Posts Tagged ‘Change in AWP’

PBM Consulting – New AWP Benchmark

Friday, August 20th, 2010

Here we are approaching the one-year anniversary (September 26, 2010) of the effective date of the McKesson AWP settlement, and unfortunately, little has changed.  At WBC (wbcbaltimore.com) we have followed this case from the get-go, through negotiation and settlement. We have helped our clients with their direct participation in the class action settlement, as well as active involvement in evaluating their PBM.   The question remains: where’s the new pricing standard that was anticipated?

As a refresher, part of the settlement involved the publishing of AWP by First DataBank, who along with McKesson Corp., were defendants in the action.  One of the remedies was for First DataBank to cease publication of this standard within 2 years of the effective date of the settlement.  Many thought a new benchmark would be introduced in short order to replace the perceived gap in a reliable and representative alternative.  Much was written about whether WAC, AMP or ASP would fill the void.  Several PBMs altered their benchmark and have adopted WAC in their pricing proposals.  So what happens? The vast majority of PBMs simply adjusted their pricing discounts to reflect a lower AWP.  They tauted it as “cost-neutral” to the client.  What they didn’t say was the adjustment. i.e. reduction in cost,  did not save the client any money.  They did, however, remind  clients that they weren’t going to be charged more!

To further delay the wheels of change, Wolters Kluwer, the publisher of Medispan, which is the largest competitor to First DataBank’s AWP’s Blue Book, has announced that they will continue to publish AWP “until relevant industry or governmental organizations develop a viable, generally accepted alternative.”  Interestingly, Medispan was a party in the settlement and had agreed to stop publishing by September 26, 2011.  Let’s see if Judge Saris, the judge who heard the case and approved the settlement, has anything to say.

There really is no national standard that has gained traction as a suitable alternative. A committee that was commissioned by the National Council for Prescription Drug Programs recommended that WAC be used as a replacement benchmark for single-source drugs, while no recommendation was made to cover multi-source products.  In our opinion, the best bet for future guidance seems to reside with our friends at CMS. They prefer AMP, and plan to begin publishing AMP pricing in October. We believe that if and when this occurs, the rest of the industry will fall into line within a year. It is a big “if” however, since the retail pharmacy associations don’t seem to want any part of more transparent pricing, at least as it applies to their pharmacy setting. When CMS announced a recent plan to produce pricing surveys and publish results with acquisition cost pricing, they were faced with a firestorm of resistance from the pharmacy lobbies.  Litigation has been promised if CMS continues to pursue this course, so we’ll have to wait and see what happens.  It may be a harbinger of things to come related to PBM pricing benchmarks.  Stay tuned!

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PBM Consulting -Trends in Pharmacy Benefit Management

Thursday, February 25th, 2010

Plan sponsors are requiring more from their PBMs…. more service, more transparency, more cost reduction. What are the industry trends that will influence the PBM industry’s ability and willingness to deliver?  WBC, along with our subsidiary PharmaSeer, gazes into our crystal ball to predict what you can expect….

imageTop 10 Trends for 2010/2011 and Beyond:

1. Value-Based Plan Design. For all Wellness and Population Health Management programs, compliance is the name of the game. Helping members stay compliant with drug therapies through the removal of potential barriers is how it’s done. Benefit designs that reduce or eliminate co-pays that may serve as a financial deterrent, as well as creative home delivery incentives and maintenance-at-retail options will prevail. Also, 4th and 5th tier plan designs will become commonplace.

2. Generic Utilization. Still the big enchilada of Rx cost-containment strategies. Profitable for the PBM, lowers cost to the plan sponsor and member.  What’s not to like?  Keep in mind that a plan sponsor needs to check to make sure that the PBMs efforts to drive home delivery generics do not create a higher net cost to the sponsor when compared to retail for certain drugs. Requiring the broadest MAC list, without allowing the PBM to switch lists at its discretion, and having it apply at both retail and mail is the way to slay.

3. Right-Sized Networks. A WBC-term that sounds so much better than “restricted.”  Do we really need 57,000+ stores to meet the needs of our members? In a word, no. Most groups will do just fine with a 30,000 store option and many can work with only 18,000 stores in the network. Plan sponsors can reduce their cost through better discounts and reduced net cost pricing by creating steerage to a directed network using a Walmart or Walgreen’s, as examples.

4. Restricted Formularies. Let’s call it “select formularies.” These are closed formularies that have been crafted based on a true net cost objective and evidence-based value, not for the purpose of generating rebates.

5. New Pricing Methodologies. The bell tolls for AWP! Let’s not lose the opportunity to create more transparent pricing as we move toward actual acquisition cost basis. In the interim, we’ll see more  AMP or WAC alternatives. This extends to pricing requirements for an all-inclusive generics option, so that the gaming of adjudicating at brand or non-MAC discounts is eliminated. Specialty will move toward ASP pricing.

6. Specialty Integration. Specialty continues to grow as a significant piece of the drug spend. Too often, a PBM account manager can’t answer client questions regarding specialty utilization due to lack of communication between operating groups. Cost savings can only occur through better unit cost discounts and therapy management. A recent study indicated that only 50% of self-funded employers have adopted a specialty drug strategy.

7. Personalized Medicine. Genetic testing to determine which medication therapies have the best chance at improving a patient’s health status or controlling their disease state. Several PBMs are investing heavily is this arena.

8. Comparative Effectiveness Research. Does a new drug really work better or does it just cost a whole lot more?  This is the question to which  plan sponsors will demand an answer. Evaluating NNT (“Numbers Needed to Treat”) will make a resurgence amongst epidemiologists and will be introduced to employer plan sponsors.

9. “Follow-On” Biologics. Generic versions of expensive specialty drugs, sometimes referred to as “Biosimilars” or “Follow-On” Biologics, will push forward, at least as long as Rep. Henry Waxman stays in office. The EU has approved 10 biosimilars for use in Europe. The FDA will need to sign-off on a pathway for the approval process in the U.S.  Waxman’s H.R. 1427 will be resurrected this year.

10. Drug Importation. Another political football that seems to have public support. A trade-off of pharma’s endorsement for healthcare reform was for Washington to kibosh the importation initiative. We don’t expect it this year, but bet it will come to pass prior to 2012 election

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AWP Settlement – Who Pays?

Friday, October 2nd, 2009

As most pharmacy benefit plan sponsors know, the new change in AWP became effective on September 26, 2009. On that date and in response to the associated court settlement, First DataBank and Medi-Span adjusted the AWP mark-up over the wholesale acquisition cost (“WAC”) to no more than 20%. This represents an approximate 4% reduction in AWP for 1,440 NDCs included in the settlement and an additional 21,500 NDCs that are being voluntarily included. Many imagePBMs have proffered adjustments to their contracts with plan sponsors to address this situation.  The underlying question, however, is “Who pays?”

The Plan sponsor should be expecting to hear good news. “Guess what, your costs for providing prescription drugs have gone down.” But in the PBM world, this is not what happens. There are several approaches  that the PBMs are using to respond, with no universal answer. The vast majority of PBMs have presented an alternative that they claim is “cost-neutral” and maintains the “original economic intent” of the contract for PBM services. This means that none of the parties in the PBM contract are expected to change their relative economic positions that were in effect prior to September 26th.

Most of the PBMs have asked their plan sponsor clients to accept a reduction in the contractual discounts designated in their current PBM contract. An AWP-15% discount will become AWP-12.75% under the new pricing arrangement. While this approach may create equity when compared to pre-September 26th pricing, is that really the fair approach? And more importantly, should it be “sold” to the sponsor as a “no one pays more” solution.

Here’s an example: old AWP is $100 with a 15% discount = $85. Now, the new AWP will be $96. This should be good news to the sponsor. But the PBMs know that if they honor the 15% discount, one of two things happens: one, the PBM has to eat the reduction in their profit margin because they are obligated to pay the pharmacies in their retail network a contracted price; or two, the pharmacy has to accept reduced margin for their transaction.

From the view of the pharmacy, when AWP for our example drug was $100 with a 15% discount, the pharmacy was paid $85. If their cost is $80, they received the $5 spread plus a dispensing fee of say, $2.00, so their total earned was $7 on this Rx.

Now, the new AWP will be $96 and the plan sponsor’s 15% discount creates a cost to the sponsor of $81.60, not $85. The pharmacy would see their spread on the script reduced to $1.60 ($81.60 minus $80 cost). The $2.00 dispensing fee is added to the  $1.60 for a total earned of $3.60. This cuts their “profit” almost in half! Who pays?

Well, the answer under this “cost neutral” approach is the plan sponsor. Back to our example: In order to keep the pharmacy and the PBM whole, the PBM asks the sponsor to reduce the contracted discounts. The $100 AWP that becomes $96 now has a discount of 12.75% in order to create a “cost-neutral” invoice of $85, the same as pre-September 26th. The PBM doesn’t have to subsidize the pharmacy and the pharmacy doesn’t have to cut their margins.

While it’s true that this approach won’t require the sponsor to pay more than they are currently paying, they are not paying less. Some would argue that paying less is the objectivewhen hiring a PBM to manage pharmacy costs.

That being said, is this solution acceptable? It depends on the view of the sponsor. The threat from not accepting this option is a potential loss of pharmacies in your network. Most PBMs have protected themselves by included language in their contract for services with the plan sponsor that reserves the right to alter pricing in the event of this AWP change. The plan sponsor may decide to find a PBM that is more aligned with the sponsor’s interest. The PBMs, of course, prefer to present it as a “painless” adjustment, in an attempt to not alienate their clients. You must keep in mind, however, that someone always pays!

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