Lesson 14 PBMs 2024-1.pptx

Pharmacy Benefit Managers Plake KS, Schafermeyer KW, McCarthy RL (2017). Introduction to Health Care Delivery – A Primer for Pharmacists, 6th edition, Jones and Bartlett, Chapter 16 &17. Objectives  Summarize the origins of the large pharmacy benefit managers  Identify the managed care tool that w...

Pharmacy Benefit Managers Plake KS, Schafermeyer KW, McCarthy RL (2017). Introduction to Health Care Delivery – A Primer for Pharmacists, 6th edition, Jones and Bartlett, Chapter 16 &17. Objectives  Summarize the origins of the large pharmacy benefit managers  Identify the managed care tool that was described as the best means of cost containment in the pharmacy benefit  Discuss points of misunderstanding that sponsors commonly have concerning PBM contracts Objectives  Discuss cost saving tools used by PBMs ♦ Contracting (networks and price negotiation) ♦ Rebates and formularies ♦ Utilization management ♦ Mail order  PBM Economics ♦ Rebate contracting with Big Pharma ♦ Spread pricing ♦ Administrative fees Objectives  Describe a three-tiered pharmacy benefit plan  Discuss current issues related to PBMs and pharmacy reimbursement The Pharmacy Benefit Manager (PBM) A special type of “managed care” organization specifically for pharmacy  Very much in control of the pharmacy benefit  Tremendous impact on every pharmacist  Administers Rx drug plans for more than 266 million Americans PBMs  Definitions ♦ An entity that administers the prescription drug part of the health care plan on behalf of plan sponsors which can include: – Traditional insurance companies – HMOs – Self insured employers ♦ An organization that provides administrative services, usually in the adjudication of prescription claims ♦ Provides access through pharmacy network *supplement notes to accompany are on following slides PBM – Definition *supplement notes An industry whose stated mission is to provide optimal drug therapy while controlling the cost. PBMs may be employed by a health plan, an employer group or a conventional insurance company. The PBM is the entity that connects by computer with the community pharmacies. Via this computer connection the PBM is able to electronically review specifications of a plan, either process the claim and debit the pharmacy’s account or reject the claim. All this is done at the time the pharmacist inputs the prescription information. PBMs maintain very specific records and ,as such, possesses the capacity to provide management reports to the entity that hired them. Prescription claims are very different from other HC claims (prescription claims are relatively low cost and there is a larger volume relative to other HC claims). The PBM industry developed the computer infrastructure to handle this volume of claims. Therefore, the prescription benefit is most often handled separately, by the PBM. PBM Claims processing (adjudication) *supplement notes Claims processing (adjudication)—This entails the transmission of electronic claims data from the pharmacy to the PBM and back. The PBM must have a tremendous capacity to process large volumes prescription transactions. This processing entails the PBM software receiving a transmission from the local pharmacy and validating the eligibility of the member getting a prescription filled. Then the PBM computer processor will check to see if the drug is eligible on the member’s plan. Also required, the PBM software must determine if the drug has been billed by the pharmacy at an amount consistent with the sponsor’s contract. The PBM will also transmit the adjudicated prescription back to the pharmacy complete with the amount to be paid to the pharmacy and the copayment amount to collect from the member. If there is a problem (e.g., early refill or member ineligible), the PBM will transmit to the pharmacy what is wrong with the claims. On to of all this, the PBM must record and charge the prescription to the correct sponsor and further record the appropriate pharmacy so that pharmacy provider can be paid accordingly. PBMs—1980’s  1980’s managed care growth era ♦ Managed care principles seemed to work ♦ Hospital and physician costs were managed first because they were the biggest cost centers  Early to Mid 1980’s saw high inflation in pharmaceutical industry ♦ Generics drugs became popular and major drug manufacturers who began to lose brand loyalty made up for lost revenue with frequent price increases of the brand drug remaining on patent ♦ Pharmacy manufacturers also raised prices frequently to keep up earnings they had to keep their stock prices up to appease stockholders ♦ Pharmacy costs had to be managed PBMs were active in pharmacy benefit management by the early 1980’s. However, when inflation started running through the industry in the early to mid-80s the management became more aggressive. PBMs—Cost Containment  1980’s-1990’s most all MCOs had a pharmacy benefit ♦ Some MCOs developed their own pharmacy benefit management division ♦ Others ‘carved-out’ benefit to PBM  Cost containment was the primary goal This was the “managed cost” approach to health care. The mindset was to minimize cost, words like outcomes and pharmaceutical care were not being used in those days. Overall value was not considered. The idea was that each manager tried to minimize the cost of their silo of responsibility (e.g., pharmacy, medicine, physical therapy, hospital, etc.) Cost Minimization (Component Management)  Early pharmacy benefit management ♦ isolate the pharmacy costs from other HC & go with lowest price prescription products  All HC is interdependent and therefore going with the lowest cost drug may not always be valid. ♦ Example: a low-cost drug—may have high cost side effects relative to another drug. Side effects or poor efficacy could result in: re-hospitalization Relapses seen with the lower cost drug ♦ The lower cost drug may become responsible for higher total costs *supplement notes to accompany are on following slide Cost Minimization (Component Management) *supplement notes The problem with cost minimization in the separate components of HC (physician, hospital , physical therapy, pharmacy, etc.) is that costs are interdependent. For instance, you may be able to dismiss a patient from the hospital very soon and avoid the extra cost, but the discharged person could have a relapse and incur very high total cost. We have since gotten wise to the folly of cost minimization or “component management” and now realize that all services done for the patient have an impact on other facets of care. So, the PBM might best serve the health care system by evolving into an entity that is concerned with outcomes as well as saving money. Please note that diagnosis information is not available on most prescription claims. Participants in the Pharmacy Benefit Remember the PBM may be hired directly by the employer or a managed care organization (MCO) who lacks expertise managing the pharmacy benefit. In reality, few if any MCOs handle their own pharmacy benefit. Hence, the widespread use of the PBM. Pharmacy Benefit  Carved out to a PBM  PBMs work for ♦ indemnity insurers ♦ MCO ♦ Employer groups  Capitation--not used in pharmacy benefit ♦ Why??? Pharmacists are not the one’s ultimately responsible for drug utilization and cost. That rests with the physician. Therefore, it would not be fair to hold the pharmacist responsible for a duty that belongs to the physician. Therefore, the pharmacist is not capitated. PBM Origins  PBMs came from three business backgrounds 1. Claims processor (and network specialist) *PCS--started as a claims processor pharmacy network specialist (2007 is a part of Caremark, now CVS Caremark) 2. Mail order pharmacy Medco--mail order pharmacy (now part of Express Scripts) 3. Managed care organization - developed their own pharmacy benefit manager DPS (Diversified Pharmaceutical Services) Express Scripts/ValueRx (2007 is a part of Express Scripts) The 3 origins of PBMs show the diversity in their backgrounds. One thing is in common in all—highly developed management information systems. *PCS became Advance PCS and later was merged into Caremark PBM—Managed Care Principles  PBMs apply the following managed care principles ♦ Aggressive contracting with provider pharmacies ♦ PBMs attempt to monitor utilization rate with DUR Conducts utilization review to check for early fills or fills at more than one store ♦ Use managed care principles such as member cost sharing, usually as a copayment Generics $10 Brand $75 Actual co-payment varies with the plan PBM—Business Arrangements  Pharmacy benefit has multiple configurations in MCOs ♦ MCOs could construct their own pharmacy benefit, however,– MCOs Generally lack talent for efficiently processing pharmacy claims ♦ MCOs carve out the pharmacy benefit to a PBM ♦ Another variant is the MCO performs some pharmacy benefit tasks themselves such as formulary development, DUR and clinical education and ‘buy’ some things from PBM Claims processing is most common thing “bought” from PBM PBM Customers  Three main customers of the PBM ♦ MCO may be PPO, POS, managed indemnity Frequently subcontract with an established PBM ♦ Government Medicaid, Civilian Health and Medical Program of the Uniformed Services (CHAMPUS--military personnel families) ♦ Self-insured employer groups Large companies who cover all the costs of health care – These companies pay all health care costs, the insurance carrier (Aetna, Metropolitan, etc.) are simply paid to pay the bills and perhaps provide a network of physicians and hospitals » This “bill paying” arrangement is called administrative services only (ASO) – Pharmacy benefit purchased separately or insurance carrier may subcontract for PBM services PBM - Ten tools with Potential to Control Costs/Enhance Quality           Pharmacy networks Negotiated discounts from pharmacies Negotiated rebates from drug manufacturers Cost sharing for the patient Generic substitution Formulary Management Mail Order Pharmacy Services Drug utilization review (DUR) POS (point of service) edits Education--patient and provider These tools are generally considered cost control mechanisms. However, they can provide a quality component in utilization review and education programs. Why have PBMs Manage the Benefit?  MCOs may not have the network of pharmacies to serve their clients  PBMs are very efficient claims processors  PBMs offer flexible services ♦ The client can buy only the services they need  PBMs have experience in negotiating and keeping records necessary to collect rebates Pharmacy Network  Pharmacy networks ♦ Networks were once limited. Now all pharmacies participate in most PBM plans ♦ There are about ~65,000 retail pharmacies in the U.S. PBMs have contracts with most of them Negotiated Rebates from Drug Manufacturers  Negotiated rebates from drug manufacturer ♦ PBM is free to negotiate a rebate from the drug manufacturer for significant use of the manufacturer's product (‘moved market share’) ♦ Pharmacist buys and pays for the product ♦ PBM gets the manufacturer rebate Many times, it is difficult to determine how much of the rebate the PBM shares with the plan sponsor *supplement notes to accompany are on following slide Negotiated Rebates from Drug Manufacturers *supplement notes “Moved market share”— Literally moving customers to the use of a particular product– Example: A large PBM employed by hundreds of employer groups. In these groups there are 15 million patients. There are several drug companies that make “GLP-1 agonists” (glucagon-like peptide agonists) Trulicity®, Bydureon®, Ozempic®, Mounjaro® and therefore, there is a lot of competition for market share between the drug makers. I go to one of these companies and negotiate a rebate with them for putting their “GLP-1 agonist” as my PBM’s preferred product. The drug company (or a few companies) that offer my PBM the best rebate will become the “preferred” product(s) in a crowded therapeutic class (such as the case in our cholesterol medications). The PBM can change patients to “preferred products” via lower out-of-pocket costs prior-authorization, and in so doing the drug manufacturer pays the PBM a rebate according to how much product the PBM moved. Please note that the PBM does not have to share any of the rebate with the employer/payer. Therefore, because the amount of the rebate returned to the sponsor is difficult to determine; the rebate may server more as a revenue stream to the PBM than a cost saving to the sponsor. Formularies  Kinds of formularies ♦ Open—all drugs are covered regardless of status ♦ Closed—only drugs on the formulary are covered ♦ Partially closed—some non-formulary drugs are covered  All PBMs have a formulary  More restrictive the formulary the better opportunity to channel patient to certain drugs ♦ Rebates can be potentially higher Why do restrictive formularies lead to better rebates? Formularies (Cont)  Therapeutic Interchange ♦ Rebate pressure ♦ Crowded therapeutic categories manufacturer wants increased volume GLP-1 Agonists for diabetics Statins (antilipemic— Lipitor® is prototype) ♦ Plans may reimburse pharmacist for getting authorization Formulary—History  Formularies have been in existence since the 18th century in hospitals and teaching institutions ♦ Initially formularies were used to lessen inventory duplication It is not efficient to have 3 or 4 versions of the same medication ♦ Formularies also had a teaching component A book to teach medical students, interns, residents and physicians about drugs Formularies are by no means a new phenomenon; however, we are going to see a relatively new use. Formulary—Price Negotiation  A new use for formularies: PRICE NEGOTIATION ♦ Selection to a restricted list of medications was very important to the drug makers Hospitals generally use a large volume of pharmaceuticals Teaching hospitals are an optimal place to acquaint new prescribers (medical students and residents) to their drug products. Formulary inclusion is very important to drug manufacturers   Manufacturers were willing to lower their price in exchange for inclusion on the hospital formulary With the rise in influence of PBMs in the retail sector ♦ Rebates are paid by the drug manufacturer to the PBM in exchange for formulary inclusion The hospital environment was the beginning of price discounts by the drug makers—this has been carried over to the ambulatory patient sector by the PBMs. Pharmacy and Therapeutics (P&T) Committee  P&T Committee ♦ A committee of experts, primarily physicians and pharmacists, that are responsible for developing, managing, updating and administering the formulary. (Adapted from text) ♦ American Society of Health System Pharmacy (ASHP): A body recommending policy to the medical staff and the administration of the organization on matters related to the therapeutic use of drugs.’ Who makes up the P&T Committee?        Pharmacists (always) Physicians (always) Nurses Medical director Pharmacy director Administrators/Managers Consultants--pharmacoeconomics, quality assurance, drug information, etc. Remember that pharmacists are extremely important members of the P&T committee. Also, the pharmacists have the most overall drug knowledge and do the most research on potential formulary inclusions. Despite this, it is the physicians that give the committee credibility. This is not surprising; we are approving a list of drugs that the physicians will be using. Remember— the best way to inform and influence physician behavior is peer pressure, perhaps by using comparative prescribing and utilization data. Formulary—Selection of Drugs  P&T committees start with FDA’s determination of safety and efficacy. ♦ Formulary committee members looks at research papers studies of large populations large medical centers Committee attempts to identify the most appropriate products  Goal is to provide medications that are safe, effective and that achieve desired outcomes Selection of drug products involve a survey of the literature to find research on the drug in question. The preferred sources of information are peer-reviewed* publications—not funded by the drug company whose product is studied. A good practice, by anyone critically reviewing an article—look at the funding agency. The Big 3 criteria of Formulary Consideration  Safety  Efficacy  Cost Formulary—Determinants of Selection Safety  FDA approval  Literature indicates safety  What is the therapeutic margin ♦ Wide margin of safety is preferred  Side effect profile ♦ Fewer and milder the side effects the better  Drug disease contraindications Formulary—Determinants of Selection Efficacy  What is the efficacy in relation to other drugs in the therapeutic class ♦ Is the drug a truly innovative product or a “me too” drug ♦ What does efficacy mean????? Formulary - Efficacy Defined  Efficacy ♦ Efficacy: Can the drug work under ideal conditions, such as a clinical trial. ♦ Effectiveness: Does the drug work under conditions encountered in everyday life. Effectiveness - A particular application of efficacy; it reflects the performance of an intervention under ordinary conditions by the average practitioner for the typical patient. Formulary and Cost  Cost ♦ With respect to safety and efficacy A drug that is no better than an existing drug should not command a higher price from a formulary standpoint Can the drug replace another formulary product Can the drug save money on overall treatment (e.g., shorten hospital stay relative to another drug) ♦ Contracts/rebates—how much does special pricing lower the total cost of a drug In a commercial PBM administered plan it is very difficult to know the drug price net the rebate – Rebates are paid after the fact – Rebates are not necessarily itemized to allow the sponsor to determine the “value” of an individual drug net the rebate Formulary Exceptions  90%of PBM Rxs are from the formulary  No formulary can include every possible occurrence  Must be a clear process for formulary exemption Sometimes the drug products included on the formulary are simply not appropriate for a patient. There must be a straightforward process for getting the patient the appropriate drug. This process is referred to Formulary Exception Qualities of the Ideal Formulary Exception Process  Non-burdensome process to allow a non-formulary drug to be prescribed  Clearly articulated process  Must be transparent to the patient  Basis of exception should be strictly clinical need and therapeutic rationale This process “should” be transparent to the patient, however, too often the patient gets caught up in the process. It can be very traumatic to that patient. Formulary exception is not a process to get whatever the patient prefers, this is clearly a process for medical need. Cost Sharing for the Patient  Cost sharing for the patient ♦ Has been shown to reduce utilization by 25% with no compromise to quality ♦ Name and define 3 kinds of cost sharing The three kinds of cost sharing were introduced previously and are found in in McCarthy. Know them!!! Generic Substitution  Generic substitution ♦ Much lower product cost ♦ Lower co-payment—for the patient ♦ Cost saving to the sponsor ♦ Higher gross margin % for the pharmacy Explain the higher gross margin. gross margin = selling price - cost of goods sold You can illustrate the difference by using an example of a brand name drug costing $55.00 and a generic drug costing $7.00. (Hint--What are the two components of drug selling price in PBM pharmacy reimbursement—see “Pharmacy in Managed Care” lesson if you can’t remember) Three-tier Benefit Design  Three-tier system Tier one (usually generics): $10.00 co-payment Tier two: brand name and some generics: $30.00 co-payment Tier three: 35% co-insurance with a maximum dollar amount Multi-tiered benefit design is seen more all the time. It is one way to keep down the high drug bills by imposing more cost sharing with the patient. Previous designs had only two tiers—generic and brand. Four-tier Benefit Design  Four-tier system Tier one (usually generics): $10.00 co-payment Tier two: brand name and some generics: $30.00 co-payment Tier three: 35% co-insurance with a maximum dollar amount Tier four: For example—Lifestyle drugs (impotence, cosmetic). Specialty /biotechnology drug and gene therapies. 80%-100% coinsurance Note the 4th tier is made up of drug that might not have been covered , such as Viagra®, Levitra, specialty drugs such as Harvoni® and Humira® Drug Utilization Review (DUR)  Physician prescribing  Pharmacist dispensing  Patient use  Done on the computer, results are reported when you get a message such as: ♦ Duplicate therapy or ♦ Early refill warning  Retrospective DUR - look at the past – past prescribing patterns – patient patterns – Review of the fastest moving drugs in each therapeutic category DUR (cont.)  Prospective DUR ♦ Happens at the time of dispensing ♦ Part of most electronic processing systems dose appropriateness drug interactions duplication of therapy drug allergies Drug-disease contraindication Prospective DUR is a great opportunity for pharmacists. You computer software can pick up possible problems and you get the opportunity to show the patient the benefit of your services. We all have drug interaction software on our computers. In addition, the PBM in its on-line claim processing, will highlight problems you need to correct. Point of Service (POS) Edits  This is the computer connection in real time ♦ See the explanation on the next slide    This lowers the administrative cost for processing the claim Computer can process the claims Worth the 5-10 cents to pharmacy ♦ fewer rejected claims ♦ reduced data entry time ♦ faster payment   Soft edit - pharmacist can over-ride (less stringent dispensing control) Hard edit - pharmacist can NOT override (prior authorization) *supplement notes to accompany are on following pages POS Edits *supplement notes (I) A POS (Point of Service) system refers to a computer connection to pharmacy benefit plan information. The pharmacist connects with this information at the time they are entering information into the computer necessary to fill the prescription. Therefore, this computer connection allows prescription filling and claim submission simultaneously. The claim is OK’d and the pharmacy account adjusted accordingly during the time the pharmacist is preparing the prescription for the patient. A POS system has the capacity to store the plan and patient information for subsequent claims submission. When prescription information is put in the computer for a covered patient, a claim can be transmitted to the PBM. This saves the pharmacist time and insures that the claim is correct before the patient gets the prescription. An edit is a message from the processor (the PBMs computer system) to the pharmacist’s prescription filling screen. An edit tells us things like: “only the generic form is covered”. In this example the edit can not be overridden by the pharmacist—you can not use the brand and be reimbursed for it. This is a hard edit. An edit that recommends a certain action (e.g., generic form is preferred) but allows the pharmacist to override the edit is a case called a soft edit PBM Economics   Rebates Spread pricing ♦ Difference between amount charged to plan sponsor and amount paid to pharmacy  Administrative fees ♦ Per claim ♦ Per member   Mail order pharmacy ownership Lack of transparency Issues in 2024  Value Based contracting for Specialty Drugs ♦ Contracts with manufacturers for specialty drugs based on rewarding positive outcomes or reducing payer risk  Discount Cards - examples ♦ GoodRX/Singlecare Allow Usual and Customary Pharmacy (U & C) Pricing which is very advantageous for community pharmacies Pharmacies pay for this at $5 – 7 per claim U & C pricing allows pharmacies to make big profits ♦ evoucherRx – manufacturer discount coupons applied at the ‘”data switch” Example: PBM contract price = $700; sponsor pays $500; evoucherRx pays $200; patient pays $0. Pharmacies not happy with this because of delayed reimbursement PBMs not happy because it undermines copayment tiers Plan sponsors could pay more Issues in 2024  Direct and Indirect Remuneration fees (DIR) ♦ Defined and applied under Medicare Part D ♦ Flat $ fees pharmacies pay PBMs after the point of sale, also known as clawbacks: $9 billion in 2019 ♦ May result in losses in revenue for the pharmacy that may surpass the AAC ♦ Retroactive DIR fees eliminated January 1, 2024 ♦ DIR fees now included at the point sale! 5% penalty for underperforming pharmacies No penalty for average performance 1% bonus for high performance THE END! The PBM pays the pharmacy a dispensing fee of $2.00 and terms of (AWP -15%) for brand drugs. The brand drug, BestDrug® has an AWP of $329.00 / 100. The PBM pays the pharmacy $279.65 for the BestDrug® ingredient cost and charges the plan sponsor (employer) $296.10 for the same prescription ingredient cost. What is the PBM spread for this prescription? Extrabest® has an AWP price of $349.50/100 capsules. You are able to buy Extrabest® for $283.10/100 capsules on a special promotion. The Burgermeister Packing plant in town has a prescription drug program that pays AWP -16% + $2.50 to the pharmacy. What is your total reimbursement for dispensing 100 capsules on this plan? (Assume no patient cost sharing).