Posts Tagged ‘Prescription Drug Cost Reduction’

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PBM Consulting – Medco/Express Scripts Union Looks Good

Wednesday, January 11th, 2012

Buzz has it that the much anticipated, and in some corners, shunned union of PBM giants Medco and Express Scripts is almost a done deal. Shareholders have overwhelmingly approved the acquisition and ESI is raring to go!  WBC (www.wbcbaltimore.com) has opined from the initial announcement that this marriage would receive FTC blessing, and on the latest report from confidential sources, they are ready to pull the trigger.

The ESI P.R. machine has been pushing out releases over the last several months touting the benefits to consumers and health plan payors of the new mega PBM represented by this super-sized combo. This position is sharply contrasted by several community pharmacy associations who fear the negotiating club that would be wielded by “Expredco.”

Unlike the AT&T deal for T-Mobile, which received a thumbs down from the FTC,  ESI/Medco, while potent, would still only represent 30% of the prescription drug market.  Expressed (no pun intended) another way, 7 out of 10 Rxs will still be managed by competitors.

The return for investors in a combined organization looks sweet, and ESI is making a strong case that cost savings will be significant.  The question remains whether these savings generated through operational synergies and ability to negotiate with manufacturers gets passed through to plan sponsors or is simply reserved to keep a smile on stockholders faces.  We’ll see.

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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!

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PBM Consulting – Walgreens and Express Scripts Feud

Friday, July 1st, 2011

When Walgreens announced that it would not be a part of the Express Scripts (“ESI”) network in 2012, waves of uncertainty reverberated throughout the PBM world.  Would this development help or hurt plan sponsors’ efforts to reduce pharmacy benefit costs?  Would a restricted pharmacy network drive ESI clients away? Will Walgreens take a similar tact with Medco? What impact will it have on the ESI selling season?  At WBC (www.wbcbaltimore.com), we saw it coming and are fascinated with the implications.  Our PBM consulting for those plan sponsors interested in reducing pharmacy benefit costs can demonstrate that this development may actually prove useful.

Last summer, Walgreens and CVS/Caremark caused sparks with the announcement that Walgreens was leaving the Caremark network. That separation was short-lived, however, as cooler heads prevailed and saw it was a losing proposition for both parties.  Some have opined that the current lover’s quarrel involving Walgreens is just a negotiating ploy and will also work itself out so that the two parties can continue to do business.  The relationship brings a handsome chunk of change Walgreens way to the tune of $5.6 billion in annual Rx’s.  Of course, that may be wishful thinking and this dispute may have some bite to its bark!

To re-cap, Walgreens walked away from negotiating an extended deal with Express Scripts. The bones of contention centered on three stated issues.  According to the Walgreens press release, the issues are:

1.  The desire by Express Scripts to define contract terms, including what a brand drug is and what should be declared a generic (Note to plan sponsors: if it’s this important to ESI and Walgreens, it should be evident that it should be important to you in your PBM contract);

2. The request that Walgreens be notified in advance when Express Scripts decides to transfer a prescription to another network pharmacy; and

3. A reduction in reimbursement rates to a level that Walgreens felt was unacceptable.

The loss of Walgreens retail outlets would be a significant dent in the Express Scripts network, particularly in key markets, such as NY Metro and Chicagoland.  Losing the Duane Reade chain (a Walgreens subsidiary) in NY may prove particularly painful to the Express Scripts block of labor business. Plus, we can’t believe the huge Department of Defence (“DOD”) contract held by ESI would passively allow Walgreens to jump ship without throwing a fit.  They would/should be exerting heavy pressure on their ESI account managers to “fix it.”

So where is the silver lining in this melodrama? Well, it gets plan sponsors to start thinking about the merits of a restricted network, one that we like to call “right-sized.”  We haven’t met the plan sponsor who truly needs the 64,000 store variety. The vast majority would do just fine with a network half that size or smaller.  So the reduction to 55,000 or so really shouldn’t prove a major obstacle for Express Scripts clients. This right-sizing allows the PBM to perform a disruption analysis and present their case to their clients. Does the plan really need a pharmacy on every corner? Will their members have adequate access with the reduced version?  If they discover that a “select” network meets their needs,  then opting for a smaller network with  better discounts may prove more beneficial to the plan.

How this plays out remains to be seen. We believe both sluggers have more to lose than to gain by parting ways. Wall Street seems to agree, yet the Street appears to be siding with ESI.  Their stock is slightly up, while Walgreens is still down  almost 6%  since the announcement.  Stay tuned for some real summer fireworks!

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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.

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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.

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PBM Consulting – Reducing Pharmacy Benefit Costs, Part 1

Wednesday, April 20th, 2011

The most important document for reducing the cost of prescription drugs in the pharmacy benefit is the PBM contract.  At WBC (www.wbcbaltimore.com)  we know that this document or agreement for PBM services ultimately determines what the plan sponsors’ drug spend will be, and is driven by the key terms, definitions and provisions in the contract.

Actually, there are two contracts in a PBM relationship that are material for understanding how a sponsors’ plan will operate.  First, is the contract with the payor or plan sponsor.  This is what the PBM will invoice the plan sponsor for covered drugs used by plan members; and second, the contract between the PBM and the pharmacy. The second contract determines how much the PBM reimburses the pharmacy for filling the prescription. In many cases, the “buy” is not the same as the “bill.”

When selecting a PBM, a plan sponsor needs to understand the relationship between the business models used by the PBM and the impact that it has on your services agreement or contract.  A plan sponsor needs to ask themselves whether the goals and objectives as expressed in the type of services contract they receive, are aligned with their business needs and  objectives.

The first thing a plan sponsor needs to do when reviewing a contract for PBM services is to fully understand the 3 basic business models that are used by PBMs and will dictate which type of contract the plan sponsor will receive.

Traditional.  The oldest and most recognized in the PBM world and is built on the idea of spread-pricing.  This means that the PBM will pay a lower reimbursement to the pharmacy (whether retail or mail) and invoice the plan sponsor a higher amount.  The difference (or spread) is kept by the PBM for its efforts.  In addition to spread pricing, the traditional PBM model generates different sources of cash flow (rebates, data fees, manufacturers incentives, etc.) from the plan sponsors’ account and may or may not share any of  it with the plan sponsor.

Transparent. Has evolved from the Traditional model and tends to share more information regarding plan cash flows with the plan sponsor.  It really is more opaque than transparent, however, since the disclosure that  occurs usually involves telling the plan sponsor what they will not receive. 

Pass-Through.  Is the latest model which, as the name implies, passes through to the plan sponsor costs and revenues without creating pricing spreads or retaining hidden cash flow.  The only profit center for the PBM is in the form of an administrative services fee, which may be presented as either a per script transaction fee or on a PEPM basis.

Why is this so important? Aren’t all contracts pretty much the same? Well, they can be if the plan sponsor doesn’t know what to identify as potential problem areas and then, what to ask for in their contract. Also, make sure that if the plan sponsor is using a broker or consultant, that the broker/consultant is also subject to the same level of disclosure and transparency that is expected of the PBM. In many cases, the broker/consultant is being paid a transaction fee by the PBM that is selected.  Not only is this a flagrant opportunity for conflict of interest, it also may prevent the sponsor from seeing other competitive proposals from PBMs that are not invited to participate because they would not agree to undisclosed transaction fees.

 As previously mentioned, the contract does control the overall drug spend, and left unchecked, the plan sponsor will receive an Agreement with tons of “wiggle room” that allows the PBM maximum discretion and the ability to pretty much interpret key provisions anyway they want,  and usually in their favor.

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PBM Consulting – Specialty Drug Costs

Thursday, April 7th, 2011

Specialty drug costs will continue to grow and  dominate a plan sponsors’ drug spend if left unchecked (expected to grow from approx. 20-25% today to 45% of drug spend by 2030).  Surprisingly, as many as 50% of all Rx plan sponsors have not yet acted to implement a coordinated Specialty Drug Strategy(“SDS”). 

At WBC (wbcbaltimore.com) we’ve created a model program to help plan sponsors address this growing problem.

First, let’s define what we’re referring to as specialty drugs. These are infusion, injectable or oral medications that have:

  • High Cost ($600 or more per month or per dose; some treatments are >$1 million annually);
  • High Complexity (biotech process  of complex large molecules made from proteins);
  • High Touch (requires special handling and patient instruction).

They are used primarily to treat cancer, rheumatoid arthritis, MS, hemophilia and Hepatitis “C”, to name a few. Most of these conditions are impacting a relatively small patient population, but new biotech drug therapies are being developed to treat common chronic conditions such as diabetes and heart disease. What started as approx. 30 drugs in the 1990s has grown to over several hundred today with over 600 in the pipeline!

Challenges Faced by Plan Sponsors

First challenge, dealing with huge future cost increases. This will be due to dramatic increases in utilization and the ability for single-source manufacturers to set prices at whatever they want. The average “regular” Rx is approximately $700 annually; in specialty, it’s $18,000.

Second, there a big data collection challenges in order to understand true utilization. Only approx. 45% of a plan sponsors specialty drug spend is touched by their PBM.  The other 55% is processed through the medical plan benefit.  Very few plan sponsors can quote their total specialty drug PMPM cost.  As the wise old Rx sage once said “you can’t control what you can’t count.”

The last challenge of managing specialty drugs comes from the fact that this is a “high-touch” business. It requires knowing a lot about the patient and being able to assist with education, monitoring and compliance. Some plan sponsors worry that plan members or employees will object to this type of medication therapy management (“MTM”) as too intrusive.  

All of these challenges can be addressed  with the right strategic plan. When reviewing or negotiating your contract for PBM services, make sure that it includes a patient-centric approach with a real description of how specialty drugs will be managed. This should focus on the details on pricing discounts, waste control and management, distribution channels, education materials and monitoring services.

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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.

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PBM Consulting – Top 15 Therapeutic Classes

Monday, July 26th, 2010

IMS Health data for 2009 creates an interesting picture of global drug sales and growth in specific therapeutic classes. WBC (wbcbaltimore.com) has taken a look and found that the global picture is clearly different when compared to  U.S. pharmacy benefit plan sponsor drug spend.  In the U.S., antipsychotics were the leading therapeutic class with $14.6 billion in sales. Antilipididemics (like Lipitor, Crestor, simvastatin, etc.) with $14.3 billion is number two; acid reflux (Nexium, Prevacid, etc.) with $13.6 billion in sales comes in at number three; and antidepressants (Cymbalta, Effexor, etc.) holds down the number four spot with $9.9 billion in sales. Surprisingly, oncology agents, while number one globally in sales, ranks number six in the U.S.

Here are the global sales and growth numbers for 2009:

Drug Class

2009 Sales (billions)

Annual Growth

Oncologics

 $52.37

8.8%
Lipid Regulators $35.28 4.9%
Respiratory Agents $33.59 11.0%
Antidiabetics $30.40 13.4%
Anti-ulcerants $29.61 0.6%
Angiotensin II Antagonists $25.20 11.4%
Antipsychotics $23.24 4.6%
Antidepressants $19.41 -1.3%
Autoimmune Agents $17.96 18.0%
Platelet Aggr. Inhibitors $14.60 9.0%
HIV Antivirals $13.75 14.9%
Anti-epileptics $12.99 -19.8%
Narcotic analgesics $11.23 8.6%
Non-narcotic analgesics $11.17 7.3%
Erthropoietins $10.80 -4.1%

Data source: IMS Health

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PBM Consulting – Access Based Network Design

Tuesday, June 29th, 2010

Never let it be said that Walmart doesn’t know marketing. In the aftermath of the CVS/Caremark/Walgreens turf battle, where the question of adequate member access was raised (Networked),  Walmart jumps right back into the frey and releases their low-price network option.  They are referring to it as *Access Based Network Design* and are touting it as a new strategy to “create a break in the cost curve and slows future cost increases by applying downward pressure on cost.   How, one might ask?  At WBC (www.wbcbaltimore.com), we know the answer.  It’s by finding the right-sized network to fit the access needs of the payor.

Walmart bases this strategy on three tenets of pharmacy cost containment:

  1. Leverage supply and demand to create competition among pharmacy providers;
  2. Build the right-sized network from the “bottom-up” determining the number of pharmacies the payor’s population needs rather than the number of pharmacies out there; and
  3. Offer financial incentives to plan members to influence steerage and offset any disruption or inconvenience.

Sounds promising so far.  I mean, is there really any reason to offer a 60,000+ store network? In some markets, there is literally a network pharmacy on every corner.  Most plan sponsors can get along just fine with a much smaller offering, something in the 20,000 store range.  Walmart makes the case that, rather than having incentives to keep prices as high as possible without getting kicked out of the network, the Access Based Network aligns the pharmacy’s interest with the payors, competing to be included by reducing their prices.

Building a right-sized network may be easier than the plan sponsor has been led to believe and without major disruption to their members.  Medicare, for example, has established an access standard that can prove very instructive for a commercial plan sponsor.  The Medicare standard is:

Urban Access- On average, at least 90 % of Medicare beneficiaries who live in an urban area must have access to a network pharmacy within 2 miles of their home.

Suburban Access – On average, at least 90% of Medicare beneficiaries who live in a suburban area must have access to a network pharmacy within 5 miles of their home.

Rural Access- At least 70% of Medicare beneficiaries must have access to a network pharmacy within 15 miles of their home.

As mentioned above, this standard can almost always be met with  20,000 or less pharmacies!

The financial incentives to members can be the final piece that puts this type of strategic plan design in play. A reduced co-pay to offset any inconvenience of driving a few more blocks could do the trick.  Many times, it does not have to be a huge enhancement.  Walmart suggests that a $10 co-pay could be reduced to $7, for example.

WBC has been a big proponent of right-sized networks for some time and this organized effort by Walmart is an aggressive step in the right direction.   That being said, Walmart does not hold an exclusive with this type of concept.   Keep in mind they are not trying to become a PBM.  They promote their efforts as PBM-agnostic. Just about any PBM worth their salt can design and manage a selective network of this type.  We think you’ll find it’s worth discussing with your PBM.

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