Drug reimbursement Flashcards
Describe the characteristics of list price
-estimated average price for a drug
-often called the sticker price
-publicly disclosed
-price BEFORE discounts and rebates
**usually not a true representation of what is actually paid
Describe the characteristics of net price
-ACTUAL price paid for drug
-CLOSELY GUARDED SECRET
-price AFTER discounts and rebates
**less than or equal to list prices
Describe the characteristics of estimated price
-payer estimate of net prices
-commonly determined based on list prices
**may or may not be an accurate guess
Describe how drug pricing is determined by manufacturers
manufacturer sets the “list” price or the wholesale acquisition cost
-prices determined by production costs, research and development costs, taxes and other costs, profits
*LIST PRICE DOESN’T REFLECT ACTUAL COSTS
What are the factors that influence manufacturer drug prices
-cost of research and development is increasing with the development of more complex drugs
-potential savings for healthcare system(i.e. Hep C drugs v. Liver transplant)
-strategic position in market (i.e. innovative v. substitutes)
Describe the factors influencing how much wholesalers pay for drugs and associated terms
- negotiate drug based on WAC
-try to negotiate the largest discounts such as volume discounts, prompt pay
-AMP is the net price and the actual price paid by wholesalers
-steeper discounts on generic drugs(due to steep comp)
*work with small margins!
Describe the factors influencing how much pharmacies pay for drugs and the associated terms
-pharmacies purchase drugs from wholesalers
-negotiate prices based on WAC
*SIZE OF DISCOUNT TIED TO MARKET POWER
-profitability is tied to buying and selling prices
-AWP is estimated price paid by pharmacies(not reflective of true market prices)
-AAC is the net price paid by pharmacies
*generic drugs are more profitable due to deeper discounts given
What is the Usual and Customary price
-the “cash price” of a drug
-generally used for those uninsured or choose not to use insurance
-determined by adding the drug ingredient cost + cost of dispensing + net profit
What is the drug ingredient cost
what pharmacy pays for drug
What is the cost of dispensing
costs other than the drug
I.E. salaries, benefits, rent, utilities
What is the net profit from the pharmacy perspective
it is the remaining amount of money after paying for the cost of dispensing and then cost of drug
How do PBMs interact with other parts of the healthcare system to impact drug prices
-PBMs directly interact with manufacturers to negotiate getting a larger rebate from the manufacturer in exchange for a better placement on their formularies.
-directly interact with pharmacies to provide reimbursement for services
* “buy” access to drug and services on behalf of members
What are the factors that influence how much PBMs pay for drugs
-administrative costs
-performance metrics
-drug rebates from manufacturers
How does the PBM approach drug reimbursement
-use the Estimated acquisition cost (EAC). Approximates the purchase price by using the list prices available minus a certain percentage
What is the payer cost
the cost of the ingredient + dispensing fee - patient cost sharing
What is the ingredient cost and how is it determined by PBM
-from payer perspective, it is best estimate by PBM on the price pharmacy paid to acquire drug
-can overestimate or underestimate
-EAC
What is the dispensing fee and how is it determined by PBM
-fixed amount paid to pharmacy for each prescription dispensed regardless of drug being dispensed
-NEGOTIATED between pharmacy and PBM
What is the patient cost sharing and how is it determined
-function of insurance policy
*copayment, coinsurance, deductible
-amount patient is responsible and pays to the pharamcy
What is the total pharmacy payment
payer cost + patient cost sharing
What is the “lesser of” provision in pharmacy contracts and how does it impact pharmacy reimbursement
-contracts state PBM will pay the lowest of 3 provisions
1. EAC + dispensing fee
2. MAC + dispensing fee
3. Pharmacy U&C
-out of the 3 options, the pharmacy will be reimbursed the lowest possible amount out of the 3 options
How do low dispensing fees compare to actual costs
-the low dispensing fees are significantly less than the actual costs
$1.50-3.00 reimbursed versus the $9-15 it actually costs to dispense a medication
How does low dispensing fees impact pharmacy profitability and viability
-not enough to keep operating
-loss of money/profits
-possible loss of pharmacy participation in PBM networks
How can pharmacies lower the cost of dispensing
-automation
-increase amount of technicians and employ fewer pharmacists
-increase Rx volume
-shorten operating hours
How does Wisconsin Medicaid reimburse pharmacies for prescription drugs
-ensures all pharmacies are fairly reimbursed
-reimbursed $15.69 per prescription for small volume stores and $10.51 for large volume stores
What is the WAC price
wholesale acquisition cost
mfg price to wholesaler
LIST PRICE
What is the AWP price
avg wholesale price
wholesaler price to pharmacy
LIST PRICE
What is the AMP price
Avg mfg price
wholesaler cost
NET PRICE
What is the AAC price
Actual acquisition cost
pharmacy cost
NET PRICE
WHat is the EAC price
Estimated acquisition cost
insurance estimate of net prices
used by PBMs to reimburse pharmacies
What is the FUL price
Federal Upper Limit
limit on generic drugs for government programs
What is the MAC price
maximum allowable cost
limit on prices for generic drugs
What is the NADAC price
National avg drug acquisition cost
national avg of AAC
What is the U&C price
usual and customary
cash price for uninsured
What is the goal of manufacturer drug rebates and how are they structured
payments in exchange for better formulary placement
increase market share for mfg
reduce net cost of drugs for PBMs
What factors impact the size of rebates
-ability to move market share
-number of competitors
-“preferred” status on formulary
-OBRA ‘90 law (mandated Medicaid rebates)
What is the implication of drug rebates for manufacturers, PBMs and employers/health plans
-accountability!!!
-reduced drug spending
-where does rebate money go?
What issues are associated with PBM profits
-we don’t know what happens to rebate money
-PBMs will “buy” drugs from pharmacies and “sell” drugs to employers/health plans(spread pricing)
How does transparent business models affect PBM profitability
-forces them to disclose pricing information and profitability based on set pricing or cost savings rather than rebates
How do PBMs approach cost containment
-impose maximum allowed prices based on average market prices
-Federal Upper Limit (FUL): only applies to state medicaid programs and is set by federal government, requires 3 or more generic copies of drug in order to set limit
-Maximum Allowable Cost (MAC): set individually by each separate PBM/payor, not available for all generics
