Drug reimbursement

Question 1

Describe the characteristics of list price

Answer 1

-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

Question 2

Describe the characteristics of net price

Answer 2

-ACTUAL price paid for drug
-CLOSELY GUARDED SECRET
-price AFTER discounts and rebates
**less than or equal to list prices

Question 3

Describe the characteristics of estimated price

Answer 3

-payer estimate of net prices
-commonly determined based on list prices
**may or may not be an accurate guess

Question 4

Describe how drug pricing is determined by manufacturers

Answer 4

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

Question 5

What are the factors that influence manufacturer drug prices

Answer 5

-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)

Question 6

Describe the factors influencing how much wholesalers pay for drugs and associated terms

Answer 6

• 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!

Question 7

Describe the factors influencing how much pharmacies pay for drugs and the associated terms

Answer 7

-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

Question 8

What is the Usual and Customary price

Answer 8

-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

Question 9

What is the drug ingredient cost

Answer 9

what pharmacy pays for drug

Question 10

What is the cost of dispensing

Answer 10

costs other than the drug
I.E. salaries, benefits, rent, utilities

Question 11

What is the net profit from the pharmacy perspective

Answer 11

it is the remaining amount of money after paying for the cost of dispensing and then cost of drug

Question 12

How do PBMs interact with other parts of the healthcare system to impact drug prices

Answer 12

-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

Question 13

What are the factors that influence how much PBMs pay for drugs

Answer 13

-administrative costs
-performance metrics
-drug rebates from manufacturers

Question 14

How does the PBM approach drug reimbursement

Answer 14

-use the Estimated acquisition cost (EAC). Approximates the purchase price by using the list prices available minus a certain percentage

Question 15

What is the payer cost

Answer 15

the cost of the ingredient + dispensing fee - patient cost sharing

Question 16

What is the ingredient cost and how is it determined by PBM

Answer 16

-from payer perspective, it is best estimate by PBM on the price pharmacy paid to acquire drug
-can overestimate or underestimate
-EAC

Question 17

What is the dispensing fee and how is it determined by PBM

Answer 17

-fixed amount paid to pharmacy for each prescription dispensed regardless of drug being dispensed
-NEGOTIATED between pharmacy and PBM

Question 18

What is the patient cost sharing and how is it determined

Answer 18

-function of insurance policy
*copayment, coinsurance, deductible
-amount patient is responsible and pays to the pharamcy

Question 19

What is the total pharmacy payment

Answer 19

payer cost + patient cost sharing

Question 20

What is the “lesser of” provision in pharmacy contracts and how does it impact pharmacy reimbursement

Answer 20

-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

Question 21

How do low dispensing fees compare to actual costs

Answer 21

-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

Question 22

How does low dispensing fees impact pharmacy profitability and viability

Answer 22

-not enough to keep operating
-loss of money/profits
-possible loss of pharmacy participation in PBM networks

Question 23

How can pharmacies lower the cost of dispensing

Answer 23

-automation
-increase amount of technicians and employ fewer pharmacists
-increase Rx volume
-shorten operating hours

Question 24

How does Wisconsin Medicaid reimburse pharmacies for prescription drugs

Answer 24

-ensures all pharmacies are fairly reimbursed
-reimbursed $15.69 per prescription for small volume stores and $10.51 for large volume stores

Question 25

What is the WAC price

Answer 25

wholesale acquisition cost
mfg price to wholesaler
LIST PRICE

Question 26

What is the AWP price

Answer 26

avg wholesale price
wholesaler price to pharmacy
LIST PRICE

Question 27

What is the AMP price

Answer 27

Avg mfg price
wholesaler cost
NET PRICE

Question 28

What is the AAC price

Answer 28

Actual acquisition cost
pharmacy cost
NET PRICE

Question 29

WHat is the EAC price

Answer 29

Estimated acquisition cost
insurance estimate of net prices
used by PBMs to reimburse pharmacies

Question 30

What is the FUL price

Answer 30

Federal Upper Limit
limit on generic drugs for government programs

Question 31

What is the MAC price

Answer 31

maximum allowable cost
limit on prices for generic drugs

Question 32

What is the NADAC price

Answer 32

National avg drug acquisition cost
national avg of AAC

Question 33

What is the U&C price

Answer 33

usual and customary
cash price for uninsured

Question 34

What is the goal of manufacturer drug rebates and how are they structured

Answer 34

payments in exchange for better formulary placement
increase market share for mfg
reduce net cost of drugs for PBMs

Question 35

What factors impact the size of rebates

Answer 35

-ability to move market share
-number of competitors
-“preferred” status on formulary
-OBRA ‘90 law (mandated Medicaid rebates)

Question 36

What is the implication of drug rebates for manufacturers, PBMs and employers/health plans

Answer 36

-accountability!!!
-reduced drug spending
-where does rebate money go?

Question 37

What issues are associated with PBM profits

Answer 37

-we don’t know what happens to rebate money
-PBMs will “buy” drugs from pharmacies and “sell” drugs to employers/health plans(spread pricing)

Question 38

How does transparent business models affect PBM profitability

Answer 38

-forces them to disclose pricing information and profitability based on set pricing or cost savings rather than rebates

Question 39

How do PBMs approach cost containment

Answer 39

-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