Lecture 10

Question 1

Pharmacy benefit managers (PBMs)

Answer 1

Prescription drugs are a high administrative cost benefit that requires huge volumes to be cost-effective;

middleman between insurance companies and manufacturers which lowers the cost of drugs for insurares and companies

-causes the rise of pharmacy benefit management companies (PBMs).

• For the above reason, health plans & MCOs usually “carve out”
  prescription drug benefit to be administered by a separate PBM

Question 2

PBMs contract with

Answer 2

a payer and provide service to a network of
pharmacies

• have many characteristics of managed care, including a provider network

Question 3

How many retail prescriptions are processed by a PBM

Answer 3

approximately 70%

Question 4

Participating pharmacy agreement

Answer 4

Participating (or network) pharmacies contract to provide specific services for a specified reimbursement

Question 5

Preferred pharmacies (or providers)

Answer 5

A select number of pharmacies are allowed to contract

Question 6

PBMs may be

Answer 6

• Stand-alone companies

- subsidiaries of insurers or of retail drug stores

Question 7

PBM clients may be

Answer 7

insurance co
employers
unions
discount card programs
Medicare
Medicaid

Question 8

The Big Three:

Answer 8

• CVS/Caremark (32% of the market)
• Cigna Express Scripts (24%)
• UnitedHealth Optum Rx (21%)

Question 9

Rx reimbursement (Pharmacy PMT)

Answer 9

(Dispensing fee + Ingredient costs) ‒ Patient cost sharing

Question 10

Dispensing fee

Answer 10

A fixed amount paid for every prescription dispensed.
( ~$9-11/Rx commercial insurance but declining….negotiated per contract)
Medicaid = $4.50, Medicare = $2.27)

Question 11

Ingredient costs

Answer 11

Based on an estimate of the Rx cost*

Question 12

AWP ( Average wholesale price)

Answer 12

similar to MSRP on other big ticket items

• readily available and published everywhere
• usually a higher price than “real”
• Nobody really pays this price
• Lawsuit in 2009- AWP is inflated improperly

AWP refers to the average value at which wholesalers sell drugs to physicians, pharmacies, and other customers. AWP is the generally accepted standard measure for calculating the cost of a particular medication

Question 13

Wholesale Acquisition Cost (WAC)

Answer 13

The most common cost for pharmacy purchasing brand name drugs
• Published by wholesalers
• Not available for all drugs (only if sold to wholesalers)
• Similar to “dealer invoice price” a car dealer pays the manufacturer

an estimate of the manufacturer’s list price for a drug to wholesalers or direct purchasers

Question 14

Estimated acquisition cost (EAC)

Answer 14

Usually based on a percent of the manufacturer’s average wholesale price (AWP), which hopefully is higher than the actual acquisition cost (AAC) paid by the pharmacy

Question 15

Maximum allowable cost

Answer 15

Brands with generics may only be reimbursed at the cost of the generic
Applies to multi-source, generic drugs
• Levels the playing field when there’s a lot of generics available
• Determined by the Payer or the PBM
• Proprietary and not public information
• Represents a limit for multi-source drugs

Question 16

Earned discount

Answer 16

The difference between the AWP and AAC which is the sum of three other discounts:

1. Volume (how much is bought)
2. Cash (early payment)
3. Trade (special deals and promotions)

Question 17

AAC

Answer 17

Actual acquisition cost

Question 18

Federal Upper Limit (FUL) price

Answer 18

Used as the maximum drug cost price to be paid by any Medicaid and/or medicaid program
(plus the small dispensing fee is extra)
• Published by CMS (federal)
• Represents a limit for multi-source drugs
• Calculated retrospectively, not that useful

Question 19

Gross margin (GM) or gross profit

Answer 19

Difference between the Reimbursement and AAC (COGS)

should be sufficient to cover COD plus Net Profit

Question 20

Your break-even point (BEP)

Answer 20

AAC + COD

you dont lose or gain any money

Question 21

Prescription Payments:

- To stay in business: total reimbursement (plan + patient) should cover:

Answer 21

• AAC (COGS)
• COD (cost of dispensing / cost of keeping the pharmacy open)
• Net profit

Question 22

Rx Payments characteristics

Answer 22

Most plans’ total reimbursement for a prescription will not exceed the pharmacy’s usual and customary (U&C) charge – price paid most commonly by private-pay
patients; therefore, most plans reimburse the lower of:

(1) EAC + COD, (2) MAC + COD, or (3) U&C (usual and customary price)

Question 23

To calculate amount billed to Bearcat PBM

Answer 23

(AWP- 15%) + 8
$300 for 100 caps
$3.00 per cap - 15% =2.55

$2.55 *30 caps= $76.50 + $8 = $84.50

Question 24

You’re pharmacy cost for the caps

Answer 24

WAC

$240 for 100 caps
$2.40 per cap
$2.40*30 caps= $72.00

Billed to PBM: $84.50
You made $12.50

Question 25

Earned discounts are the sum of which 3 discounts?

Answer 25

1. Volume (how much is bought) 2. Cash (early payment) 3. Trade (special deals and promotions)

Question 26

AWP

Answer 26

Actual wholesale price

Question 27

Creating Limited (“preferred”) networks

Answer 27

• Deeper discounts in return for increased volume. • Prepare “report cards” for network pharmacies based on performance criteria, which can be used to compare pharmacies

Question 28

Offering mail-order services

Answer 28

* Run their own or contract out. * Take advantage of economies of scale. * Incentives for patients to use mail order when possible. * Savings: ~27% on brands / ~ 53% on generics

Question 29

Rebates

Answer 29

additional revenue from manufacturers to PBMs for placing their drug on formulary or preferred status

Question 30

Claims adjudication

Answer 30

Review Rx claims for payment | • Standardized electronic data interchange maintained by National Council for Prescription Drug Programs (NCPDP)

Question 31

Electronic claims submission, eligibility verification, and claims adjudication. Data include

Answer 31

* Formulary status of drug * Quantity or refill limits * Copayment requirement * Generic substitutions or therapeutic alternatives * Information for DUR

Question 32

Formularies

Answer 32

list of approved drugs available for plan members

Question 33

3 types of formularies

Answer 33

* Open - all drugs covered * Closed - drugs not on formulary are not covered * Incented - financial incentives to use preferred drugs

Question 34

Tiered co-payments

Answer 34

Lowest co-pay for preferred drugs & generics | Higher co-pays for different levels of nonpreferred drugs

Question 35

Co-payment Tiers

Answer 35

1. Generics 2. Preferred brands 3. Non-preferred brands 4. Specialty or “Lifestyle” drugs 5. Non-formulary (100% out-of-pocket)*

Question 36

1. Generics

Answer 36

Typically the most affordable and are equal to their brand-name counterparts in quality, performance characteristics, and intended use

Question 37

2. Preferred brands

Answer 37

Proven to be safe, effective, and favorably priced compared to non-preferred brands

Question 38

3. Non-preferred brands

Answer 38

These drugs have either a generic or preferred brand available, therefore, patients cost share will be higher

Question 39

4. Specialty or “Lifestyle” drugs

Answer 39

Proven to be safe, effective, and favorably priced compared to non-preferred specialty drugs

Question 40

5. Non-formulary (100% out-of-pocket)*

Answer 40

These drugs typically have a preferred brand available, therefore, patients cost share will be higher

Question 41

Specialty tier drugs original definition

Answer 41

Medications generally prescribed for people with complex or ongoing medical conditions such as MS, hemophilia, hepatitis, and rheumatoid arthritis These Rxs typically (had) one or more of the following characteristics:  injected or infused, (but oral specialty medications are becoming more common)  unique storage or shipment requirements  additional education and support required from a health care professional including REMS programs (Risk Evaluation & Mitigation Strategy)  usually not stocked at retail pharmacies

Question 42

Current CMS definition for specialty drugs

Answer 42

Any medication costing more than $670/month

Question 43

Prior authorization (PA) program

Answer 43

prescriber must request prior approval from | PBM in order to be covered; usually for non-preferred tier or higher tiers

Question 44

Step-therapy

Answer 44

less expensive first-line drugs must be used and shown ineffective before more expensive second-line (third-line, etc.) are covered

Question 45

Therapeutic alternative

Answer 45

Pharmacists are authorized to dispense other therapeutically-equivalent drugs (based on established guidelines) for the one prescribed

Question 46

Therapeutic interchange (or conversion, substitution, or switch) program

Answer 46

physician is contacted for approval; patient may be also.

Question 47

DUR

Answer 47

Drug Utilization Review - Review of physician prescribing, pharmacist dispensing, & patient use of drugs - Ensures drugs are used appropriately, safely, and effectively

Question 48

Retrospective DUR

Answer 48

is an educational tool to inform providers of how to improve their drug therapy

Question 49

Prospective DUR

Answer 49

is done at time of dispensing to determine if the prescription is appropriate.

Question 50

PBM services: Disease Management

Answer 50

``` Manage patients with chronic illnesses • Maximize long-term Rx outcomes and cost-effectiveness • May not always use the least expensive Rx: but saves $$$ overall Example diseases: • Asthma / COPD • Diabetes • CVD • Depression ```

Question 51

PBM Controversies

Answer 51

 Increase in profits is raising attention  Paying rebates puts pressure on Pharma to raise their prices  PBMs may not be sharing their rebates with pharmacies  Spread pricing  Lack of transparency  Two interesting resources available:  Explainer (commonwealthfund.org)  PBM Basics (PSSNY.org)

Question 52

Opportunities within PBMs: Students

Answer 52

 Internships |  PGY-1 residencies

Question 53

Opportunities within PBMs: Pharmacists- Clinical

Answer 53

formulary design(s); P&T committee; manage relations with pharmacies; mailorder Co.; or specialty pharmacies

Question 54

Opportunities within PBMs: Pharmacists- Operations

Answer 54

call centers; mail-order processing; DUR

Question 55

Opportunities within PBMs: Pharmacists-Administration/Corporate

Answer 55

client relations; account management; rebate management; | network management; specialty contracts; regulatory compliance