PBM Flashcards
What is a PBM
administrator of prescription drug programs
PBM are responsible for
developing and maintaining formularies and other clinical management programs
processing prescription drug claims for insurance companies or corporations
negotiating contracts with pharmacies and manufacturers
performing drug utilizing reviews
managing clinical programs targeted so specific disease states
operating pharmacies, mail-order
Primary revenue streams
administration and service fees charges to plan sponsors for processing prescriptions
operation of their own mail-order and specialty pharmacy
on the margin between the amount charged to customers and the amount paid out to pharmacies for prescription
rebates from drug manufacturers
PBM market concentration
CVS Caremark: 34%
Express scripts: 24%
OptumRx: 21%
Humana Pharmacy Solutions: 8%
Prime therapeutics: 6%
MedImpact Healthcare systems: 5%
All other pbm: 3%
3 PBM control 80%of the market
The implications
highly concentrated markets like this, and to some degree those vertical monopolies translate into a significant issue
MASSIVE MARKET POWER
unfortunately, a recurring theme in the business world is that kind of market power often leads to abuse
Differential pricing
differential pricing is when a PBM establishes a discount off the average wholesale price AWP for the employee filling a prescription, but establishes a different AWP discount for retailers
EX:
Employee pays sees minus 15%
PBM pays retailer AWP minus 18%
PBM pockets the 3% difference
Maximum allowable cost generic drug spread pricing
reference pricing for generics is handled differently
The federal government maintains a MAC list for generics, in order to limit cost to federal programs like
Medicare, to some extent State Medicaid programs
But PBMs create their OWN MAC lists, (sometimes multiple lists) and can use those to generate spread pricing revenue
PBMs hide spreads by claiming that their contracted AWP rates with their pharmacies are confidential
Confidentiality
PBMs use broad interpretation of contract terminology such as “proprietary” to hide reporting data from clients
PBMs requires “mutual approval” of any auditor that health plans designates to conduct an
audit of the PBM
PBM can veto any selected auditor
– PBM can limit the number and/or frequency of audits
– PBM require auditors to sign PBM “Confidentiality Agreements”
DIR “direct or indirect remuneration” Medicare part D Fees
reported to the agency as “direct or indirect remuneration” (“DIR”) at the end of the coverage
year and are used in the agency’s calculation of final Medicare payments to Part D plans
* However, “when price concessions are applied after the point of sale, as DIR, the majority of
the concession amount accrues to the plan, and the remainder accrues to the government.”
* English: Direct and Indirect Remuneration (DIR) pharmacy fees are post point of sale
transaction fees paid by pharmacies to health plans and PBMs for participation in Medicare
Part D pharmacy networks
* DIR fees = $8.5 billion between 2013 and 2017; fees continue to grow; 2019 estimate > $9
billion
* Under CMS policy, price concessions that are not included in the “negotiated price” must be
Overpayment & Clawbacks
co-payment suggests sharing the total cost between patients and payers
* Pharmacies collect patients’ co-payments and pass them to PBMs, who
reimburse the pharmacy a negotiated rate to cover drug costs,
dispensing fees, and any markup
* However, when the co-payment exceeds the negotiated reimbursement,
(cost) = Overpayment
* a clawback returns the excess payment from the pharmacy to the PBM.
The PA (Prior Authorization) Game
A formulary is a list of “preferred drugs that pharmaceutical manufacturers discount to
employers and other groups in exchange for volume usage.” The most effective formularies
optimize and balance quality, effectiveness, and costs.
* Many plans require physicians to get a PA before the plan will cover the drug. That means
physicians or pharmacists must call the health plan or PBM for permission to write or fill
certain prescriptions
* Ideally, a PA program establishes protocols for PAs of expensive, non-formulary drugs.
* A PA program is one tool, among many, that keep costs under control.
* However, PA program fees vary widely, ranging from $2 to $40 per PA.
Selling Data
Every drug manufacturer would like to know about plan
members’ demographics and utilization patterns.
* PBM not required to disclose such sales unless in contract
* And of course, doesn’t have to share that revenue- again,
unless specified ahead of time in contract.
Brand versus Generic Classification- it goes both ways
PBMs intentionally blur the definition of “brand” and “generic” drugs
* So- charging brand prices for generic products
* Labeling a brand drug a generic to keep the rebate, as almost all contracts that do require
rebate sharing require that rebates be passed on to insurance company only for brand drugs
* Or, counting a brand drug as a generic to meet the generic fill level necessary to earn a bonus
or meet a guaranty requirement
The “going too far” moment
CVS, Inc. is an umbrella corporation
* You’ve got your CVS pharmacies as a subsidiary company
* Then you’ve got CVS Caremark, a PBM.
* There are other subsidiaries
* Money from both eventually goes in the same coffer (sorry): pile.
* Of course, on paper, they are supposed to forget they play for the
same team…
Eventually multiple states got involved
Arkansas, Ohio, Kentucky, Florida, on up to 20 some
* Not so much concerned with cost to patients-
* First concern- cost to State Medicaid; second, massive loss of pharmacies,
creation of “Pharmacy Deserts”
* Arkansas, then Ohio passed laws requiring PBM pricing transparency, then a lot
of states got in on the movement
* National organization for PBMs (The Pharmaceutical Care Management
Association, PCMA)- you just can’t make this stuff up!
