufficient generic exists. Also, it says, policymakers should work with employers and other stakeholders to gain consensus for Medicare drug-policy changes that would remove hindrances to effective negotiation of drug pricing by private payers.

3)  Eliminate perverse payment incentives to providers under Medicare Part B.

Many specialty drugs are reimbursed through Part B, as such drugs often must be administered in a physician’s office or hospital outpatient department. For that reason, Part B providers typically buy the products in advance and bill Medicare for reimbursement after administration to the patient.

This reimbursement model creates a three-part, cyclical incentive for prices to continuously rise.

First, it encourages manufacturers to set prices higher and to incentivize providers to select those drugs—and receive a higher reimbursement. Second, it also creates an incentive for providers to continuously select higher-priced drugs, even when lower-cost alternatives might be available. And third, it incentivizes the delivery of these medications in higher-priced settings, such as hospital outpatient departments.

The NBGH recommends that such incentives be eliminated and that providers and manufacturers be encouraged to assume financial risk with regard to high-priced drug utilization.

4)  Encourage the uptake of biosimilars.

A biologic drug is manufactured using a living system such as a microorganism of plant or animal cells. Historically, makers of such products were required to seek FDA approval as if they were an entirely new entity, submitting a full complement of product-specific data.

This did little to encourage market competition among the highest-price class of medications, even for similar products to treat the same disease.

The Affordable Care Act sought to alter the landscape of biologics, establishing an abbreviated approval pathway for those that can be demonstrated to be “biosimilar” to or interchangeable with currently approved biological products.

A 2014 Rand Corporation study suggested that robust uptake of biosimilar products could reduce direct spending on biologics by nearly $45 billion by 2024 by creating competition in a market that has traditionally been anticompetitive.

But the ACA has not led to a flood of biosimilar approvals. In fact, the FDA has approved only four of them since the law’s 2010 passage. By contrast, 20 of them have been approved in the European market. Safety, pricing, manufacturing, market entry, and physician and patient acceptance are all seen as tactical hurdles for stimulating competition in the biologics market.

The NBGH recommends that policymakers work with stakeholders to educate patients and providers on the safety and efficacy of biosimilar drugs.

5)  Reform permissive patent and exclusivity protocols.

After the FDA approves a generic or biosimilar drug, it may take years for the cheaper versions to come to market. That’s largely because of litigation brought by the manufacturer of the original, brand-name drug. Such claims are based on legal questions about whether the patents for these drugs can be extended through various secondary approvals.

Deciphering and understanding the patent and exclusivity terms of pharmaceutical products is complicated because the two are intertwined and work in complementary yet distinct ways. And as these product-protection terms have become increasingly important to market share and profitability, the pharmaceutical industry fiercely protects them.

Drug makers’ ability to sustain high prices hinges on the monopolistic character of the pharmaceutical market, driven by these patent and exclusivity protections, which insulate products from competition and artificially boost the industry’s negotiating power, the NBGH says.

The group recommends that the market exclusivity period for biologics be reduced from 12 years to 7 years, and that patent extensions and exclusivity periods be limited or eliminated when they serve only to expand monopoly power.

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“Gross” Invoice Cost for Top Selling Generic and Brand Prescription Drugs – Volume 156

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

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

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


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


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

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

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is 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.

Key to rebate cost savings, define which drugs are actually eligible for rebates

Source: Berkeley Research Group

Prescription drug benefit costs are steadily increasing for employers. Many mid-size to large employers work with pharmacy benefit managers (PBMs) to help them deliver generic and brand name prescription drugs to their employees in a cost-effective way. PBMs play an important role in providing access to high-quality medications to employees in today’s healthcare delivery model.

But what seems like a straightforward process of delivering generic and brand name drugs at agreed-upon prices can easily become murky. Sometimes, complicated contracts may define some generics as brand name drugs and exclude others from savings, costing employers tens of thousands, or even hundreds of thousands of dollars.

How brand and generic drugs are categorized

One benefit to working with a PBM is that they can save employers money through significant buying power. These savings are passed along to customers in the form of discounts that are often referred to as percent savings from the average wholesale price (AWP). PBMs typically offer a performance guarantee on factors like the brand-generic mix sometimes called generic fill rate (GFR) and percentage savings on brand name drugs, as well as a certain percentage of savings on generic drugs. If a PBM doesn’t achieve the agreed-upon performance guarantees —for example, 16% savings on brand name drugs and 60% savings on generic drugs and or 78% generic fill rate — the employer is reimbursed a specific amount.

This may seem like a simple agreement; however, PBMs can also dictate what they consider a brand name drug and a generic, and which drugs are excluded altogether from a performance guarantee. One of the largest PBMs in the country uses a term called the Brand Generic Algorithm, and the specific algorithm could differ from PBM to PBM.


For example, PBMs may exclude all single-source generic drugs from performance guarantees. Why? If a generic drug comes from a single source manufacturer, it could be considered a brand name drug, or excluded from the performance measurement altogether, even though it’s marketed to consumers as a generic.

One recent example is when the makers of the popular drug Crestor, which is used to treat high cholesterol, launched its generic version Rosuvastatin after the patent ran out on Crestor. Although a generic, Rosuvastatin was often considered a brand drug or excluded from the performance guarantee altogether of certain PBMs. Crestor and its generic Rosuvastatin are among the most prescribed drugs in an average workforce population. Therefore, you can see how one drug can skew performance guarantee results.

Excluded drugs can cost you

Manufacturer rebates for pharmaceutical drugs are another way PBMs can help employers save money. The first key to these cost savings is ensuring that the PBM is passing through 100% of rebates directly to the employer, rather than keeping all or a portion of rebates.

The second key to ensuring rebate cost savings is defining which drugs are actually eligible for rebates. For example, a close inspection of your PBM contract may include a 100% pass-through rate for rebates, meaning all manufacturer rebates are passed directly to you without the PBM retaining a percentage of the rebate. However, another part of your contract may state that specialty drugs are not eligible for rebates or that a certain percentage of the rebates on specialty are retained by the PBM. Specialty drugs tend to be more costly than typical brand name drugs; being ineligible for rebates might mean missing out on significant savings.

An example of the major impact that rebates can have on drug costs is the widely prescribed Hepatitis C drug Harvoni, which has a 90%-plus cure rate of the disease when taken properly. Under most prescription plans Harvoni would cost the plan sponsor around $100,000 for a standard course of treatment. What many employers don’t know is that the rebates from Gilead (the company that developed Harvoni) could be in excess of $35,000 per prescription. If your prescription drug contract excluded specialty rebates you could lose out on significant savings to the plan.

In both of these instances, the total costs and savings rates may look great when compiled in a spreadsheet beside other PBMs, but there are important details to consider that might change the actual savings. This doesn’t even take into consideration the impact of pricing inflation caps, utilization review and management, patient outreach, the most appropriate delivery channel, and other factors.

In today’s complicated healthcare environment, it’s almost a guarantee that employers will see increasing pharmacy costs even when the plan is negotiated and managed properly. That’s why it’s important to review PBM contracts carefully. An experienced, unbiased consultant can advocate for you with the PBM while ensuring you understand the nuances of the contract, you’re getting the right rebates, and that brand name vs. generic drugs are clearly understood and defined.

Continue Reading >>

“Gross” Invoice Cost for Top Selling Generic and Brand Prescription Drugs – Volume 155

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

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

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


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


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

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

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is 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.

Employers Take Extra Steps to Curb Specialty Drug Costs

Click to Enlarge

Employees face growing challenges in paying for expensive specialty drugs, according to a new report that examines initiatives by employers and policymakers to control rising pharmaceutical costs.

The National Business Group on Health (NBGH), a Washington, D.C.-based association of 420 large U.S. employers, recently released Policy Recommendations to Promote Sustainable, Affordable Pricing for Specialty Pharmaceuticals. The report notes that spending for specialty medicines, including biological drugs manufactured using living organisms, is projected to overtake spending for traditional pharmaceuticals over the next several years.

“With spending on specialty drugs skyrocketing, large employers, and employees who use these medications, are struggling to manage rising costs,” said Brian Marcotte, NBGH president and CEO. “Most employers we surveyed now rank specialty pharmacy as the No. 1 driver of rising costs” for health care.

In November 2015, the AARP Policy Institute in Washington, D.C., prepared a study of 115 specialty drugs and found that:

  • In 2013, the average annual price of therapy for specialty prescription drugs was 18 times higher than the average annual price of therapy for brand-name prescription drugs ($53,384 versus $2,960, respectively) and 189 times higher than the average annual price of therapy for generic prescription drugs ($53,384 versus $283, respectively).
  • Retail prices for 64 chronic-use specialty drugs increased cumulatively by an average of 161 percent from January 2006 through December 2013. General inflation in the U.S. rose 18.4 percent during the same 8-year period.

Since the study, the rising costs for specialty drugs haven’t slowed, benefit specialists say.

What Can Employers Do?


“Specialty pharmacy is different from other medications in many ways, including having a tendency to be much more expensive—some meds cost in the tens of thousands of dollars per treatment,” said Steve Wojcik, NBGH’s vice president of public policy. “As a result, we are seeing growing numbers of employers, along with their health plans and pharmacy benefit managers, implementing many [cost-control] techniques.”

NBGH’s annual Plan Design Survey of large employers, noted in the group’s report, found that respondents were:

  • Putting in place more aggressive use-management protocols for specialty drugs (74 percent of large employers).
  • Using a specialty drug tier in the plan design, to require greater cost-sharing by employees (38 percent).
  • Using high-touch case management, such as with a nurse practitioner (35 percent).
  • Requiring prior authorization for specialty medications billed under the medical benefit (35 percent).
  • Requiring site-of-care management to ensure that specialty drugs—which may need to be injected or infused—are administered in appropriate settings (30 percent).

Continue Reading >>

“Don’t Miss” Webinar: How to Slash PBM Service Costs, up to 50%, Without Changing Vendors or Benefit Levels

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?


Here is what some participants have said about the webinar.

“Thank you Tyrone. Nice job, good information.” David Stoots, AVP

“Thank you! Awesome presentation.” Mallory Nelson, PharmD

“Thank you Tyrone for this informative meeting.” David Wachtel, VP

“…Great presentation! I had our two partners on the presentation as well. Very informative.” Nolan Waterfall, Agent/Benefits Specialist


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
Sincerely,
Tyrone D. Squires, MBA  
TransparentRx  
2850 W Horizon Ridge Pkwy., Suite 200  
Henderson, NV 89052  
866-499-1940 Ext. 201


P.S.  Yes, it’s recorded.  I know you’re busy … so register now and we’ll send you the link to the session recording as soon as it’s ready.

“Gross” Invoice Cost for Top Selling Generic and Brand Prescription Drugs – Volume 154

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

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

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


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


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

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

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is 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.

Six Takeaways: How are prescription drug prices set?

While many stakeholders criticize high drug prices, few understand the complex system used to establish the cost of prescription medications.
Here’s a breakdown of the pharmaceutical supply chain and how prescription drug prices are set.
Click to Enlarge
1. Drug companies set the list price for their drugs based on how much they need to recoup for research and development costs. The companies also consider production costs and room for profit when setting prices.
2. The drugmakers sell their medications to wholesalers at a negotiated discount.
3. The wholesaler distributes the drug to pharmacies and hospitals at a slightly lower discount, keeping the difference as profit, according to the report.
4. The amount consumers and their health plan sponsors pay for a drug at the pharmacy counter depends on a customer’s individual health plan. Typically, consumers pay a set co-pay amount and the pharmacy bills the health plan through a pharmacy benefit manager for the remaining amount, along with a small fee for profit.
5. Pharmacy benefit managers are third-party companies that manage prescription benefits for health plans. PBMs represent millions of patients and use them as leverage to negotiate bigger rebates from the drug company in exchange for offering preferred coverage status for a drug.
6. Once a rebate is successfully negotiated, the drugmaker pays the PBM, who then passes all, some or none of the rebate amount on to the health plan sponsor, depending on their contract.