Exam 2 Flashcards
List price
-The estimated average price for a drug
-Often publicly disclosed
-Price before discounts and rebates
Net price
Actual price paid for a drug
Price after discounts and rebates
Estimated price
Payer estimate of net prices
Commonly determined based on list prices
Structure of third party prescription industry
Manufacturers –> Wholesalers –> Pharmacies –> Patients
Goals of drug pricing
Manufacturers: they want to set a price that’s going to help cover some of their R&D costs and they want to make a profit
Wholesalers: Make a very narrow profit margin because they buy from the manufacturer and sell to the pharmacy so they make money by operating efficiently
Pharmacies: Want to cover their drug costs and other expenses for the pharmacy and want to make a profit
Patients: Want the lowest possible price or cost for their medication
Manufacturing drug pricing
Manufacturer sets the list price
Price is determined by:
-Production costs
-R and D costs
-Taxes and other costs
-Profits
Manufacturers want to make the highest profit
Problem: List price doesn’t reflect actual costs
Manufacturers rationale for drug pricing
Cost of R and D
Potential savings to the health care system
Strategic position relative to competing products on the market or in the pipeline
Wholesaler drug pricing
-Purchase drugs from the manufacturers
-Negotiate prices based on WAC
-Work with relatively small margins, which reinforces the need for efficient operations
WAC and AMP
List price: Wholesaler acquisition cost (WAC)
Net price: average manufacturer price (AMP)
AMP = actual price paid by wholesaler
Pharmacy drug pricing
Pharmacies purchase drugs from wholesalers
-List price: Average wholesale price (AWP) (estimated price paid by pharmacies-Heavily criticized)
-Net price: actual acquisition cost (AAC)
(actual price paid by pharmacies)
Negotiate prices based on WAC
-Discount ex similar to wholesalers
-Size of discounts tied to market power
-Group purchasing orgs (combine purchasing power)
Profitability tied to buying/selling prices
AWP ~ WAC + 20%
AAC
Actual price paid by pharmacies
-Prices vary considerably by drug (brand~AWP-17%)
-Deeper discounts on generic drugs = more profitable
AWP
Estimated price paid by pharmacies
-Historically used as basis for reimbursement
-Heavily criticized price -> Fallen out of favor
Patient drug pricing
Purchase drugs from pharmacies
*With no insurance
-Indemnity insurance structure
Pay full retail price for drugs
-Usual and customary price (U&C)
U&C price
Goal: Payment accurately reflects costs
Sum of the drug ingredient cost + cost of dispensing + net profit
Drug ingredient costs
What pharmacy pays for drugs (AAC)
Cost of dispensing
Costs other than drug (salaries, benefits, utilities, rent, etc.)
net profit
reasonable profit
Third party payer
Any entity other than the patient or health care provider that reimburses and manages health care expenses
Third party prescription industry
Acquisition of prescription drugs involves multiple parties
-Contributes to complexity of health care system
*Not directly involved in patient care, but influences decisions made throughout process
PBMs interaction with health care system
Primarily interact with manufacturers and pharmacies
Employers/health plans contract with PBMs to manage drug benefits
Factors influencing how much PBMS pay for drugs
Administrative costs
Performance metrics
Drug rebates from manufacturers
PBM activities
-Negotiating with pharmacies for reimbursement / payment of prescription drugs
-Negotiating with pharmaceutical manufacturers for drug rebates
Contracts between pharmacies and PBMs
-Participating pharmacy agreements
*Stipulate services to be provided by contracting pharmacies in exchange for a specified reimbursement
-Specify roles and responsibilities
*Services to be provided
*Specify reimbursement amounts
*Other details
CONTRACTS ARE NEGOTIATED BETWEEN PHARMACY AND PBM
Goals of contracts between pharmacy and PBM
PBMs: increase patient access to pharmacies, increase quality and safety, decrease costs
Pharmacies: increase prescription volume and profits`
Why do pharmacies accept contracts?
Increase prescription volume
*PBMs negotiating on behalf of many patients
*Make up lost profits in another area
*Loss of business if refuse
Continue to see patients
Don’t evaluate things
*need to ensure PBM and pharmacy following contract
*need to ensure profitability
PBM drug reimbursement
PBMs “buy” access to drugs and pharmacy services from pharmacies
Goal: pay net (actual) price (AAC)
Information available: List prices (WAC and AWP)
Estimate price: insurance estimate of net prices
PBM estimation approach
Estimated acquisition cost (EAC)
-Approximates purchase price using list price +/- a percentage
-Difference between AAC and EAC = pharmacy income
PBM cost containment approach
Purpose: prevent overpayment for generic drugs
-Federal upper limit
*Only applies to state Medicaid programs
*Requires 3+ drug products on the market
-Max allowable cost (MAC)
*Differs for each player
*Not available for all generics
Payer cost
Ingredient cost + dispensing fee - patient cost sharing
Amount the PBM will reimburse the pharmacy
Ingredient cost
EAC: best guess by PBM of what it costs pharmacy to acquire drug
-May overestimate actual cost
-Price is NOT known to the PBM
Dispersing fee
Fixed amount paid to pharmacy for each prescription dispensed
-Negotiated between pharmacy and PBM
Patient cost sharing
Function of insurance policy
*Copayment, coinsurance, deductible
Total pharmacy payment
Payer cost + Patient cost sharing
Lesser of provision
Contracts state PBM will pay lowest of 3 approaches
1. EAC + dispensing fee
2. MAC + dispensing fee
3. Pharmacy’s usual and customary charge
Dispensing fees vs actual cost
Professional fee, cost of the service
Problems with low fees and low drug reimbursement
Less pharmacy participation in PBM networks
Exclusion from PBM networks
How do pharmacies lower their cost of dispensing?
Automation, fewer pharmacists and more techs, Greater Rx volume, shorter operating hours
WI Medicaid reimbursement for pharmacies
Unique reimbursement approach
-Affects all state Medicaid programs
-Requires pharmacies to provide AAC
-Can reimburse using NADAC/WAC/MAC
Goal of manufacturer drug rebates
Manufacturers: increase market share
PBMs: Reduce net cost of drugs
PBMs buy drugs from manufacturers and sell to employers/health plans
PBMs may keep part of rebates as payment
Manufacturer drug rebates structure
Payments in exchange for formulary placement
More favorable = larger rebates
Prescription drug pricing terms
List price: SUGGESTED average price for a drug
WAC: manufacturer price to wholesaler
AWP: wholesaler to pharmacy
Net price: ACTUAL price paid for drug
AMP: wholesaler cost
AAC: pharmacy cost
Estimated price: insurance ESTIMATE of net prices
EAC: used by PBMs to reimburse pharmacies
Other prices:
FUL: limit on generic drug prices for state Medicaid programs
MAC: limit on prices for generic drugs
NADAC: national average of AAC
U & C price: cash price for uninsured
What influences rebate amount
Ability to move market share
Number of competitors
Preferred status on formulary
OBRA 90’ law - mandated Medicaid rebates
Implications of drug rebates
Rebate money is big focus in public programs
-Accountability
-Reduced drug spending
What happens with rebate money?
-Part d plans
-Other private plans
Is it worth it from the payer perspective?
-Can bypass formulary with manufacturer co-pay coupons
-The “new generic” paradox
-Brand rebate vs price of generic alt
PBM profits
PBMs buy access to drugs from pharmacies and sell drugs to employers / health plans
-Difference = profits (aka spread pricing)
Rebates are a major source of PBM profit
(unknown how much is kept by PBM)
Debate over EXCESSIVE PBM profits
A shift towards transparent business models would:
-Disclose more pricing info, and profitability is based on set pricing or cost savings rather than a rebate
Demand
Limited resources influence consumer demand for health care
Law of demand
-Decrease P Increase Qd
-Increase P decrease Qd
*Price is the independent variable
Changes in quantity demand
Change in Quantity demanded (Present in HC)
Same quantity at any price (Present in HC)
Change in demand
Factors that lead to a change in demand
- Prices of related goods
- Money income of consumers
- Number of consumers in the market
- Attitudes, tastes, and preferences of consumers
- Consumer expectations with respect to future prices and income
Elasticity of demand
Measures how responsive is the reaction to a price change
Inelastic = perfectly vertical
Elastic = Most horizontal like
Factors that impact elasticity of demand
- Availability of substitutes
Broader description = more inelastic
Narrower description = more elastic - Price relative to income
More expensive = more elastic - Necessity vs luxury
Luxury is more elastic - Short run (inelastic) vs long run (elastic)
Supply
Price is the independent variable
Increase P Increase Qs
Decrease P Decrease Qs
Change in Qs vs Change in supply
Change in supply not caused by change in demand
Factors leading to a change in supply
- Techniques of production
Impact of technology - Number of sellers in market
More sellers = More supply - Resource costs
-Materials, wages, taxes, etc.
-Drug shortages: government subsidies or tax breaks - Prices for related goods
-Price change one for one good impacts supply of related goods - Seller expectations with respect to future prices and income
Why is health care different from other industries?
- Number of buyers and sellers
- Entry and exit
- Variation in products, services, and quality
- Full and free info
- Inelastic demand
- Universal demand
- Unpredictability of illness
- Health care as a right
- Supplier induced demand
- Third party insurance and patient induced demand
Market structures
Supply side:
Monopolistic competition = relies on product differentiation
Monopoly = one seller
Demand side:
Monopsony = one buyer
Oligopsony = many sellers, few buyers
*Market forces will interact
Perfect competition: Standard structure for many industries
*Many buyers and sellers
*Freedom of entry and exit
*Standardized products
*Full and free info
*No collusion
How can the economic performance of the healthcare system be improved?
- Make patients aware of prices and costs
- Provider feedback about performance
- Reimbursement incentives / penalties
-Prospective payments
-Medicare bonus payments and penalties - Balancing cost and value
-Exclude low value health care to prevent waste
-Patients isolated from costs = increased demand for services
Fundamentals of a PBM
Negotiating drug costs with manufacturers
Contracting with pharmacies
Building and maintaining drug formularies
*these cost saving strategies help lower drug costs and promote member health
Pharmacists’ roles within a PBM
- Drug information
- Government programs
- Pop health
- Provider services
- Industry relations and contracting
- Client management
- Utilization management
- Formulary Management
- Drug Information
Role of a drug formulary
Formularies are created to try to control medication costs while providing the best care for patients
Medications are grouped into tiers based on their cost and clinical efficacy
PBM cost control strategies
-Pharmacy payments = price for a given prescription is reduced
-Generic substitution = decreased cost
-Rebates = ultimately lower cost for rebated drugs
-Formularies = focus on cheaper alternatives
-Disease management programs = increased appropriateness of drug use
-Mail service prescriptions = decreased cost for prescriptions
-Drug utilization review (DUR) = Decreased duplication, DDIs
PBM and Specialty pharmacy
There’s a high cost for the PBM which can affect the reimbursement amount to pharmacies and how much patients pay for a drug
Two factors that define what a specialty product is
Cost and Complexity
Complexity factors
Treatment regimens
Special handling or storage
Devices
Rare disease states
Steps to fill a specialty prescription
Provider prescribes a new prescription
Benefits investigation
Prior authorization and appeals
Financial assistance
Pharmacist evaluation
Receives consult from pharmacist
Delivery
Ongoing pharmacist clinical management
*Many more steps
Addressing Access Barriers
Completion of prior authorization and appeals
Connecting patients with additional resources
-Copay cards
-Grants
-Free drug programs
-Internal affordability programs
Specialty pharmacy models
Chain pharmacy
PBM Owned
Independent
Health System owned
Wholesaler owned
Requirements to dispense a specialty pharmacy product to a patient
Access to the product
Access to reimbursement
Specialty distribution models
Limited distribution drug model = Manufacturer sells directly to pharmacies
Specialty contract distribution model = Manufacturer sells to specialty wholesaler which sells to pharmacies
Traditional drug distribution model = Multiple traditional wholesalers buy from manufacturer and sell to pharmacies with no restrictions
Roles of pharmacists and technicians in a specialty pharmacy team
Clinical = Integration between specialty pharmacy and clinics, collaboration on therapy management and treatment algorithms, patient management
Operational = Product fulfillment and quality assurance, inventory management
Administrative = Personnel management, staff education
Outcomes = Ensuring specialty pharmacy metrics are being met, analyzing and assessing program data, optimize workflow with technology
Access = Benefits investigation, prior authorization services, manufacturer assistance programs, copay assistance
US healthcare spending and outcomes in comparison to other countries
US pays more for doctors
US spends more on pharmaceuticals
US spends more on administration costs
*US lags considerably in comparison with its peers on health system performance
Main features of the four basic health care system models
Socialized medicine
-Healthcare is financed and provided by the government
-Government employs healthcare practitioners, owns healthcare facilities, and administers healthcare system
National health insurance model
-A single payer, government-run, universal health insurance program
-Care mostly delivered by non-profit private hospitals
-Healthcare services financed by the program with negotiated reimbursement
Decentralized national health program
-Required to get health insurance provided by non profit, non governmental health insurance funds or private health insurance
-No direct financing/delivery of care by government
Out of pocket model
-Lack of private or government health insurance, shortages of healthcare facilities, low expenditures, and poor health outcomes
Health care system in the UK
National Health Service started in 1946
Three innovations:
-Universal comprehensive service
-Financing through general taxation
-Nationalization of the country’s hospitals, providers
Comprehensive coverage:
-Preventive services, physician services; inpatient and outpatient drugs
Delivery:
Directly employed by government
Access:
Care is free if visit a NHS provider
Long waiting lists and restricted access to certain services
Health care system in Canada
Known as Medicare (not the same as US)
Government financed insurance, private facilities/providers
5 principles:
-Portability
-Comprehensiveness
-Universality
-Accessibility
-Public administration
Each province/territory has a different health insurance plan
Delivery:
Delivered by privately employed PCPs
Most hospitals are nonprofit and privately owned
Access:
-Universal access to care (not for prescription drugs)
-No cost sharing for physician care, inpatient drugs
-Long waiting lists
Health care system in Germany
World’s oldest national healthcare system
-No comprehensive national health plan
-Requires employers and employees to obtain private health insurance
-Funded by taxes based on income
Each plan provides comprehensive coverage
-Majority enroll in sickness fund
-More wealthy buy private supplemental insurance
Delivery:
Provided by private facilities/providers
Access:
Majority of services free at Point of Service
-Approved meds covered by insurance with patient copayment
-Access to care considered one of the best in the world
US health care system compared to other countries
US has
-Less Government involvement
-Bigger role of private sector
More Spending
-Plentiful supply of physicians, tech, and health resources
-Cost containment strategies focus on increasing cost sharing
Less egalitarian distribution of resources
-Lots of disparities in access to care and health outcomes
Drug policies in the US vs other countries
In other countries:
-The government negotiates prices for drugs on behalf of the country
-Government decides coverage of drugs
-Government determines patient cost sharing
-More negotiating power means lower prices
In the US:
-All insurers negotiate discounts, determine formulary coverage, and set patient cost sharing individually
-Less negotiating power means higher prices
Payment approaches for Health Care services and how they create different incentives to control health care utilization
Fee For Service (retrospective payment)
-PAID INDIVIDUALLY FOR EACH PRODUCT/SERVICE
-Used to pay pharmacies for outpatient prescription drugs
-Common for health services in community setting
Capitation (prospective payment)
-PREPAYMENT: SET AMOUNT EACH MONTH FOR ALL CARE
-Some us to pay for health care services in hospitals, managed care
Per Diem
-PAID FLAT AMOUNT FOR EACH DAY IN HOSPITAL
-Common approach used in managed care for hospitals
-Used by medicate for skilled nursing facilities, home health, hospice, etc.
Diagnosis-related groups (DRGs) (prospective payment)
-Bundled payment approach
-PAID FLAT AMOUNT FOR TREATMENT OF EACH CONDITION
-Used by Medicare (part A) & Medicaid for hospital care
Value based purchasing
-Created by ACA (voluntary participation)
-SIMILAR TO DRG, BUT HOSPITAL COULD RECIEVE INCENTIVE PAYMENT AT END OF YEAR
-Rewards hospitals based on quality of care provided
Overview of how health services are paid for by different groups
Public payers:
-prospective payment, bundled payments
-Accreditation required to receive reimbursement
Private payers:
-Fee for service, bundled payments
-Use market power to negotiate prices
Self pay (uninsured):
-very uncommon
-discounts may be available
Charity care
-costs “written off” for tax purposes
-BUT costs may be shifted to other payers
Integrated interdisciplinary care approaches
Groups of doctors, hospitals, and other health care providers who come together to give coordinated high quality care
-Less focus on FFS payments
-More incentive based payments
Implications of prospective and non prospective payment systems on the use of prescription dugs and pharmacy services
Prospective payment:
-Pharmacy is a “cost center”
*Payments need to cover drugs and pharmacy services
*Balance between lowest cost and patient outcomes
Non prospective reimbursement
-Pharmacy is a revenue generator
*Pharmacy has something to sell
*Cover costs in other areas that are not revenue generators
How are clinical pharmacist services are billed and reimbursed
Most medical insurance plans will not pay for pharmacist services
-Medicare part D pays for MTM services and reimbursed FFS
WPQC pays pharmacists with FFS for providing MTM and CMR/A services to eligible patients
Pharmacist provider status legislation
Pharmacists are recognized by Medicaid as providers of health care and their services must be reimbursed by Medicaid
-All pharmacists in All practice settings are eligible
-DOES NOT CHANGE PHARMACIST SCOPE OF PRACTICE
Billing for Medicaid
-Medical benefit
-Use HSPCS and CPT codes
-ICD-10 and Z series diagnosis codes required on all claims submitted to Medicaid for medical services
*Documentation required to support all billed medical services
HCPCS Code + ICD-10 code + Who did it = Claim
Need for health care reform in the United States
US spends the most on prescription drugs and many adults think this is unreasonable (Cost)
People regardless of political party think that prescription drug policies should be top priorities for congress
Medicare Prescription drug, Improvement and Modernization Act of 2003
Signed into law in 2003
Largest overhaul of Medicare since 1995
Created Medicare Part D
Created current structure of Part C plans
Required Part D plans to support e-prescribing
Created health savings accounts
HSAs vs FSAs
They are tax free savings accounts used to pay OOP medical expenses (including prescription drugs)
HSAs:
-Must be enrolled in a HDHP
-funds rolls over, accumulate year to year (similar to bank account)
FSAs:
-Can be used with any type of insurance
-Funds lost at end of year
Some HSA/FSA accounts may use indemnity benefit approach
High deductible Health Plans
-Catastrophic coverage
-Low premiums, high deductibles
Implications for insurers:
Brings about adverse selection
Implications for patients:
Access issues
Major provisions of the ACA
Coverage:
-Pre-existing conditions
-Longer coverage for younger adults (26)
Costs:
-Ends lifetime and annual limits on coverage
-Requires insurers to publicly justify premium increases
Care/access:
-Insurance mandate
-Subsidies, Medicaid expansion
-Health insurance marketplace
-10 essential health benefits
*Prescription drugs
-Preventative care at no cost (Oral contra)
Medicare Access and CHIP reauthorization Act of 2015
MACRA
-Signed into law in 2015 with bipartisan support
-Largest change to health care post ACA
-Changed the way Medicare reimburses doctors
*Focus on quality and value
*Shift from FFS to “pay for performance” payments
-Increased Medicare funding
-Funding extension for the CHIP program
Inflation Reduction Act of 2022
Signed into law in 2022
Affected many areas of economy including health care
Many prescription drug provisions:
Requires federal gov to negotiate prices
Rebates if prices rise faster than inflation
Eliminates Donut Hole or Coverage Gap
Caps insulin products to $35
Expands eligibility for Medicare part D Low-Income Subsidy
Eliminates cost sharing for adult vaccines
Recent WI health care reforms
PBM reform
-Increases PBM price transparency to encourage PBMs to pass on greater proportion of manufacturer rebates to health plans/employers
WI pharmacist provider status
-Established pharmacists as providers in the WI Medicaid program
-Requires reimbursement for pharmacist patient care activities
Contraceptive prescriptive authority
-Would allow pharmacists to prescribe oral/patch contraceptive products
Impact of Health Care reforms on Pharmacists
-New Roles for pharmacists
-Pharmacists can be directly involved in policymaking process
-Pharmacists as patient educators
-PHARMACISTS NEED TO STAY CURRENT ON NEW LAWS AND POLICIES
