Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 295)

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 more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

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

— Tip —

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

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.

OptumRx overcharged Ohio BWC by millions, Attorney General says

OptumRx caused millions of dollars worth of excessive costs for prescription drugs used through the Ohio Bureau of Workers’ Compensation, claims a new court filing by Ohio Attorney General Dave Yost’s. After months of mediation with the PBM failed to resolve the legal dispute, Yost’s office filed an updated complaint Friday saying OptumRx “overcharged millions” by levying excessive costs for drugs prescribed through the Ohio Bureau of Workers’ Compensation. 

OptumRx breached its contract by not living up to its obligation to give the state the best available rate, Yost’s office says. The lawsuit contends that OptumRx charged Ohio more so it could offer other clients lower costs. 

Tyrone’s Commentary:

Dumb money is what I call it when a plan sponsor enters into an agreement with a less than radically transparent pharmacy benefit manager. Average purchasers of PBM services are often shoved under the “dumb money” umbrella. If you fall into this category, try not to take offense. The terms “dumb money” and “smart money” were coined by the financial media, not to insult anyone’s intelligence, but to describe different groups of plan sponsors.

Dumb money allows for overpayments to PBMs which smart money does not permit. Smart money covers the overhead. Dumb money pays for bloated payrolls, corporate jets and most important inefficient PBM business operations. How can dumb money become smart money? You start with education as the state of Ohio has done.  

During an RFP or other competitive bidding process, a sophisticated purchaser of PBM services considers contract nomenclature as the most important factor in evaluating PBM proposals. Dumb money is looking for the best optics (i.e. proposed savings, highest AWP discounts, or biggest rebate etc..). If you don’t have a contract scorecard now is the time to start. Be careful though with whom you allow to score PBM contract language. You could make this PBM sales executive a very happy camper.

Andrew Krejci, spokesman for OptumRx, said in a statement: “We are honored to have delivered access to more affordable prescription medications for the Ohio Bureau of Workers’ Compensation and Ohio taxpayers. We believe these allegations are without merit, and will vigorously defend ourselves.” Optum’s contract with the bureau was not renewed when it expired on October 31, 2018.

Continue Reading >> 

A Prominent Attorney and Advocate for PBM Transparency Says State Medicaid Plan Hemorrhaging Money

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A national drug-pricing consultant says that despite implementing a new pricing system and other efforts to rein in pharmacy middlemen, Ohio’s Medicaid program continues “hemorrhaging” tax dollars.

“You are hemorrhaging money right now,” Linda Cahn, a critic of pharmacy benefit managers, or PBMs, told the Joint Medicaid Oversight Commission on Thursday.

PBMs hired to oversee the $3 billion-a-year drug program have contracts that allow them to increase profits rather than keeping costs down, she said. The profits are largely hidden and come from rebates from drug manufacturers, manipulating drug costs, self-dealing with affiliated pharmacies and other loopholes, she said.

Tyrone’s Commentary:

The three most important aspects of winning radical transparency from a non-fiduciary PBM, in this order, are:

1) Internal PBM Expertise
2) Contract Nomenclature
3) Benefit Design

#2 and #3 above suffer when purchasers of PBM services lack the requisite knowledge and resources to achieve radical transparency in their PBM relationship. Most plan sponsors don’t know what they don’t know. If a state with unlimited resources requires help in all likelihood so do you.

“There are so many problems here, you have to write a contract that addresses all of them, and you have to bring in people who know enough about this to help the Medicaid division do that …it’s a very complex industry,” Cahn said.

“If you address all of the problems, you will dramatically, dramatically reduce your cost and end up with far better coverage.”

Continue Reading >>

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 294)

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 more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

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

— Tip —

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

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.

American College of Physicians Position Paper: Recommendations for PBMs to Stem the Escalating Costs of Prescription Drugs

This position paper was drafted by the Health and Public Policy Committee of the American College of Physicians or ACP, which is charged with addressing issues that affect the health care of the U.S. public and the practice of internal medicine and its subspecialties. The ACP believes that transparency is an important component of the efforts to lower the cost of prescription drugs and can contribute to ongoing efforts to address the cost of the U.S. health care system.

The authors reviewed available studies, reports, and surveys related to health plans and PBMs from PubMed, Google Scholar, relevant news articles, policy documents, and Web sites and primarily looked at costs and spending associated with PBMs, PBM rebates and negotiations, and transparency.

Pharmacy benefit managers originated for the purposes of claims processing, mail order pharmacy services, and retail pharmacy network management and started to evolve as employers began including broad prescription drug coverage in their employee benefit packages. Their role increased in subsequent decades, particularly after passage of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003.

After passage of the act, PBMs generally represented Part D plans in negotiations with pharmaceutical manufacturers because the federal government was prohibited from negotiating prices directly with drug manufacturers. The function of a PBM is to negotiate rebates with pharmaceutical manufacturers in exchange for favorable placement of drugs on tiered formularies. The PBM then passes those rebates on to employers or plan sponsors, who in turn pass the savings from rebates on to employees or beneficiaries through lower premiums.

Tyrone’s Commentary:

Pass-through and Transparent PBM business models are often the same in name and performance. Watch the YouTube video above. 

PBMs have been criticized for a lack of transparency, and there can be confusion or misinformation about how they work, how they contract with employers or purchasers, how they make decisions about formularies, how much money they take in, and how much money is actually passed on to consumers. At the state and federal level, policymakers are attempting to improve transparency for PBMs and other parts of the supply chain.

Download Position Paper >>

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 >>

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 >>

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.

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

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

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

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

— Tip —

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

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.

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.

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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 >>

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.

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

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

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

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

— Tip —

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


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.