Group Chap 7: Pharmacy Benefits in the United States Flashcards

1
Q

Introduction

  1. Factors that influence Prescription Drug Costs and Benefit Offerings
  2. EGWP
  3. Retiree Drug Subsidy
A

1. Cost and Complexity of Pharmacy Benefits continues to increase
- Drug treatment innovations and evolving market dynamics

2. Factors that influence Prescription Drug Costs and Benefit Offerings

  • Prescription Drug Pipeline - new drugs to market have significant research and development costs
  • Brand Patent Protection - new drugs are covered by patents that protect the original manufacturer from competition for a period of time - Generics are not allowed to be sold until after the patent expiration
  • Specialty Drugs - relatively high cost and lower utilization. Can cost up to 10x more than cost of traditional drug used to treat some condition - Prior authorization often necessary from PBM
  • Biologics - produced by compelx manufacturing process not easily replicated - We will not see generics for most biologics
  • Direct to Consumer Advertising - has increased consumer awareness of new, high cost drugs
  • Member Cost Sharing Offsets - manufacturers offer to cover most of the out-of-pocket cost of expensive brand prescriptions - increased consumer demand for brand name drugs
  • Aging Population
  • Increase in awareness of and testing for disease that result in drug therapies
  • Personalized Medicine - genetic screening can lead to over or underestimating an individual’s lifetime risk of a disease - overestimating can lead to unnecessary medication use

3. Employer Group Waiver Plan (EGWP) - Medicare Advantage Plans (replace Medicare Part A and B plans, with or without pharmacy components)
- CMS has waived certain Part C and D requirements - gives flexibility to offer subsidized retiree coverage vis group Medicare Plans
- E.g. Waive requirements to extend Part D plan to all eligible beneficiaries in area, to charge premiums uniformly, or to comply with network access standards
- EGWP offered as Direct Contract (direct with CMS) or through a third part administrator

4. Retiree Drug Subsidy (RDS) - federally funded incentive - encourages employers not sponsoring Medicare plans to offer post-65 drug coverage, at least as rich as standard Part D
- Two prospective test to satisfy
(1) Gross Value Test - expected claim payments greater than or equal to those under Part D
(2) Net Value Test - portion of paid claims by employer contribution greater than or equal to thsoe under Part D
- Federal subsidy 28% of allowed drug costs

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2
Q

The Pharmacy Benefit System Framework

Seven entities in Prescription Drug Framework

A

1. Seven Entities in Prescription Drug Framework
(1) Pharmaceutical Manufacturers - research, produce and distribute drugs

(2) Pharmaceutical Wholesalers - purchase from manufacturers and distribute to pharmacies

(3) Pharmacies -dispense drugs to beneficiaries

(4) Pharmacy Benefit Managers (PBMs) - administer drug benefit programs. May be affiliated with insurance company or may be independent

(5) Third Party Payers - insurance company, employer, or government programs that fund drug benefits

(6) Beneficiaries - consumers of drugs

(7) Prescribing Health Care Providers - diagnose and prescribe drugs

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3
Q

Pharmaceutical Manufacturers

A
  1. Research, obtain approval for, produce and distribute drugs
  2. Largest ones include: J&J, Roche, Pfizer, Merck, GSK
  3. Provide drugs to wholesalers and also direct to pharmacies
    - Smaller, independent pharmacies usually use wholesalers
  4. Payment
    - Wholesale Acquisition Cost (WAC)
    - Average Wholesale Price (AWP)
  5. Also pay wholesalers a chargeback as reward for meeting sales or volume goals
  6. Also negotiate with PBMs - encourage individuals to purchae their product
    - PBMs get rebates for favorable formulary placement of drugs (lower cost sharing, etc)
  7. 340B drug pricing program
    - Some manufacturers are involved in this
    - Enables health care organizations to provide care to underserved population to get drugs at a discount
  8. manufacturers also employ a sales force to increase awareness of their drug’s benefits among medical professionals
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4
Q

Pharmaceutical Wholesalers

A
  1. Purchase drugs from manufacturers and distribute to pharmacies
  2. Utilize large size and purchasing power to get lower costs
  3. Largest ones include: McKesson, AmerisourceBergen, Cardinal Health
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5
Q

Pharmacies

A
  1. Dispense drugs to beneficiaries and healthcare providers that administer drugs
  2. Largest ones include: CVS, Cigna/Express Scripts, OptumRx and Walmart
  3. Pharmacy types: Retail (most common), mail order, and specialty (focus on high cost or complex drugs)
  4. Negotiate with PBMs to be included in the PBMs network
    - Generates more customers
  5. Dispense drugs to beneficiaries in exchange for cost sharing (copay or coinsurance)
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6
Q

Pharmacy Benefit Managers

A
  1. Administer drug benefit programs to customers
  2. Largest ones include: CVS, Express Scripts, OptumRx
  3. Services of a PBM:
    a. Administrative Services - claim adjudication as per plan document, and manage claim payments
    b. Member Services - manage call center, issue insurance cards and resolve issues with members
    c. Negotitator - negotiate rebates with manufacturers, negotiate discounts with pharmacies and manage relationships with third party payers
    d. Utilization Management - Imeplement utilization management controls, offer benefit feature incentives, manage drug adherence programs
  4. PBMs are paid an admin fee by third party payers (directly or indirectly)
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7
Q

Third Party Payers

A
  1. Insurance companies, employers, or government programs that fund drug benefit
  2. Interact with PBMs and beneficiaries
  3. Employer may bear the risk, or may pass risk of claim fluctuations to insurance company for a fixed premium
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8
Q

Beneficiaries

A
  1. Consumer of presctiption drugs
  2. Receive a prescription as a result of a medical encounter
    - Encounters include offer visits, outpatient procedures or inpatient stays
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9
Q

Prescribing Health Care Providers

A
  1. Diagnose, treat medical conditions and prescribe drugs
  2. Doctors, physician assistants, advanced practice registered nurses (APRNs) and others
  3. Prescribing laws vary by state
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10
Q

Other Relationships

A
  1. May be other relationships than those shown above, along with interrelationships and strategic partnerships
  2. Integration has affected structure of pharmacy supply chain and relationships between entities
    - Horizontal integration - merger and acquistion of companies offering cometing products or in same industry
    - Vertical integration - consolidation of companies in different stages of supply process
  3. Consolidation of PBMs - increases negotiating leverage for larger PBMs
  4. Beneficiaries may have narrower preferred network
  5. May have improved monitoring of outcomes - due to shared medical and drug history and more holistic approach
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11
Q

Types of Prescription Drugs

A
  1. Generic
    - Lowest cost and most common
  2. Brand Name
    - More expensive
    - Single Source Brand (SSB) - have no generic equivalent
    - Multi Source Brand (MSB) - have generic equivalent
  3. Specialty
    - Associated with high cost and low utilization
  4. Biologic
    - Derived from living organisms and usually very expensive
    - Biosimilars - subsequent version of biologics
    - Usually considered specialty drugs due to high costs
  5. Compound
    - Mixed by pharmacist
  6. Over-the-Counter (OTC)
    - Do not require prescription to purchase
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12
Q

Prescription Drug Lifecycle

  1. Research and Development
  2. Brand Patent Protection
  3. Generic Exclusivity
  4. Generic Drug Life span
A

1. Research and Development (R&D)
- Drug discovery, preclinical testing, clinical trials, and FDA approval
- Begin with 5,000-10,000 compounds in drug discovery period and narrowed down to about 5 during preclinical testing and 1 during FDA approval
- Typically lasts about 15 years

2. Brand Patent Protection Period
- Exclusive right to manufacture the approved drug
- Lasts 12 years
- Gives company a chance to offset R&D costs

3. Generic Exclusivity Period
- 6 month period
- Only brand name manufacturer and one other manufacturer can produce the generic

4. Generic Drug Lifespan
- All manufacturers can produce and sell the drug

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13
Q

Methods of Prescription Drug Distribution

A

1. Retail Pharmacies
- Brick and Mortar locations where people pick up drugs
- Typically give one month supply (sometimes may give 3 months supply)

2. Mail Order Pharmacies
- Send drugs via mail
- Typically give three month supply
- Often used for maintenance medications (taken for chronic conditions)
- Usually cheaper and have cost savings opportunity for beneficiaries

3. Specialty Pharmacies
- Focus on delivery of specialty drugs
- May require special treatment in terms of shortage and administartion

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14
Q

Benefit Design

  1. Cost Sharing
  2. Formularies
  3. Formulary Tiers
  4. Value-based Insurance Design
  5. Limitation on Usage
  6. Mandatory Generics and Written as Dispensed
A

Contracts may limit or exclude certain drugs
- (e.g. over-the-counter and lifestyle drugs)
- Ability to exclude certain types of drugs had been limited by regulations

1. Cost Sharing
- Copay - typically different copay amounts for different tiers

  • Coinsurance and copays apply after deductible has been met (with certain benefits being exempt from deductible)
  • Out of Pocket Maximum - most a policyholder will pay for covered services in a plan year (includes copays, coinsurance an deductibles)
  • Coinsurance
    (1) Coninsurance will increase with the tier of the formulary
    (2) If part of a major medical integrated plan, medical deductible must be met before the coninsurance takes effect. Drug claim is applied to the plan deductible
    (3) If plan is not integrated with major medical plan, only drug claims are counted in meeting the drug deductible
  • Combination of Cost Sharing
    (1) One type uses the larger of a copay value or coinsurance as cost sharing
    (2) Another type uses coinsurance with a dollar value maximum
  • Coverage gap is a common feature of Medicare Part D plans
    (1) ACA phased out coverage gap by 2020
  • Cost Sharing is increasing as drug costs continue upwards
  • Members may use less medication as out-of-pocket costs increase
    (1) May lead to unintended consequence of member not using drugs and having adverse health outcomes

2. Formularies
- List of preferred drugs
(1) if a drug is listed on the formulary, it is said to be a “formulary” or “preferred drug”
(2) if not listed, it is “non-formulary” or “non-preferred”

  • 3 Types of formulary-related benefit designs
    (1) Closed- only cover drugs that are listed on the formulary - have a process to allow coverage of non-formulary medications based on medical necessity and commonly found in Medicaid plans where cost sharing is very small
    (2) Open - formularies do not affect whether a drug is covered, but affect the cost sharing
    (3) Tiered (incentive) - have more than 1 cost sharing tier - Tiers may be assigned copays, coinsurance, or a combination of the two. Most incentive formulary designs are open, but it is also possible with a closed formulary

3. Formylary Tiers
- Group drugs into tiers, and diferentiate cost sharing by tier
- Two tier
(1) Usually tier 1 (generics) and tier 2 (brand name drugs)
(2) Tier 1 drugs have a low cost sharing amount, and tier 2 have a higher cost sharing

  • Three tier
    (1) Tier 1 is generic, tier 2 is preferred brands, tier 3 is non-preferred drugs
    (2) Cost sharing levels increase as the tier level increases
    (3) Design is intended to help manage costs by encouraging patients and physicians to use the preferred tier
  • Four Tier
    (1) Most are variations of the three tier designs, with a particular group of drugs assigned to a fourth tier
    (2) Examples - chronic use maintenance drugs, lifestyle drugs and specialty
  • Five Tier
    (1) Created by taking a four tier design and dividing the 4th tier into 2 tiers
    (2) Tier 4 becomes preferred specialty drugs, and tier 5 is non-preferred specialty drugs
  • Six Tier
    (1) Divide specialty drugs into 3 tiers
    (2) 4 being biosimilars, tier 5 preferred specialty drugs, tier 6 non-preferred specialty drugs
    (3) Alternate designs - 2 generic, 2 brand tiers (each class has preferred and non-preferred); Tier for select-care drugs (medicines selected to provide best value for treatment of many conditions, but not yet shown to be clinically effective and low cost)

4. Value-Based Insurance Design
- High Value Drugs
(1) Drugs important in controlling chronic diseases
(2) Not taking them causes the underlying condition to get worse

  • Medication Adherence - Extent to which a patient takes a prescription drug exactly as directed
    (1) Affordability is one reason for poor adherence
  • Value-based benefits reduce cost sharing on drugs and medical treatments identified as being “high value”
    (1) Commonly focuses on drugs for chronic diseases
    (2) Can save plan cost in the long run

5. Limitations on Usage
- Often with respect to the amount dispensed and frequency of refills

  • Quantity Limit (QL) - limits number of refills or amount
    (1) Maximum Daily Dose (MDD) - limited to specific amount of dosage per day
    (2) Quantity Over Time (QOT) - limited to specific amount over period time of time (e.g. per year)
    (3) Refill Too Soon Edit - limits frequency of refills (must fulfill X number of days frist)
  • Prior Authorization (PA) - must obtain authorization from plan prior to getting a drug
  • Step Therapy (ST) - members must try and also document usage of certain preferred drugs prior to gaining coverage for another (often more expensive) drug

6. Mandatory Generics and “Dispense as Written” Benefit Issues
- “Dispense as Written” or “DAW” requires the pharmacy to dispense the brand name drug rather than the generic substitute
(1) Plan may choose to issue a DAW penalty - Member may pay brand cost, excluding what would’ve been paid for the generic
(2) Plan may also encourage substitution of a therpeutically equivalent drug

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15
Q

Formulary Design

  1. Assignment to Tiers
  2. Pharmacy and Therapeutics (P&T) Committee
A

1. Assignment to Tiers
- PBMs and third-party payers work together to make decisions on which drugs to cover and formulary tier placement
- Example three-tier formulary
(1) Tier 1: Generics
(2) Tier 2: Preferred Brands
(3) Tier 3: Multi-source branads and non-preferred single source brands

  • Encourages members to use lower-cost generics
  • Can result in higher cost single source drugs and preferred multi-source drugs being on tier 2 (or “on formulary”) - Can result in the average cost of drugs in tier 2 > in tier 3
  • Formulary should generally include the majority of beneficiaries’ drug needs (90-95%)
  • Many hospitals may have their own formularies

2. Pharmacy and Therapeutics (P&T) Committee
- Considerations about whether to include formulary
(1) Safety
(2) Efficacy
(3) Adequate coverage within a therapeutic class of drugs

  • Determined by P&T committee - consists of physicians, pharmacists and other clinicians
  • Ideal to have independent, objective and unbiased formulary coverage decisions
  • P&T Decisions for Drugs for Formulary Coverage
    (1) Don’t cover the drug
    (2) Cover the drug
    (3) Interchangeable/ may cover
  • Product must first be deemed safe, effective and worthwhile compared to alternatives (many drug pairs are considered interchangeable) - Then assess financial impact
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16
Q

PBMs and Pharmacy Networks

A
  1. PBM / health plan contract will state a discount level and a dispensing fee for use of the PBM pharmacy network
  2. Plan may negotiate contracts directly with pharmacies and establish its own network
  3. Discounts from AWP will vary between mail and retail, with mail discounts being higher
  4. Generic discounts based on MAC (maximum allowable cost) - it is important to identify which MAC is being used
  5. MAC discounts from AWP range from 50% to 80% for generics
    - Brand name discounts from 10% discount from AWP to over 20%
  6. Dispensing fees vary between mail and retail but do not typically vary between brand and generic
  7. PBM/pharmacy contracts may differ from the PBM’s contract with the health plan
    - The amounts the PBM pays the pharmacies may differ from what the health plan pays the PBM
  8. Two Primary Models for PBMs to contract third-party payers
    (1) Transparent Model (“pass through model”)
    - Pharmacy discounts negotiated by PBM are used to determine claim liability of third-party payer

(2) Traditional Model (“lock-in pricing”)
- Pharmacy discounts are not passed directly to third-party payer
- Third-party payer receives the rates that they contract with the PBM at each pharmacy

17
Q

Rebates

A
  1. Rebates are payments from manufacturers for preferred status of their drugs on a formulary
  2. May be fixed amount times number of units sold or could be variable based on market share or volume
  3. PBMs may get better rebate arrangements than a health plan contracting directly, especially if plan has a significant number of lives
    - For smaller plans, usually better rates through PBM contracts than direct from from the manufacturer
  4. Key Factors to Determine Negotiating leverage with Manufacturers for Pharmacy Rebates
    - Number of lives represented
    - Ability to move market share to preferred products
    - Consistency of the plan’s response to a manufacturer’s actions
  5. PBM source of revenue may be admin fees explicitly charged to third-party payer, retention of a portion of the rebates, spread on the drugs dispensed, price protection to limit price increases or other sources
  6. Third-party payer should consider inflation factor on minimum rebate guarantee
  7. Transparency of drug contracts, including discounts and rebates, is often required by large employers or government contracts
18
Q

Legal Issues Arising with Repsect to PBMs

A

1. No PBMs are currently owned by manufacturers
- Legal concerns in the past about this - seen as using anti-competitive pressures
- Merck first purchased a PBM in 1993 and others did the same but quickly sold them off at a considerable loss

2. Recent trend is consolidation and strategic partnership between PBMs and Pharmacies

3. Third Party Payer should be aware of the formulary management process and decisions around formulary design
- Should also develop well-documented process to show no undue conflict of interest from all sides

4. Recent legislative proposals seek to increase transparency in flow of funds in pharmacy framework
- Transparency laws usually most effective when comprehensively targeting entities throughout the framework, including (but not limited to) PBMs