Monday, November 18, 2019

California is Carving Out Pharmacy Benefits

The State of California, under a directive from Governor Gavin Newsom, is “carving out” the pharmacy benefit for Medi-Cal beneficiaries from managed-care plans and transitioning to a fee-for-service (FFS) program, moving 13 million Medi-Cal beneficiaries to a new pharmacy program by January 2021.

The California Department of Health Care Services (DHCS) cites that transitioning pharmacy services from managed care to FFS will standardize the Medi-Cal pharmacy benefit statewide; improve access to pharmacy services with a pharmacy network that includes approximately 97% of the state’s pharmacies; and strengthen California’s ability to negotiate state supplemental drug rebates with drug manufacturers.


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Under managed-care plans, DHCS, which administers Medi-Cal, pays managed care plans capitated payments, a portion of which cover the costs of prescription drugs. These payments are determined by the negotiated prices between the managed care plans and the pharmacies. Medi-cal beneficiaries can only obtain prescription drugs within their managed care plans’ pharmacy network.

Anh Nguyen, assistant professor of economics at Carnegie Mellon University’s Tepper School of Business, explains under the fee-for-service program, DHCS will directly reimburse pharmacies at their actual cost of acquiring prescription drugs (plus other predetermined fees). Additionally, Medi-cal beneficiaries will no longer be dependent on the pharmacy network of the managed care plan and can obtain prescription drugs to almost all pharmacies in California.

Continue Reading >>

Saturday, November 16, 2019

AARP has released a new Rx Price Watch report

The AARP Public Policy Institute (PPI) has released a new Rx Price Watch report showing that, last year, the retail prices of 267 brand-name drugs that are commonly used by older Americans rose by an average of 5.8%—more than twice the general rate of inflation, which was 2.4%.

In 2018, retail prices for 267 widely used brand name prescription drugs increased by 5.8 percent,
contrasting with the general inflation rate of 2.4 percent over the same period. Despite being more than twice as high as inflation, this was the slowest average annual price increase for widely used brand name prescription drugs since at least 2006.


For over a decade, annual brand name drug price increases have exceeded the general inflation rate by 2-fold to more than 100-fold. The average annual cost for one brand name medication used on a chronic basis was more than $7,200 in 2018, almost four times higher than in 2006.

Tyrone's Commentary:

When monitoring PBM performance, go beyond standard reports. These reports don’t usually uncover problem areas that if resolved cost the PBM money but saves you [plan sponsor] money. How do you go beyond standard reports you might ask? For starters, download a copy of my 18 pt. PBM Performance Evaluation Questionnaire. Work with the PBM account manager on a corrective action plan when problems are uncovered. Some problems might include:

1. MAC list performance
2. Performance guarantee true ups
3. PA and ST rubber-stamping
4. Poor product mix
5. Improper utilization

Complete the questionnaire every month and discuss the results with your PBM account manager as part of a continuous monitoring program. Don't wait until an annual audit it is often too late by then to mitigate overspending for the previous year. Drug cost trends aren't going to bend themselves. It is proactive programs like CM or continuous monitoring which aid in controlling drug costs.  

“To put this into perspective: If gasoline prices had grown at the same rate as these widely-used brand-name drugs over the past 12 years, gas would cost $8.34 per gallon at the pump today,” said Debra Whitman, MA, PhD, executive vice president and chief public policy officer of AARP, in a statement. “Imagine how outraged Americans would be if they were forced to pay those kinds of prices.”

Download Full Report >>

Friday, November 15, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 293)

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.

Thursday, November 14, 2019

Holy cow! Diplomat Pharmacy is a shell of its former self

Diplomat Pharmacy, which sells medications to people with complex conditions and acts as a drug benefit middleman, is a shell of itself. The company was worth more than $3 billion in its heyday in 2015, but is now worth a little more than $200 million after a disastrous third quarter.

The bottom line: Larger specialty drug players — owned by Cigna, CVS Health and UnitedHealth Group — have crushed Diplomat with their size. Now, Diplomat is running out of cash and is being forced to sell assets, or the entire company, because it has "substantial doubt surrounding our ability to continue,” the company said in its earnings report.

Image result for pbm rankings by size"

The pharmacy benefit manager business, which Diplomat just got into a couple years ago, has been a mess. Health insurers continue to drop Diplomat's PBM, including one of Diplomat's largest clients. Executives were not allowed to name the new insurer that is leaving due to a gag clause, but it likely is one of the big insurers that also owns its own specialty PBM.

Tyrone's Commentary:

You can't beat an oligopoly at their own game. You must change the game and then have them compete on your terms or die. Here are three examples of companies who died because the enemy (competition) changed the game: Kodak, Blockbuster and Blackberry. 

Blockbuster was so complacent so arrogant that when the founders of Netflix needed cash in the early stages they offered to sell for $50 million to Blockbuster. The CEO of Blockbuster at the time, John Antioco, laughed them out of the meeting room. His thought was the price tag was way too high. Blockbuster is dead and Netflix's market cap now sits north of $150 billion! 

If anyone from within Diplomat's leadership team is reading this please pick up "The Prince" and "Art of War" two books written by philosopher Niccolo Machiavelli. Here is one takeaway from Machiavelli's Art of War.

"What benefits the enemy, harms you; and what benefits you, harms the enemy."

History is wrought with similar stories WHI and Anthem, for example. Anthem originally sold its PBM to Express Scripts several years ago and decided to re-enter with IngenioRx last year. Walgreen's (WHI) looks like it is slowly re-entering with a recent stake in RxAdvance. I hear all the time, "I could start a PBM its not that difficult to do." Diplomat Pharmacy is a case study for how anyone can start a PBM but executing and surviving is another story.

By the numbers: Diplomat's main business, which distributes high-cost infusion drugs and other medicines that you don't find at your typical pharmacy, is still lucrative. Diplomat made a gross profit of $268 per prescription last quarter.

Continue Reading >>

Thursday, November 7, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 292)

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.

Tuesday, November 5, 2019

Benefits Alert: Chronological Timeline of Prescription Drug Copay Accumulator Programs

Drug manufacturers offer copay coupons on certain expensive drugs. A participant can present a copay coupon to a pharmacy and the copay coupon is applied against the participant’s cost share. A drug manufacturer’s goal in offering a copay coupon is to reduce a participant’s cost share on the drug so that the cost to the patient is comparable to less-expensive generic and/or therapeutic alternatives.

Image result for copay accumulator"
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Even if the drug manufacturer has to fund the majority of the participant’s share of the cost, the drug manufacturer can profit from the transaction because the plan would pay its share of the cost of the drug. We note that, while this trend started with drug manufacturer coupons, other medical providers have started issuing discount or copay coupons as well. The analysis in this alert applies equally to coupons for any medical services.

A copay coupon often has an annual dollar limit aimed at covering a significant portion of the participant’s cost sharing up to a typical participant’s out-of-pocket maximum. The out-of-pocket maximum is the point where the plan pays 100% of the cost of the drug with no further participant cost sharing.

Copay coupon accumulator program timeline

Pre-2018 – copay coupons were undetectable

Prior to 2018, the pharmacy benefit manager (PBM) systems did not distinguish copay coupons from other forms of payment (like cash or a credit card). When a participant filled a prescription at a pharmacy, the coupon was identified as a participant payment. The value of a copay coupon would have been credited against a participant’s deductible and out-of-pocket maximum along with any amounts the participant paid by cash or credit card. The electronic data generated from the transaction did not support any other treatment. Then, leading up to 2018, the PBMs began to implement systems to separately track coupons.

Continue Reading >>

Monday, November 4, 2019

Infusing Radical Transparency into PBM Contracts

I try and call it how I see it sometimes this gets me into trouble oh well. Today, I will speak highly of a competitor. In this industry, competitors rarely speak highly of one another. It is cutthroat but I wouldn't have it any other way. I love the competition. From everything I've seen not heard, Benecard is one of the good actors. It's president, Michael A. Perry, wrote this recently about our own industry kudos to him.

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"Without a universal standard for transparency in PBM operations, pharmacy benefit managers can continue to play financial games and mask income streams, which makes accurately comparing PBMs via today’s standard spreadsheets virtually impossible. Some PBMs may not charge an administrative fee, but instead profit from spread–the difference between what the pharmacy benefit manager pays for a drug and what it charges your client. These expenses, along with other difficult-to-track fees and excessive or even dangerous drug utilization, can add up to significant expenses over time for plan sponsors and their members."

Where do I begin? Let's start with a universal standard for transparency. I'm not sure we need a universal standard for transparency. I propose instead sophisticated purchasers defining for themselves what transparency means to them then hold PBMs competing for their business accountable to this proprietary definition. It's a lot easier said than done which leads me to the second point.

Not only are some PBMs not charging an administrative fee they have begun to also "waive" the dispensing fee. What you give up in these exchanges is exactly the same thing Michael is suggesting we need more of - transparency. The hidden cash flows (see image above) opaque PBMs generate are service fees. The problem is that the service fees are hidden in the final plan costs through complex benefit design strategies which lead to poor product mix and wasteful utilization.

Price is an important factor in final plan cost but so too are utilization and product mix. The latter two make forecasting future costs practically impossible within any reasonable confidence level. If that is true, then any claims repricing done retrospectively should include those cost drivers. Without them performance is only partially measured.

In other words, the radically transparent PBMs focused on eliminating wasteful spending in utilization and product mix with computerized clinical management programs are being left in the cold when the focus is price. This is exactly what opaque PBMs want you to do focus on the front door while they sneak in through the back door. So while radically transparent PBMs might be left in the cold plan sponsors are left holding the bag.

Continue Reading >>

Friday, November 1, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 291)

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.

Friday, October 25, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 290)

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.

Wednesday, October 23, 2019

New York Firefighters Association Cracks Down on Non-Fiduciary Pharmacy Benefit Managers

The 18,000 hardworking men and women represented by the New York Professional Fire Fighters Association work in departments across New York State and respond to more than a million calls each year, ranging from structure fires to multi-vehicle accidents and medical emergencies. Like all workers, these brave men and women feel the squeeze of rising health-care costs and the dangerous spike in prescription drugs.
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As a result, the New York State Professional Firefighters Association is urging Gov. Cuomo to immediately sign a bill that has passed both houses of the state Legislature that would prevent pharmacy benefit managers (PBMs) from using “utilization management” tools, such as step therapy and therapeutic (non-medical) switching programs, when used properly deliver the most cost-effective access to prescription drugs for diseases related to pain management and cancer.

Tyrone's Commentary:

Big mistake on the part of the firefighters association to say the least. For starters, a recent state Senate committee investigation found that a “lack of transparency” and weak oversight allowed PBMs to “engage in self-dealing to the detriment of consumers across New York State” without transparency or proper oversight. Second, CMS recently expanded step therapy so is CMS wrong? If I didn't know any better I would swear NY is stuck in a time warp insofar as managing pharmacy benefits.

If your wisdom tooth hurts every time you brush one doesn't stop brushing that eventually leads to more pain. You get the dang tooth pulled problem solved! The New York State Professional Firefighters Association is advocating to just stop brushing. Work with me here before you begin to pass judgment. You see PBMs generally rely on the demands of its clients for how much transparency they will provide. 

The contract was opaque and due to the association's lack of sophistication it couldn't see it. It would be nice if every PBM offered a fiduciary standard but they don't. Non-fiduciary PBMs are not contractually obligated to put its clients interests over their own no matter what the sales pitch or one-pager tells you. 

Eliminating drug utilization management tools, such as step therapy, will only serve to increase prescription drug costs for firefighters and other workers. Education is the solution to the problem. Get the darn wisdom tooth pulled! 

Continue Reading >>

Tuesday, October 22, 2019

Prime Therapeutics Study: Number of 'Drug Super Spenders' Grew 63% In 3 Years

"Super Spenders" or people who spend more than $250,000 on prescription drugs each year is a small subset; of the over 17 million people that were included in the study, just 4,869 were super spenders for the year 2018, spending over $2 billion on drugs. But that group grew 63% from under 3,000 people in 2016 and accounted for an increase in spending of $795 million from 2016.

Click to Enlarge
There's a reason so many rare disease drugs are emerging; traditional drug spending is trending down. Drugs that treat common diseases are increasingly available in cheaper generic forms. That means that pharmaceutical companies have to rely on the price of specialty drugs to avoid losing money. For example, sales of autoimmune drugs grew by 23% in 2017, according to a different study by Prime.

Tyrone's Commentary:

In specialty pharmacy benefits management (SPBM), 70% of the initial prescriptions written are the right drug. By right, I mean the most cost-effective. It is the other 30% of prescriptions, written by doctors and authorized by PBMs, where the opportunity costs are hidden. Not that these specialty drugs are wrong or bad for the patient they just aren't always the most cost-effective. Three essential considerations in specialty pharmacy benefits management are:

1) Clinical Appropriateness
2) Price or Reimbursement
3) Drug Mix

I cannot stress enough how important it is, for self-funded employers, to have systems in place to execute on those three considerations independent of your PBM's reporting. This is especially true if the PBM is non-fiduciary and/or owns the specialty pharmacy. Moreover, continuous monitoring of the specialty pharmacy benefit on the medical side is just as important as it is on the pharmacy benefit. Medical Benefit Drug Claims or MBDCs are being reimbursed while going largely unchecked.

"There are very few true generic specialty drugs," Dr. Jonathan Gavras, Prime's chief medical officer, said. "The good news is these drugs are effective." More than half of the money spent on drugs is spent on specialty drugs, which are being developed much quicker than traditional medicines. For example, 59 drugs were approved in 2018. Of those, 34 were drugs that treated rare diseases. Not all specialty drugs cost hundreds of thousands of dollars, but most drugs that cost that much are considered specialty.

Continue Reading>>

Friday, October 18, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 289)

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.

Thursday, October 17, 2019

Wasteful Spending in Healthcare Estimated at $760B to $935B

Waste accounts for about 25% of U.S. healthcare spending, new research in JAMA indicates. Reducing spending in the second-highest wasteful category [pricing failure] poses daunting challenges because of the rising prices of pharmaceuticals, the researchers wrote. "New high-cost specialty drugs, which will soon exceed 50% of pharmaceutical spending, are raising new questions about how to maintain affordability."

This topic has thus received considerable attention from policy makers, and numerous proposals are currently under consideration. The researchers say strategies to ease cost pressure in pharmaceuticals include increasing market competition, importing drugs from countries with lower medication prices, and reforming price transparency.

Tyrone's Commentary:

Ohio's Medicaid Director, Maureen Corcoran, said, "Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on necessary changes in an educated way.” This was in response to a question from a reporter about Ohio's new prescription drug pricing system. Radical transparency is tough to come by when purchasers don't fully understand key pricing benchmarks and how they play in PBM service agreements. At the end of the day, success in eliminating overpayments to non-fiduciary PBMs is relative to the purchaser's level of sophistication.
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The JAMA researchers generated several key data points:

  • Annual wasteful spending on healthcare is estimated from $760 billion to $935 billion.
  • Interventions to reduce waste in the six IOM categories would result in annual savings from $191 billion to $282 billion.
  • The annual cost of wasteful spending from administrative complexity accounts for the highest category of waste, estimated at $265.6 billion.
  • The annual cost of waste from pricing failure is estimated from $230.7 billion to $240.5 billion.
  • The annual cost of waste from failure of care delivery is estimated from $102.4 billion to $165.7 billion.
  • The annual cost of waste from overtreatment or low-value care is estimated from $75.7 billion to $101.2 billion.
  • The annual cost of waste from fraud and abuse is estimated from $58.5 billion to $83.9 billion.
  • The annual cost of waste from failure of care coordination is estimated from $27.2 billion to $78.2 billion.

The impact of likely interventions to reduce wasteful spending are significant but limited, the researchers wrote.

Continue Reading >>

Monday, October 14, 2019

Michigan wants to save $40 million by cutting non-fiduciary PBMs out of Medicaid

Michigan is the latest among state Medicaid programs to back away from pharmacy benefit managers (PBMs), choosing instead to enable fee for service drug payments billed to Michigan’s health department through a single, state-contracted PBM.

Michigan’s Department of Health and Human Services (MDHHS) announced that the state will eliminate its outpatient prescription drug coverage as a Medicaid health plan (MHP) benefit. Instead, these drugs will fall under a fee for service Medicaid model starting December 1, 2019.

This means that pharmacies and providers will instead bill prescriptions directly to the state’s PBMs at the point of sale. Previously, Medicaid health plans covered prescription drugs. There are several benefits to a PBM carve-out chief among them include:


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I'm often asked, "Tyrone why do you do this offer advice which might hurt your business?" The short answer is it doesn't hurt my business. My business is predicated on doing what is in the best interest of our clients first. Sometimes these decisions involve lower revenues to TransparentRx. Other times it means more revenue because we don't have to deceive our clients or tell half-truths to grow.

Continue Reading >>

Friday, October 11, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 288)

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.

Thursday, October 10, 2019

Courts Look Closely at the Contractual Relationship Between Plan Sponsor and PBM

In re Express Scripts/Anthem ERISA Litig., 285 F. Supp. 3d 655 (S.D.N.Y. 2018), the district court concluded that pricing provisions in the relevant PBM agreement did not give the PBM discretion over pricing, as the plaintiffs alleged.
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Under the provisions, the health benefits provider contracting with the PBM could perform a periodic market analysis to test whether the PBM was providing “competitive benchmark pricing” to the health benefits provider. If the analysis revealed that pricing was not competitive, the PBM was obligated to negotiate in good faith over new pricing.

The court rejected the plaintiffs’ argument that the PBM’s ability to set pricing pursuant to its own interpretation of “competitive benchmark pricing” amounted to discretion over pricing, concluding that the PBM was only executing the PBM agreement’s pricing scheme.

Tyrone's Commentary:

Why do plan sponsors continue to have their hats handed to them by non-fiduciary PBMs? For starters, your approach is wrong! The court wrote and I quote, "the PBM was only executing the PBM agreement’s pricing scheme." In layman's terms, the court is saying it is a lack of education which allows these pricing schemes to prevail and it [court] will not bail you out for being uneducated. In response to Ohio's new approach to managing drug costs, Ohio's Medicaid Director, Maureen Corcoran, recently said, "Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on necessary changes in an educated way." Transparency starts with the contract language folks not price quotes. Win radical transparency first then lower prices follow. Ohio finally gets this do you? Here is my final point. The best driver of lowest net cost is being a highly educated purchaser of PBM servicesPurchasers need to understand not only what they want to achieve in their relationship with their PBM but also the competitive market and their ability to drive disclosure of details on services important to them. 

Similarly, the court rejected the plaintiffs’ argument that the PBM’s ability to maximize the spread between the prices it paid and the amounts it billed to insurance companies and insureds made it a fiduciary, again noting that the PBM agreement contemplated such activity and did not require the PBM to pass on savings to participants.

Continue Reading >>

Thursday, October 3, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 287)

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.

Tuesday, October 1, 2019

New prescription drug pricing system reins in non-fiduciary pharmacy benefit managers

It took hundreds of millions of dollars wasted, but the state of Ohio finally gets it. Before I address what "it" is allow me to revisit a blog I wrote just yesterday. The timing of that blog couldn't have been any better.

In the blog I wrote, "Many purchasers (plan sponsors and their advisers) select the PBM vendor who puts the lowest price on the table. Lowest price involves several variables including admin fees, rebate guarantees, AWP discounts and most important contract language. The problem is plan sponsors are putting a premium on the "numbers" and largely discounting the contract language."

Seasoned executives or brokers can be seduced into placing more emphasis on the spreadsheet instead of the contract language. For example, price quotes are simply an estimate of what the plan sponsor would have spent had the historical utilization matched that of the proposing PBM (a lot in this sentence). Furthermore, the future actual cost is unknown. As a result, the plan sponsor’s PBM contract is the most important tool to address the actual level of spend - not cost projections.

Then today I come across an article in the Columbus Dispatch in which the state of Ohio's Medicaid Director, Maureen Corcoran, says this in response to a question posed by a reporter...

“Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on” necessary changes “in an educated way.”

Maureen stated exactly what I've been preaching for the past seven years! Yet, very smart people, from the CFO down, are having trouble grasping this approach. I'm often asked, "Tyrone, tell me again why the proposal with the lowest cost isn't necessarily the lowest cost?" The simple answer is the contract language sets the foundation for all of the financials - not the other way around.

It is through continuous PBM education you become a more sophisticated purchaser of pharmacy benefits which inevitably leads to radical transparency in your PBM relationship(s).

Continue Reading >>

Monday, September 30, 2019

Milton Friedman's Shareholder Theory Is Wrong Afterall

In 1970, Milton Friedman’s article “The Social Responsibility of Business is to Increase its Profits” set the standard that has long been followed. The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders.

The Business Roundtable recently changed its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.

Many purchasers (plan sponsors and their advisers) select the PBM vendor who puts the lowest price on the table. Lowest price involves several variables including admin fees, rebate guarantees, AWP discounts and most important contract language. The problem is plan sponsors are putting a premium on the "numbers" and largely discounting the contract language.

Non-fiduciary PBMs subscribe to Mr. Friedman's philosophy. They will overcharge for their services if plan sponsors continue to put financials over contract language in a PBM services agreement. Consider this, non-fiduciary PBMs know how you evaluate proposals and tailor their pitches to your procurement strategy.


A fiduciary is the highest standard of care yet shouldn't be the goal for every plan sponsor. The goal for every plan sponsor should be radical transparency. Once a plan sponsor acquires superior market knowledge and overcomes information asymmetry, they are winning radical transparency. Sometimes though it requires walking away from the free dispensing and free admin fee proposals that non-fiduciary PBMs are putting in front of you. Not an easy thing to do unless you attain superior market knowledge

It is a myth that the Big 5 offers better price savings just because of their size. Sure, they have more purchasing power, but their clients often don't realize the full benefit. For example, if my rebate aggregator pays us a $3000 rebate for drug "A" every penny goes back to the client with an audit trail. The Big 5 might earn $4000 on that same drug, but retains $1200 in-house. The plan sponsor pockets an additional $200 working with a radically transparent, albeit smaller, PBM. A similar scenario plays out in mail, specialty and retail pharmacy networks.

Price quotes are simply an estimate of what the plan sponsor would have spent had the historical utilization matched that of the proposing PBM (a lot in this sentence). Furthermore, the future actual cost is unknown. As a result, the plan sponsor’s PBM contract is the most important tool to address the actual level of spend - not cost projections.

If you've never considered the PBM service fee in how you procure pharmacy benefit management services, watch the 5-minute video. The PBM service fee isn't what you think it is. It is the fee a PBM recoups for providing their services to plan sponsors. For non-fiduciary PBMs, the bulk of this fee is buried in the final plan pharmacy cost.

Friday, September 27, 2019

How to Assess the Value of Cell and Gene Therapies: ICER's Founder

According to Steven Pearson, MD, founder and president of Boston-based Institute for Clinical and Economic Review (ICER), science is producing a growing number of gene and cell therapies to treat spinal muscular atrophy, leukemia, and other conditions, but payers and providers don’t have the information they need to determine what they should pay for these treatments.
Image result for USA cell and gene therapy market growth

These are either single or short-term therapies that can deliver clinical benefits for the rest of a patient’s life. That’s a departure from the historical norm where patients take a drug on a daily basis. If a health insurer is paying for these new gene and cell therapies just once, it’s going to be a steep price, Pearson tells Managed Healthcare Executive.

Tyrone's Commentary:

While research and development can indeed carry large costs and span multiple years, there is simply more to pricing drugs. Many modern-day assessments cite the value that a new drug brings to patients, along with savings incurred by the health system, as more relevant factors that drive drug price. 

I'm in the camp that drugmakers set prices based on whatever the market will bear, especially since demand for some therapeutic drugs is relatively inelastic — in other words, demand does not change much in response to price changes.

Pharmacoeconomic studies, such as those offered by ICER, may seek to quantify the value of a drug by calculating the estimated cost of an intervention per quality-adjusted life year (QALY) added by the drug. Cost savings resulting from a drug are often calculated through the cost of clinical services, hospitalizations, and other less effective medications that untreated patients would otherwise incur. 

If rare value and lack of alternatives drive high cost for specialty drugs, what could cause increases in generic drug prices?

The challenge payers are facing is they’re asked to pay a significant cost during the year the patient receives treatment, but there’s uncertainty around these treatments. The biggest question payers are wrestling with is this, he says: “How can we pay so much if [we’re unsure] the cure will last or what if it wears off in a few years?”

Continue Reading >>

Thursday, September 26, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 286)

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.

Wednesday, September 25, 2019

Can Formulary Management Bring Specialty Drug Spend Back Down to Earth?

Prescriptions for selected specialty
therapy areas, 2013 and 2018 

(Source: IQVIA, “Medicine Use and Spending in the U.S.,” May 2019)
Formulary management techniques continue to drive down expenditures for traditional medicines. It’s a different story, though for specialty drugs. In 2018, U.S. spending for traditional medicines fell 3.4% on a per capita basis while spending on specialty medicines trended north by 5.8%, according to IQVIA’s “Medicine Use and Spending in the U.S.” report. Total nondiscounted spending on specialty drugs was $218.6 billion, or 45.4% of total pharmacy spending of $482 billion, according to Doug Long, vice president of industry relations at IQVIA.

Nondiscounted spending includes all fees and other costs in the pharmaceutical supply chain, such as rebates and dispensing fees. Some say it is a more accurate figure for drug expenditures than, say, the net revenue of manufacturers, which is more commonly reported. Express Scripts painted a similar picture to IQVIA’s in its 2018 Drug Trend report.

In 2018, spending on traditional and specialty medicines seesawed for Express Scripts’ amalgam of commercial, Medicaid, Medicare, and ACA plans; spending on traditional medicines fell by 5.8% while spending on specialty medications rose by 9.4%. Express Scripts reported that specialty medications accounted for 44.7% of its total pharmacy expenditures, a number very close to the proportion reported by IQVIA. The company warned in its report that the specialty medicines could reach 50% of total pharmacy expenditures as soon as next year.

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Monday, September 23, 2019

AARP Rx Price Watch Report Shows Prescription Drug Prices Increase by Double the Rate of Inflation

The latest Rx Price Watch report by Leigh Purvis and Dr. Stephen W. Schondelmeyer finds that retail prices for widely used prescription drugs increased by an average of 4.2 percent in 2017. In contrast, the general inflation rate was 2.1 percent over the same period.

Tyrone's Commentary:  If what you're doing right now isn't bending the Rx trend, try something different.
Image result for prescription drug price trend 2018
In 2017, the average annual retail cost for 754 brand name, generic, and specialty prescription drugs used to treat chronic conditions was almost $20,000 per year. This average annual cost was nearly 20 percent higher than the average Social Security retirement benefit ($16,848). The annual drug cost was also more than three-quarters of the median income for Medicare beneficiaries ($26,200) and almost one-third of the median US household income ($60,336).

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Thursday, September 19, 2019

Reference Pricing: "Gross" Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 285)

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.

Wednesday, September 18, 2019

Special Report: Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans

A non-fiduciary PBM would prefer that its clients not know just how much revenue or hidden cash flow it generates as a service fee. There are three primary methods in which a non-fiduciary PBM will look to drive revenue. The three primary methods are: spreads, rebates and benefit design. Spreads and rebates are much talked about benefit design not so much at least not where overpayments are concerned.

Usually, the benefits design conversation is about keeping employees happy or limiting disruption to their benefits experience. It's an appropriate conversation to have but certainly not the only one to be had around benefit design. If an employer closes off spread and rebate overpayments to a non-fiduciary PBM, sure enough the non-fiduciary PBM will look to make up for that lost revenue in the benefit design.

The Pacific Business Group on Health commissioned an excellent report, "Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans" which you must read. Here are a couple of recommendations from that report.
Source:  Pacific Business Group on Health

Image result for whack a mole
Non-fiduciary PBMs are good at this game!
I had this discussion with a seasoned benefits consultant who couldn't believe that this actually happens. That a PBM would poorly design a pharmacy benefit plan so to protect its revenue. He was surprised to learn that a PBM would take this route to protect its margins. I was taken aback that he was clueless to this ballooning tactic.

A good benefit design is one that is both cost-effective and gets medically appropriate drugs in the hands of patients. Cost-effectiveness is the act of saving money by making a product or performing an activity in a better way. It is easy for a PBM to get a medically appropriate drug in the hands of a patient yet that drug may not be cost-effective, for example.

One last word on #10 above. If your finance or accounting teams have not been properly trained, preferably by someone with PBM insider experience, then they too will leave money on the table. It's a game of whack-a-mole with big stakes. Without training from a PBM insider, a non-fiduciary PBM will always beat you at that game.

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Tuesday, September 17, 2019

Oncologists Getting 6% of Drug Price Is 'Financial Conflict'

"No one is immune from monetary temptation. We have a system that rewards oncologists and their chemotherapy offices with more money for giving more expensive chemo. This has to change," said Vincent Rajkumar, MD, a professor of medicine and a hematologist/oncologist at the Mayo Clinic, Rochester, Minnesota. "Last week a myeloma patient told me his oncologist had switched him from Zoledronic acid (ZA) to a 'new, easier' option: denosumab. A recent @ASCO guideline in @JCO_ASCO said both were options. ZA is ~$70; Denosumab is ~$2000. The oncologist gets 6% of the drug he/she chooses."

Distorted Model

Drugs that are administered by infusion or injection in physician offices and in hospital outpatient departments are covered by Medicare Part B, as are certain products furnished by suppliers. Under the current system, oncology practices must buy the chemotherapy drugs up front. The cost for drugs may vary; in the United States, Medicare reimburses costs on the basis of the average sales price (ASP) plus 6%. The 6% is meant to cover any variation in the acquisition price, as well as overhead.

Image result for asp pricing model
Source:  Academy of Managed Care Pharmacy
Tyrone's Commentary:

A big chunk of overpayments made by self-funded employers to PBMs can be eliminated by uncovering the most important objective of the PBM. Is their primary objective to make money or to help clients? Yes, you can still make money and put clients first. There are PBMs telling clients that therapeutic substitution is a bad thing. In other words, PBMs who engage in therapeutic substitution programs do it only to drive rebates for themselves. The truth is some do and some don't. More important, is the PBM's primary objective this ultimately drives financial and sometimes clinical decisions. Avoid the "Happy Ears" syndrome and trust your PBM training and education not what the PBM tells you. This story highlights why therapeutic substitution programs are a valuable drug utilization management tool when used appropriately. It is applicable to both the pharmacy and medical drug spend categories. By the way, how much time are you allocating to monitoring the medical drug spend outside of reviewing standard reports? If the answer is little to none you might want to take a serious look. You will likely discover gross overpayments.

As Rajkumar noted in his Twitter thread, that means that providers will be paid more money for prescribing a more costly medication, even if a less costly and equally effective alternative is available — such as the case he highlighted with the myeloma patient being prescribed denosumab (Xgeva, Amgen) in place of zoledronic acid.

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