PBM Contracting: As Clear as MUD – Price and Contracting Transparency

Tim Thomas, R.PhPresident, Crystal Clear Rx

My goals for today:• To discuss PBM terminology and PBM Myths

• To give you some practical options for managing Rx benefits cost

• Discuss the importance of Rx optimization/patient engagement

• Discuss Specialty Pharmacy costs: what can be done to mitigate

PBM Terminology

● AWP Average Wholesale Price

● MAC Maxium Allowable Cost

● GER Generic Effective Rate

● OGER Overall Generic Effective Rate

● RFP Request For Proposal

PBM Terminology (according to Tim)

● AWP Ain’t What’s Paid

● MAC Maximum Allowable Cost

● GER Great Extra Revenue

● OGER Outrageously Great Extra Revenue

● RFP Request For Promises

Promises

When you purchase services from a PBM, you are purchasing promises.

The current way most PBMs are judged

●AWP Discounts are a flawed and misleading way of judging PBM performance

●Why?

Because of Math…

"Not everything that counts can be counted. Not everything that can be counted counts.“

How is an AWP Discount calculated?

The mathematical formula is

ONE minus (Ingredient Cost) divided (by AWP)

Examples of AWP Discount calculation

One minus $20 (Ing. Cost) divided by $100 (AWP) =

AWP – 80 %

One minus $20 (Ing. Cost) divided by $125 (AWP) =

AWP – 84 %

(Increasing the AWP (denominator) increases the AWP discount)

Examples of AWP Discount calculation

One minus $25 (Ing. Cost) divided by $125 (AWP) =

AWP – 80 %

Increasing BOTH the ingredient cost and the AWP maintains the Guarantee

BUT YOU ARE PAYING MORE

The misleading AWP discount promise

● Atorvastatin 20 mg (AWP = $5.45)

● Ingredient Cost - Company 1 = $0.38

● Ingredient Cost - Company 2 = $1.28

● AWP Discount Company 1 $0.38/$5.45 – 1 = AWP – 93%

● AWP Discount Company 2 $1.28/$5.45 – 1 = AWP – 76.5%

Brand Generic -16% -72%

AWP example (bucket move)

A PBM can move a generic into a brand name bucket to make both discounts artificially increase.

AWP-50%

AWP example (bucket move)

A PBM can move a generic into a brand name bucket to make both discounts artificially increase.

AWP-50%

Brand Generic -18% -76%

A better way to judgePBM performance

● Market check with defined parameters

● Look at unit cost

● Monitor changes and note trends

You need to monitor PBM performance!

●Things change

●Make sure the PBM contract protects you financially

●Know what to look for

Example of a monitoring “catch”Generic Name

Atorvastatin Calcium Tab 40 MG

Mail ICU (2015) Mail ICU (2016) Difference

Lisinopril Tab 10 MG

Omeprazole Cap 20 MG

Gabapentin Cap 300 MG

Simvastatin Tab 40 MG

Metformin HCl Tab 1000 MG

Tamsulosin HCl Cap 0.4 MG

Lisinopril Tab 20 MG

$0.2340

$0.0714

$0.0800

$0.0513

$0.5865

$0.0304

$0.1082

$0.0283

$1.6599

$0.3823

$1.4146

$0.4147

$1.2114

$0.3084

$1.2363

$0.2887

$1.4259

$0.3109

$1.3346

$0.3634

$0.6249

$0.2780

$1.1281

$0.2603

Rx optimization/patient engagementis missing

● You can negotiate the best contract in the world and still fall short

● Members and their physicians can make uninformed decisions that are costly

● There are 100s of opportunities for savings

Glumetza example

Glumetza is a ONCE a day formulation of Metformin (a twice a day drug)

In reviewing client data it was revealed that the drug was being filled at PBM mail order for: 180 units for 90 day (That’s twice a day)

Mail Order Cost

$ 1,369

If correct QTY (90)

$685

If filled with Metformin (generic)

$ 25 (will need to take TWICE a day)

Specialty Pharmacyversus Traditional

Lets assume that Specialty pharmacy will be a large portion of the spend (40 to 50%)

Specialty Rx40-50% of the Drug Spend

1% of population Rest of population

Traditional Rx50-60% of the Drug Spend

30-40% of populationRest of population

Traditional Rx50-60% of the Drug Spend

Should it be managed the same way that traditional pharmacy has been managed?

Specialty Pharmacy costs can be mitigated

• Analyzing medical and pharmacy claims can show dramatic savings in site of care/appropriate use/proper dosing

• Use cost plus pricing

• Potentially “carve out” Specialty Pharmacy

Harvoni

AWP…...................................$37,800

AWP–14%..............................$32,508

AWP–16%..............................$31,752

Cost Plus model………………$30,630

Savings between $1,122 and $1,878

each month by using cost plus model

PBM Myth # 1Mail order is always cheaper than retail.

PBM

Mail Service Channel

Retail Service Channel

1

$1.7498

$1.3809

2

$1.3445

$1.0423

3

$1.9516

$1.7025

4

$1.1419

$1.0433

5

$1.8686

$1.7793

Total cost per unit

Quote from a PBM contract:“Rebates” means retrospective rebates that are paid to XXXX, or otherwise retained by XXXX, pursuant to the terms of a rebate contract negotiated independently by XXXX with a pharmaceutical manufacturer, and directly attributable to the utilization of certain pharmaceuticals by Enrollees. Rebates do not include administrative fees paid by pharmaceutical manufacturers to XXXX, or product discounts or similar remuneration received by subsidiary pharmacies of XXXX.”

PBM Myth # 2When you get 100% of rebates you are getting 100% of rebates.

Quote from a PBM contract:“Rebates” means retrospective rebates that are paid to XXXX, or otherwise retained by XXXX, pursuant to the terms of a rebate contract negotiated independently by XXXX with a pharmaceutical manufacturer, and directly attributable to the utilization of certain pharmaceuticals by Enrollees. Rebates do not include administrative fees paid by pharmaceutical manufacturers to XXXX, or product discounts or similar remuneration received by subsidiary pharmacies of XXXX.”

PBM Myth # 2When you get 100% of rebates you are getting 100% of rebates.

Crystal Clear Rx“Maximizing Rx Benefit Value for our Clients”

Contact InfoTim.Thomas@CrystalClearRx.com

303-955-7827www.CrystalClearRx.com