Lecture 10 Flashcards
Pharmacy benefit managers (PBMs)
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
PBMs contract with
a payer and provide service to a network of
pharmacies
- have many characteristics of managed care, including a provider network
How many retail prescriptions are processed by a PBM
approximately 70%
Participating pharmacy agreement
Participating (or network) pharmacies contract to provide specific services for a specified reimbursement
Preferred pharmacies (or providers)
A select number of pharmacies are allowed to contract
PBMs may be
- Stand-alone companies
- subsidiaries of insurers or of retail drug stores
PBM clients may be
insurance co employers unions discount card programs Medicare Medicaid
The Big Three:
- CVS/Caremark (32% of the market)
- Cigna Express Scripts (24%)
- UnitedHealth Optum Rx (21%)
Rx reimbursement (Pharmacy PMT)
(Dispensing fee + Ingredient costs) ‒ Patient cost sharing
Dispensing fee
A fixed amount paid for every prescription dispensed.
( ~$9-11/Rx commercial insurance but declining….negotiated per contract)
Medicaid = $4.50, Medicare = $2.27)
Ingredient costs
Based on an estimate of the Rx cost*
AWP ( Average wholesale price)
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
Wholesale Acquisition Cost (WAC)
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
Estimated acquisition cost (EAC)
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
Maximum allowable cost
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
Earned discount
The difference between the AWP and AAC which is the sum of three other discounts:
- Volume (how much is bought)
- Cash (early payment)
- Trade (special deals and promotions)
AAC
Actual acquisition cost
Federal Upper Limit (FUL) price
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
Gross margin (GM) or gross profit
Difference between the Reimbursement and AAC (COGS)
should be sufficient to cover COD plus Net Profit
Your break-even point (BEP)
AAC + COD
you dont lose or gain any money
Prescription Payments:
- To stay in business: total reimbursement (plan + patient) should cover:
- AAC (COGS)
- COD (cost of dispensing / cost of keeping the pharmacy open)
- Net profit
Rx Payments characteristics
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)
To calculate amount billed to Bearcat PBM
(AWP- 15%) + 8
$300 for 100 caps
$3.00 per cap - 15% =2.55
$2.55 *30 caps= $76.50 + $8 = $84.50
You’re pharmacy cost for the caps
WAC
$240 for 100 caps
$2.40 per cap
$2.40*30 caps= $72.00
Billed to PBM: $84.50
You made $12.50
Earned discounts are the sum of which 3 discounts?
- Volume (how much is bought)
- Cash (early payment)
- Trade (special deals and promotions)
AWP
Actual wholesale price
Creating Limited (“preferred”) networks
• Deeper discounts in return for increased volume.
• Prepare “report cards” for network pharmacies based on performance criteria,
which can be used to compare pharmacies
Offering mail-order services
- 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
Rebates
additional revenue from manufacturers to PBMs for placing their drug on formulary or preferred status
Claims adjudication
Review Rx claims for payment
• Standardized electronic data interchange maintained by National Council for Prescription Drug Programs (NCPDP)
Electronic claims submission, eligibility verification, and claims adjudication.
Data include
- Formulary status of drug
- Quantity or refill limits
- Copayment requirement
- Generic substitutions or therapeutic alternatives
- Information for DUR
Formularies
list of approved drugs available for plan members
3 types of formularies
- Open - all drugs covered
- Closed - drugs not on formulary are not covered
- Incented - financial incentives to use preferred drugs
Tiered co-payments
Lowest co-pay for preferred drugs & generics
Higher co-pays for different levels of nonpreferred drugs
Co-payment Tiers
- Generics
- Preferred brands
- Non-preferred brands
- Specialty or “Lifestyle” drugs
- Non-formulary (100% out-of-pocket)*
- Generics
Typically the most affordable and are equal to their brand-name counterparts in quality, performance characteristics, and intended use
- Preferred brands
Proven to be safe, effective, and favorably priced compared to non-preferred brands
- Non-preferred brands
These drugs have either a generic or preferred brand available, therefore, patients cost share will be higher
- Specialty or “Lifestyle” drugs
Proven to be safe, effective, and favorably priced compared to non-preferred specialty drugs
- Non-formulary (100% out-of-pocket)*
These drugs typically have a preferred brand available, therefore, patients cost share will be higher
Specialty tier drugs original definition
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
Current CMS definition for specialty drugs
Any medication costing more than $670/month
Prior authorization (PA) program
prescriber must request prior approval from
PBM in order to be covered; usually for non-preferred tier or higher tiers
Step-therapy
less expensive first-line drugs must be used and shown ineffective before more expensive second-line (third-line, etc.) are covered
Therapeutic alternative
Pharmacists are authorized to dispense other therapeutically-equivalent drugs
(based on established guidelines) for the one prescribed
Therapeutic interchange (or conversion, substitution, or switch) program
physician is contacted for approval; patient may be also.
DUR
Drug Utilization Review
- Review of physician prescribing, pharmacist dispensing, & patient use of drugs
- Ensures drugs are used appropriately, safely, and effectively
Retrospective DUR
is an educational tool to inform providers of how to improve their drug therapy
Prospective DUR
is done at time of dispensing to determine if the prescription is appropriate.
PBM services: Disease Management
Manage patients with chronic illnesses • Maximize long-term Rx outcomes and cost-effectiveness • May not always use the least expensive Rx: but saves \$\$$ overall Example diseases: • Asthma / COPD • Diabetes • CVD • Depression
PBM Controversies
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)
Opportunities within PBMs: Students
Internships
PGY-1 residencies
Opportunities within PBMs: Pharmacists- Clinical
formulary design(s); P&T committee; manage relations with pharmacies; mailorder Co.; or specialty pharmacies
Opportunities within PBMs: Pharmacists- Operations
call centers; mail-order processing; DUR
Opportunities within PBMs: Pharmacists-Administration/Corporate
client relations; account management; rebate management;
network management; specialty contracts; regulatory compliance
