The following is an analysis of Transparent Pharmacy Benefits using a Health Rosetta template. It looks at what true transparency means for pharmacy benefits and reveals a major error in the current system that is likely costing employers more money than necessary each year. If relevant, share it with your benefits director, CEO, CFO or benefits consultant and encourage them to evaluate whether there is enough information to take action.

If the Health Rosetta concept is new to you, I'd invite you to read the introduction to the concept and rationale as well as the comparison between the status quo and the Health Rosetta. See also Value-based Primary Care, Transparent Medical Markets and ERISA plan checklist as examples of other sections of the Health Rosetta. The healthcare industry uses a variety of tricks to redistribute money from employers and taxpayers into their coffers. Highly effective benefits leaders use the Health Rosetta as the antidote to the plague of an under-performing healthcare system. Health Rosetta certifications will be market-driven and are loosely analogous to LEED and Fair Trade (click links for how the analogies are applied to healthcare) to accelerate the movement to a higher-performing system.

GETTING STARTED:

WHAT ARE TRANSPARENT PHARMACY BENEFITS?

Transparent Pharmacy Benefits offer purchasers true transparency and the ability to gain control of decision making based on factual information. By obtaining and using the data that a purchaser rightly owns, better decisions regarding pharmacy benefits can be made.

Transparency Pharmacy Benefits:

  1. Provide transparency and control over Pharmacy Benefit Manager (PBM) services.
  2. Ensure members have relevant information to make informed choices.
  3. Ensure clinical decisions are based solely on efficacy and ACTUAL cost.
  4. Is a process that works on behalf of the purchaser’s best interests.

HOW DOES IT WORK?

In order to have Transparent Pharmacy Benefits, pharmacy claims data must be fully understood and utilized by the purchaser. Pharmacy claims data is some of the most robust and readily available data in the healthcare industry. The key is to ensure the PBM recognizes pharmacy claims data should belong to the purchaser of pharmacy benefit services. This includes the right of the purchaser to use that data to make informed decisions. What purchasers can and should do with their data is obtain analytical resources to help analyze the true cost of pharmacy treatments and to not solely depend on information the PBM provides.

This is especially true when it comes to “guarantees” in the PBM-purchaser contract. Average Wholesale Price (AWP) with its associated “discount” is the common method for evaluating PBM financial performance. AWP should really mean “Ain’t What’s Paid.” Because of the confusing and misleading aspects of AWP, purchasers of Pharmacy Benefits should be wary. Many times purchasers of PBM services have no leverage in negotiations, because they do not have all the facts. There are many moving parts inside PBMs prescription claims processing  systems and there are business practices that can be manipulated at any time. PBMs also have multiple distribution channels such as mail order and specialty. How can purchasers know if the PBM is manipulating them or shifting costs between channels?

Purchasers should use their own data along with unbiased consultants (e.g., equipped with analytical know how, pharmacy industry knowledge, and vendor insight) to negotiate a better contract with a PBM. Then they can decide for themselves if they should leave all of the PBM services with one vendor or if they should carve out certain aspects of the pharmacy benefit. Recently, several purchasers utilizing the carved-out approach and better PBM contracting have reduced their pharmacy spend by as much as 10 to 15 % compared to the same time period a year before. (See case studies below)

When evaluating a PBM’s distribution channels, purchasers should consider carving mail order and specialty pharmacy services away from the PBM services contract. There are also mail order and specialty pharmacy providers offering services for “cost plus a management fee,” which can be less expensive than the “Ain’t What’s Paid” model. Additionally, mail order pharmacy may not be a cost effective solution either, depending on benefit design.

WHY SHOULD YOU SUPPORT IT?

There is a lot of confusion about pharmacy benefits and what is really going on within the data. The industry has made it more confusing and obfuscated than is necessary. As a result, purchasers of pharmacy benefits have lost control of unnecessary rising costs.  

Brief History

Pharmacy used to be a small portion of the overall healthcare spend. Then PBMs came into existence in the eighties offering a more streamlined way of managing the pharmacy benefit.  

PBMs also offered something no one in the pharmacy benefit industry had seen before: rebates. Pharmaceutical manufacturers had a desire to get their new, life-changing drugs into a preferred position on these new PBM “formularies.” At that time, paying the PBM for that preferred position made financial sense for the pharmaceutical manufacturer. The PBMs then passed along a portion of these rebates to some purchasers of health care. New found money!  

Over time there has been no significant oversight of PBM practices. Outside of federal government programs, many states provide only audit fairness regulations. Even today, few states require PBM’s to register their businesses.    

The industry today

Fast forward about 30 years and let us look at where we are with pharmacy benefits today. The pharmacy benefit has become 20 to 25% of the average employer’s healthcare spend. Specialty Pharmacy has everyone’s attention with $100,000+ therapies and more on the horizon. Rebates are being offered and can generate significant payment to the employer, but rebates also can be a challenge. What if PBMs are choosing which drugs are on “preferred” status based on financial position as opposed to clinical efficacy? Who is overseeing this? Unfortunately as stated before, transparency is hard to find.

Supporting Transparent Pharmacy Benefits is positive for almost all parties involved. It encourages pharmacy benefit participants to become more engaged in their therapy. And there are literally thousands of opportunities where, with proper information and education, participants can make better financial choices and even improve the chances of a quality outcome.  

As an example, a drug for the treatment of diabetes, Metformin, has been around for decades and is a valuable therapy for treating the condition. It is a twice a day drug and can be obtained for less than $20 a month. Today, there are new formulations of Metformin that can be taken once a day, possibly improving patient compliance, but at a much greater cost to the participant and the employer, over $1,000 a month. If the participant was educated and informed, would they be able to maintain compliance and cost the system almost $12,000 less per year? Pharmacists that have additional training and are paid appropriately for their time can help patients with this situation as well.

The takeaway here is that purchasers of healthcare and especially pharmacy benefits can take back control while working with their PBM or PBM service partners to improve outcomes and increase the value of their overall Rx benefit.

DIAGNOSTIC TOOLBOX:

Key Elements

Components Integral to Achieving Transparent Pharmacy Benefits:

  1. Clarity on How PBMs Work: Some PBMs are incentivized to push certain prescription brands. Additionally, “rebates” can be misleading and may not result in actual savings. True transparency is needed.
  2. Buy-in from HR and Executive Leadership: employing a new model requires senior level staff to be advocates of that model.
  3. Access to Data: it is not possible for employers to make informed decisions without access to their data, which should be provided by the PBM.
  4. A complete understanding of current PBM contracts: utilizing a neutral third-party consultancy will ensure the purchaser has a clear understanding of current terms and conditions that may be resulting in hidden costs.
  5. Consider Carving out Mail Order and Specialty Rx: using  separate vendors for Mail Order and Specialty Pharmacy Provider can save you money.

ENSURING QUALITY:

Action Steps

How can you achieve Transparent Pharmacy Benefits at your company? Here are the recommended action steps to get you started:

  1. Request a claims extract file from your current PBM. Have an analysis of your prescription claims performed by a reputable and unbiased source.
  2. Check on your existing arrangement by obtaining a copy of your PBM contract. Hire an unbiased consultant (one who is not incentivized in any way and does not accept commissions from any PBM on any piece of their business) to review and analyze your Rx data and then marry those up to the contractual terms you’ve been offered. Make sure contract terms are clearly defined.
  3. Look into other vendors who can provide various PBM services and a higher level of transparency. 
  4. Consider carving out existing specialty Rx. 
     

CHALLENGES TO EXPECT:

  1. Appearance. You may have trouble making a move when you still see AWP discounts that “appear” to give you a significant cost savings. Remember, if you are using AWP for analysis it is a flawed measurement and therefore, it may be harder to see the benefits. 
  2. Interference. Existing consultants who are being incentivized by accepting PBM payments may interfere with your journey toward transparency, as it may not be in their best interest.
  3. Lack of Understanding. Although this may not be an obvious pain point, there still might be a lack of understanding in the HR department about the benefits of Transparent Pharmacy Benefits - or they may simply be unaware of the options available to them. It is important to gain HR and Executive buy-in.  
  4. Transparent vs. Transparent Pass Through. There is often confusion between transparent and transparent pass through. Transparent does not necessarily mean you are getting pass through pricing. Make sure you understand the different models and that the transparency is working its way to you, the consumer.

SHARED RESOURCES:

  1. “Weathering the Rx storm”
  2. “The Painful Prescription” 
  3. “Flash Boys and the Pharmacy Benefit Industry: Much in common” 
  4. “Filling a prescription? You might be better off paying cash” 
  5. "Who has the power to cut drug prices? Employers."

CASE STUDIES:

Case Number ONE:

In January 2016 a self-insured payor in California transitioned from a traditional model large PBM to this new Health Rosetta inspired Transparent Pharmacy Benefits based model. Mail order services and rebate services were carved away from the PBM contract. In addition, the PBM selected operated as a “pass through” model.  At the end of the first quarter 2016, the organization had realized a 12.41 % savings compared to the same time period in 2015.  Given that no adjustment was made for pharmaceutical manufacturer price increases during 2015 (which were approximately 12 %), the savings number was actually closer to 20 %.  Rebate projections are coming in at a 30 % increase over the previous PBM numbers. The savings analysis was based on direct comparison at the GPI (Generic Product Indicator) level and looked at ingredient cost at the per unit level.



Case Number TWO:

In January 2016 a health plan in the Northeast part of the country transitioned from a traditional model large PBM to this new Health Rosetta inspired Transparent Pharmacy Benefits based model. Specialty, Mail Order and Rebate services were carved away from the PBM contract. In addition, the PBM selected operated as a “pass through” model. At the end of the first quarter 2016, the organization had realized a 14.70 % savings compared to the same time period in 2015.  Given that no adjustment was made for pharmaceutical manufacturer price increases during 2015 (which were approximately 12 %) the savings number was actually closer to 20 %.  Rebate projections are coming in at a 25 % increase over previous PBM numbers.  The savings analysis was based on direct comparison at the GPI (Generic Product Indicator) level and looked at ingredient cost at the per unit level.

 

This component of the Health Rosetta was provided courtesy of Tim Thomas, who previously ran a PBM and is the CEO of CrystalClearRx - a pharmacy benefits consultancy.

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