Posts Tagged ‘Evaluating PBMs’

PBM Consulting – Medco/Express Scripts Deal Almost Ready

Thursday, March 8th, 2012

The clock is ticking and it looks like the Express Scripts acquisition of Medco is almost ready to be approved. At WBC (www.wbcbaltimore) we been telling our readers for some time now not to believe the negative hype. This was a strong story that supports legislative efforts to reduce health care costs. Reducing pharmacy benefit costs is a big piece of the puzzle and the combined strengths of two solid pharmacy benefit titans is too good to pass up. Wall Street has warmed to the anticipated reality driving Medco stock to recent new 52-week highs. Not to mention the stampede to  Medco after their recent earnings call where Mr. Snow was giddy in announcing RECORD performance in all financial metrics!

Our Inside-the-beltway sources have told us that the deal is eminent, contingent on a couple of adjustments.  The main issue is a requirement that the newly formed “Expredco” will shed one of it’s Specialty pharmacy units.  You remember Specialty. Still the fastest growing component (20% trend) in a plan sponsor’s pharmacy drug spend.  Well, the powers that be have to throw the howling wolves (NACDS and NCPA)  a bone, so the sacrificial lamb will be Accredo, Medco’s superb Specialty management company.  Talk about throwing the baby out with the bathwater!  But that seems to be the price they must pay to get the deal done.  Recent press releases showed, for the first time, a softening of position by the community pharmacists, who said they could live with the new environment, as long as they get to participate in filling Specialty scripts.  We’ll see how it plays out.  As usual, stay tuned!

Tags: , , , , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Managing Your Pharmacy Benefit Manager

Thursday, August 4th, 2011

Relationships, like fine wine, sometimes spoil when mishandled. This is true with family, friends and business partners. At WBC (wbcbaltimore.com) we know that Pharmacy Benefit Managers (“PBMs”) can be added to that list.  Many times, a plan sponsors’ relationship with their PBM sours as a result of negotiating agreements with incomplete or inaccurate information. PBM consulting that offers terms, conditions, and pricing that an  Rx plan sponsor thinks they have bargained for to reduce prescription drug costs can turn out to be quite a bit different in practice!

PBM operations have been one of the best kept secrets in managed care. As a result of litigation over the past few years, many otherwise little-known business practices have come to light.  Stories regarding multiple pricing lists, huge pricing spreads, underreported rebates and non-compliance with contracted discounts have become rampant.  WBC  helps our clients and blog subscribers become better informed as to the PBM business practices that will influence their ability to control prescription drug costs. Our clients know what to look for in a PBM contract and why incorporating contract validation and audit provisions are so important!  We also help them better manage their PBM relationships which will directly reduce their overall drug spend.

The question then becomes “who is managing whom?”  If plan sponsors are the object of PBMs desire, shouldn’t the sponsor be in a position to, if not dictate terms, at least know the rules of engagement?  Unfortunately, too many plan sponsors have been willing to accept the four most damaging words in the PBM lexicon: “It’s standard industry practice.”  By accepting these “standard” practices, plan sponsors have allowed their PBMs to profit, some would argue, unfairly, at the expense of the plan and their members.

The first decision that a plan sponsor should make is to select a PBM business model that is consistent with the sponsors’ own operating philosophy.  There are typically three choices: Traditional; Transparent; and Pass-Through. Traditional is the most elusive.  The PBM will quote a pricing framework, including discounts and dispensing fees, along with shared rebates. Under this choice, little is actually disclosed about cash flows that are generated through the account and the majority of contractual features are left open for the PBM to interpret. The second option, Transparent, is really more opaque than clear. The PBM will declare some level of “disclosure” and will share some of their former windfalls, but they are still not handing over the keys to the kingdom. They may still be bound to achieve their own financial forecasts that are generated based on the financial underwriting assumptions they make when pricing a client account , particularly those PBMs that are publicly traded and have to meet analysts quarterly earnings expectations. The third option, Pass-Through, means that 100% of all sources of revenue generated through the plan sponsors prescription drug purchases,  is passed along to the plan sponsor.

Each of these three choices carries its own advantages and drawbacks. WBC believes that it is the responsibility of the benefit consultant to make sure the plan sponsor is fully informed.  It’s interesting when a PBM will tell the plan sponsor that they will offer all three types of options.  They will also claim that it doesn’t matter to them which offer the client elects, because it’s the same financial outcome to the PBM, based on how they have structured their pricing and administrative fees. This outcome seems philosophically incongruent and demonstrates the financial manipulation at the disposal of the PBM.   In our view, a PBM should offer one over the others.

Visit us again as we cover the additional crucial components for managing your PBM relationship in order to reduce your pharmacy benefit costs.

Tags: , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Express Scripts Buys Medco

Thursday, July 21st, 2011

We at WBC (wbcbaltimore.com) knew that Express Scripts (“ESI”) was hunting, but didn’t expect them to bag an elephant!  Express Scripts Buys Medco is quite the story!  The bigger question for Rx plan sponsors trying to reduce the cost of prescription drugs is “How will this effect my plan?”  The new combined entity will be a whopper with 1.3 billion prescriptions annually and $111 billion in revenues. This should prove a GREAT integration project!

To say Medco has had a tough year would be an understatement. First came the CALPERS scandal, the fallout of which is still unknown.  There may be much more in this story than has been reported.  Second was the announcement that Medco would lose the Federal Employees business; and finally, a sidebar announcement today that the much rumored United Health deal, would, in fact, not be renewed with Medco.  This seemed to be the third nail in the Medco cross that made the ESI acquisition a reality.

How this impacts prescription drug benefit plan sponsors trying to reduce the costs of prescription drugs remains to be seen.  The bally-hooed party-line will yak about how the new scale of the combined companies will represent purchasing power that generates fabulous pricing, but as we’ve pointed out in this column before, it’s not what the PBM buys, but what they bill!  We’re pretty sure that special deals (if any)  obtained by ESI/Medco in the future will accrue to the benefit of their stockholders, and the pricing spreads that generate a PBM’s earnings will be greater than ever.

Here are some additional thoughts to ponder regarding this marriage made in Wall Street Heaven:

1. What will U.S. anti-trust regulators say?

2.Integration is always an issue in the mega PBM world. Will their platforms work together and what will the account service issues be?

3. How will ESI’s commitment to Buyer Behavior and “consumerology” gel with Medco’s investment in personalized medicine and genomics?

4. Will large Rx plan sponsors feel that they have fewer options with a change in the Big 3, or will they finally give legitimate shots to smaller PBMs that, in the past, have not been invited to the table?

5. How will ESI’s specialty company Curascript blend with Accredo from Medco?

6. Does this deal drive Walgreens back to the negotiation table with ESI?

7.  Pink slips will sure to appear, so relationships that may have driven some client deals may be on the table if a favorite account manager is given their walking papers.

Stay tuned, this should be fun!

Tags: , , , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Validation is not an Audit

Tuesday, May 24th, 2011

This is the time of year that plan sponsors are reviewing PBM consulting services to help negotiate  new PBM contracts. At WBC (www.wbcbaltimore.com) we see all sorts of consulting requests to help reduce the cost of prescription drugs. One that hasn’t been utilized as much as it should is invoice validation of a plan’s monthly PBM bill. What good does spending lots of time and money on negotiating the best PBM contract if there is no way to validate the delivery of the contract terms?

The PBM relationship can be a strange one. Where else does the customer not know what their purchases will cost; where the vendor can change pricing at any time, and at their discretion; and where the customer has to depend on the vendor to tell them how they are doing?  This fox sure knows a good deal when they can get it!

Every two weeks in the U.S., more than $12 billion in pharmacy benefit claims (PBM invoices) are paid by plan sponsors without review! Mistakes due to systems problems, coding errors, complexity of PBM contracts and ever-changing pricing discounts lead to errors that create payment confusion for the plan sponsor.  Without concurrent invoice review, a plan sponsor is probably paying significantly more than they should.

Fortunately, technology is now available that enables the review and analysis of unlimited claims data files in very rapid order. What use to take weeks can now be done in a few hours.  This is particularly meaningful when most PBM contracts require payment submission within 48 hours of receipt.  The platforms are PBM-agnostic, so any PBM’s invoice can be reviewed.  WBC helps plan sponsors with this critical prepayment validation service for prescription claims.  Our clients receive an immediate ROI with the first invoice we review.  The review includes:

  • Ingredient costs
  • Duplicate claims
  • Effective discount rates
  • Dispensing fee validation
  • Member cost share
  • Invalid NDC’s
  • Eligibility review
  • Med D subsidy
  • Regulatory compliance
  • Fraud, waste and abuse

A review system should be fully scalable, easily handling large or small claims volumes. Unlike end-of-year contract audits that are difficult to gain recoveries, our monthly monitoring provides cash flow controls and near real-time reporting delivered within hours of obtaining the necessary data feeds.  Discrepancies can be fully documented and deducted from that month’s invoice. Plus, this review is not an audit and should not trigger onerous audit  language found in many PBM contracts.

Adequate financial oversight is not just a compliance afterthought, it’s a necessity!  A comprehensive invoice review will help reduce fiduciary liability by improving regulatory compliance for Sarbanes-Oxley, Medicare Part D, GASB 45 or FAS 106.  Systems should have the ability to maintain a parallel reconciliation process aligned with internal audit and finance reporting calendars.

Tags: , , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Reducing Pharmacy Benefit Costs, Part 2

Tuesday, May 3rd, 2011

The PBM contract remains the key element in reducing pharmacy benefit costs. At WBC (wbcbaltimore.com) we know that creating a favorable “client-focused” contract takes some work.  When challenged over language that sounds open-ended or uncertain, many PBMs rely on what I’ve come to call “The 4 most dangerous words in the PBM lexicon.” Those four words are “It’s Standard Industry Practice” and unfortunately, in many cases, it’s true.  Just because a large portion of the industry has been able to retain fuzzy language that doesn’t provide the client with well-defined and unambiguous guidance on key operational areas such as pricing, claims and audit rights to name a few, doesn’t mean that it’s right, or that it should continue.

Plan sponsors need to ask themselves whether the business philosophy deployed in their PBM Services Agreement is serving the needs of their  organization, or of the PBM and their shareholders. The PBM contract is one of the few business agreements that clients enter where they really don’t know what the product will cost; where the  vendor can adjust the price at any time; and where they have to ask the vendor “how are we doing?”

Just about every PBM contract begins with a definitions section and sets the stage for how the plan will operate.  Some of these terms look familiar and the plan sponsor would think, pretty straight forward, but that’s not always the case.  Here are a few key contract terms and definitions to consider:

  • AWP. Means Average Wholesale Price for a standard package size of a prescription drug from the most current pricing information provided by First DataBank or such other drug database supplier “as determined by the PBM at any time.”  Of course, the standard package size they mean is 100 units, regardless of the size that is filled, unless it’s a smaller size.  This enables the PBM to create pricing spreads based on different size quantities and to use multiple pricing sources, at their discretion.
  • Claim. Means those prescription drug claims processed through the PBM’s on-line claims adjudication system, but what about errors, duplicates and reversals?  Without clarification, the plan sponsor could be billed for everything, and if there is a per click admin. fee being charged, this can really add up. These “false claims” can represent as many as 20% of total claims!
  • Brand and Generic Drug.  Sometimes it’s not even mentioned in the contract.  In which case, the PBM is free to classify any prescription as one or the other, and then, reverse themselves, when advantageous.  For example, a single-source generic may be designated as a generic when the PBM calculates their generic fill rate (“GFR”) to meet contract guarantees, yet they may adjudicate the claim as a brand in order to assign a lower discount rate (the brand discount).
  • Rebate. Means monies the PBM receives from pharmaceutical manufacturers for formulary access and/or market share increases.  Many contracts, however, also say “excluding any other payments or fees.” What about all the other revenue streams that are payable by a pharma manufacturer?  In addition to base and market share rebates, these should include sales target incentives, prompt-pay discounts, data selling fees, administrative fees and rebates on specialty drugs.

There are many more definitions and contract provisions to consider when negotiating a PBM services agreement. The plan sponsor is well-served to include contractual language requirements as part of the RFP response, where vendors understand and accept the terms and conditions being requested.  That way, they can underwrite their pricing offer to reflect client requirements and should agree to be bound to the terms defined.  The client gains the advantage of using the leverage inherent in the RFP procurement process.

Tags: , , , , , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – It’s What Gets Billed That Counts

Monday, March 28th, 2011

Recently I had the pleasure of addressing a dinner gathering of esteemed institutional investors in NYC who follow the health care space, and more specifically, the PBM realm.  At WBC (wbcbaltimore.com) we love the opportunity to share our insight on how PBMs operate. There was plenty of discussion regarding mergers, market practices and views on the current selling season.

As is usually the case, much of the conversation focused on the Big 3, and how they continue to dominate the PBM landscape. As part of that dialogue, the subject of scale was introduced, particularly in light of the Catalyst RxIts not what you Buy, but what you Bill acquisition of Walgreens PBM.  Now that Catalyst has the perceived necessary volume to compete with the Bigs, how do other worthy, yet significantly smaller players, get a shot to step up to the plate?   Firms such as Envision Rx, Partners Rx, ProCare Rx and HealthTrans to name a few. 

When discussing the merits and business practices of both the traditional spread pricing model (favored by the Big 3)and the pass-through model (more to the liking of the newer PBMs) the question of scale keeps emerging.  During our dinner conversation several of the institutional investors could not reconcile the apparent disconnect between the Bigs ability to buy prescription drugs compared to any of their smaller competitors.  There are a couple of answers to this quandary. First, there really isn’t much of a difference between what the PBMs pay a pharmacy for drugs.  Maybe a 1/2 point here or there, maybe even a point on some occasions, but for most NDCs and most pharmacies, the PBMs are part of a commodity distribution chain.  This of course, is both counter-intuitive and counter Big 3 spin on why clients should do business with them. 

The second, and more relevant answer to the above-mentioned question is a wbcbaltimore axiom: It’s not what you buy, but what you bill!  This means that even if a super-big PBM could buy at significantly better pricing than its smaller rivals, none of that matters unless the plan sponsor is reaping that benefit in the form of reduced drug cost that appears on their monthly invoice or bill.  When a PBM uses traditional spread pricing, they create spreads by paying the pharmacy one price and billing the plan sponsor a higher amount.  Improved purchasing power would mean that stockholders are happy when the PBM continues to meet or exceed earnings forecasts. It does not mean that any pricing differential makes its way to the plan sponsor in the form of reduced drug spend.

Lets look at a simple example: A PBM using traditional spread pricing buys a drug from a pharmacy for a list price (“AWP”)  of $100.  Because of their humongous purchasing power, they pay the pharmacy $10 (AWP-90%). When they invoice the plan sponsor, they request $30 (AWP-70%) and the PBM keeps the “spread” for their efforts.  A competing, much smaller PBM, who uses a pass-through business model, buys the same $100 drug from the pharmacy.  Lets just say that they don’t get the same pricing concessions from the pharmacy chain so they have to pay $20 for the Rx (AWP-80%). They turn around and invoice the plan sponsor their cost, in this case $20 plus an administrative fee of say $3.00, for a grand total of $23 (AWP-77%).  So you see, it’s not what you buy, but what you bill that makes the difference to the plan sponsor.

That being said, readers may believe that I’m advocating pass-through pricing as the only way to go. Not at all. I believe spread- pricing may be a good option for many plan sponsors, they just have to know what they are purchasing. If the spreads are warranted by a demonstrated clinical improvement in health outcomes and reduced overall net cost of health care for the plan sponsor, than there is value in continuing traditional pricing.  If not, than maybe pass-through is the way to go.  What we do know, however, is that there are more than 3 or 4 viable PBM outlets for consideration.

Tags: , , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Catalyst Buys Walgreens PBM

Wednesday, March 16th, 2011

Talk about filling the shopping cart!  As many of you have heard, Catalyst Rx announced the purchase of Walgreens Health Initiatives (“WHI”).  Not surprisingly, WBC (wbcbaltimore.com) has some thoughts on the transaction.

For Catalyst:

Looks like a good deal for Catalyst. They were reportedly competing against Express Scripts to buy the business. This acquisition more than doubles Catalyst’s size, giving them the scale to now rank as the 5th or 6th largest PBM.  Here’s the Catalyst press release (Click here). Seems like they did some solid horse trading and at a very good price. They are going to pay about $6/Rx which compares very favorably when you consider that Express Scripts paid about $14/Rx to acquire NextRx.

It seems like a good fit. Walgreens will continue to provide mail service to Catalyst and Catalyst will provide PBM services to Walgreens approx. 250,000 employees and retirees. As in all of these types of deals, integration will be key.  Both WHI and Catalyst operate on a SXC platform so this should help minimize systems problems.

For Walgreens:

The deal looks good for Walgreens as well.  They had announced back in October that they wanted to sell the PBM operation in order to focus on their core businesses.  Interestingly, they must have determined that the PBM outlet was not that significant for them.  Their core businesses that they want to focus on includes retail, mail, specialty, home-infusion and work-site pharmacies.

Big Picture on the Industry:

Some key considerations on what this new combination means to the industry:

  • Calls into question the impact of the retail/PBM marriage. Keep an eye on CVS/Caremark. Some commentators think that it’s just a matter of time for that divorce to occur
  • Walgreens may or may not decide to pursue direct contracting options (Caterpillar; Delta Airlines). Their multi-tentacled distribution channels positions them to by-pass the PBM model
  • Helps expedite new pricing models as AWP discounting heads south

The biggest impact will be bringing the pass-through pricing model into the big-leagues. Catalyst has been committed to this pricing approach.  They now have the scale to be considered a major player when competing against “The Big Three” PBMs who still rely on traditional spread pricing. Benefit managers and plan sponsors have often times been reluctant to switch to the smaller PBMs even though it appeared that pass-through pricing provided lower total drug spend.

This transaction may wind up actually helping The Big Three as well.  Pass-through pricing may help devolve the PBM model into a commodity by discounting unit costs.  The real future, then, of Rx management  resides in improving health status of members and measuring health outcomes, a space where the Big Three are happy to compete.   Stay tuned!

Tags: , , , , ,
Posted in Most Popular Posts | Comments Off

PBM Consulting – Trouble at the Caremark Corral

Tuesday, October 5th, 2010

Six independent pharmacies in Texas have decided to sue CVS Caremark under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, charging that the company’s Caremark pharmacy benefits management (“PBM”) division engaged in racketeering and violated HIPAA by gaining control over patient data and eliminating competition out of the retail pharmacy market. Pretty heavy stuff when the RICO card gets played!

WBC (wbcbaltimore.com) has been following this story with great interest. The CVS/Caremark saga has been something of an ongoing soap opera, with charges and counter-charges between industry rivals being leveled in a steady barrage since the companies merged.  Many plan sponsors, however, have sworn by the Caremark model, expressing great satisfaction with the integration of retail and PBM services along with the member convenience of Maintenance Choice, their 90-Day @ Retail option. 

The lawsuit claims CVS Caremark violates the firewall between the retail pharmacy and the PBM that was expressed and required by the FTC when they approved the 2007 merger of the companies. Instead, the combined company built an information technology platform that  captures in-depth patient data from all business units for marketing and other purposes in violation of HIPAA patient privacy laws. Additionally, the lawsuit claims that CVS/Caremark violates the Texas “Any-Willing-Provider” law by requiring prescriptions be filled at a CVS retail outlet.

The lawsuit also details  how the company plans to develop a “Consumer Engagement Engine” with “a comprehensive view of the patient.” This “Engagement Engine” is a detailed profile that would show the patient’s name, demographics, drug history, prescribers, health behavior, adherence patterns and communication preferences.

In response,  Carolyn Castel,  CVS/Caremark vice president for corporate communications, sent an e-mail regarding the lawsuit to a reporter last Friday. “We have learned that a new lawsuit has been filed, but we have not yet had a chance to review its contents,” she said. “CVS/Caremark is confident that its business practices and service offerings, which are designed to reduce health care costs and expand consumer choice, are being conducted in compliance with applicable antitrust, privacy and other laws.”

The plaintiffs in the lawsuit are board members of American Pharmacies, a for-profit, member-owned pharmacy wholesale buying group. American Pharmacies is financing the lawsuit. Click (Here) for a copy of the complaint.

A review and whitepaper on how to select your PBM can be downloaded at our website (wbcbaltimore.com).

Tags: , , , , , , , ,
Posted in Most Popular Posts | Comments Off

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!

Tags: , , , , , , ,
Posted in Most Popular Posts | Comments Off