Pharmacy Reimbursement Surviving and Thriving in the World of

Prescription Benefit Managers

Cindy Puffer RPh Managed Care Pharmacy Operations Manager

Pharmacy Services May 29, 2014

Outline the Evolution of Drug Benefit Management

Understanding Pharmacy Benefit Management (PBM) pricing

Understanding PBM Relationships

Opportunities to Improve Outcomes and Control Costs

Learning Objectives

Institution Overview

Engagement

July 1, 2006 merger createdThird largest higher education,

public institution in Ohio

Discovery

Excellence in learning

UT Mission: To Improve theHuman Condition through:

University of Toledo Medical Center

University of Toledo

Unique Model Sitting on Both Sides of the House

Copay incentivesin placeGPO pricing 90 day supply

Main Campus Outpatient Pharmacy 2 unions, AAUP and CWA

81% employee prescriptions filled

HSC Outpatient Pharmacy 1 union AFSCME, 90.6% filled at UT

Two UT Outpatient Pharmacies

Fill 85% UT employee

prescriptions

1980’s PBM’s emerged as an industry • Goal to administer prescription drug insurance benefits

• Interventions • Drug interactions • Limited DUR

• Transmitted claims electronically• Managed a network of pharmacies • Negotiated rebates for the first time • Administered prescription drug cards • Offered limited mail service fulfillment

Evolution of PBMs

Evolution of PBMs

1990’s PBM industry experienced significant growth • Plan administration expansion

• HMO/Managed Care/Self-funded• Expansion of rebates • Aggressive mail order growth • More clinical services

• DUR/Retrospective DUR/Interventions/Disease Management/ Drug interactions

• More competitive rebates • Expansion of data offerings

Mid 1990’s Pharmaceutical manufacturer involvement • Eli Lilly and Bristol Myer Squibb purchased PBMs

• Goal of establishing greater presence in managed care arena

• Secure formulary status for their products

Early 2000 led to increased PBM competition • PBMs began to offer enhanced clinical services

• Enhanced DUR review• Enhanced prior authorization • Clinical account management • Increasingly sophisticated data driven strategies

• Consumer behavior modifications • Provider data • Enhanced member level data

• PBM mergers and acquisitions and consolidations • Negotiate better discounts and rebates • Lowered reimbursement for network pharmacies• Lowered Rx benefit costs for clients

Evolution of PBMs

Manages the reimbursement for prescription drugs for plan sponsors/adjudicates drug claims

Consultation for benefit design

Creates and maintains pharmacy retail networks

Ongoing pharmaceutical manufacturers rebate programs

Growth in specialty mail service

Relational partnerships

Evolution of PBMs - Today

Maintains a P&T committee and develops a national formulary• Customized for individual plan • Mailings to members when formulary changes

Enhanced clinical programs • Drug utilization review• Disease management• Prior authorizations• Clinical programs • Specialty pharmacy management • Compliance and persistency programs• Provider education• Specialty clinical programs • MTM program administration

Evolution of PBMs Today

Reporting Capabilities • Plan performance review• Review and analyze of historical data • Strategic planning • Utilization trends• Suggestions for plan optimization • Suggestions for copay reengineering • Adherence reporting MPR/PDC• Synchronization programs

Plan Administration • Marketing • ID cards • Coordination of benefits • Audits

Evolution of PBMs – Today

PBM Terminology

Plan Sponsor - sets the benefit design • Employer • Health plan• Government plan

Copayment• Portion paid up by the member • Can be set up to incentivize pharmacies • Can lead to responsible behavior

Dispensing Fee • Payment made to the pharmacy in addition to ingredient cost • Fee for services provided • Pharmacist labor, cost of bottles, labels, etc.

PBM Terminology

Administrative Fee • Plan sponsor fees • Per claim fee to cover cost of processing the claim and

account management • Typically 0.35 per claim

Class of Trade • Retail • Group purchasing organization • 340B

Benefit Design • Parameters by which the plan is set up • Plan sponsor vs. Patient cost share • Copayment vs. Coinsurance

Rebates • Discounts negotiated from manufacturers • Purported to be a benefit to the prospective plan sponsor• Plan sponsor receives % of rebate or flat guaranteed amount

per claim • Payable to the plan sponsor • PBM tricks to capture “lions share” of the rebate

• Rebate broken down into several categories• Access to formulary– do not share • Fees for marketing or other activates

• Not characterized as rebates• Not shared with plan sponsor

• Performance – market share driven l

PBM Terminology

Understanding PBM Pricing Three PBM Pricing Models

Traditional Model • No disclosure of fees • Difficult to follow the funding sources • Spread pricing in place • Rebates are an important source of revenue

Transparent Model • PBM reveals information regarding revenue streams

Transparent/Pass-thru model • Administrative fee only revenue source for the PBM• Revenue stream revealed

• Per claim or per member charge • 100% rebates to the plan sponsor or no rebates • No incentive to promote certain drugs for rebates• Model used by University of Toledo

Understanding PBM Pricing

Average Wholesale price/AWP• Subject of lawsuits in 2007 with FDB and McKesson • Gross inflation of AWP 2-4% • Unreliable benchmark

Actual Acquisition Cost / AAC • Pharmacy actual cost of the drug

Average Manufacturer Price/AMP • Average Price paid to the manufacturer by wholesaler• Price available to retail class of trade • Reflective of discounts and price concession • 79% AWP ( AWP-21%)

Average Sales Price / ASP • Estimated average acquisition cost • Basis for payment from Medicare Part B transplant only • 106% AWP

Understanding PBM Pricing

Wholesale Acquisition Cost / WAC • Not reflective of actual acquisition cost • Not inclusive of discount or rebates

MAC or maximum allowable cost • Unit price established by the PBM for a multi source drug • Developed for PBM clients • May be amended from time to time PBMs sole discretion • PBM can change the drugs it includes or excludes into

MAC whenever it desires • Specify maximum unit ingredient cost payable• Create different MAC lists for different clients

Understanding PBM Pricing Contract Language

Common contract formulas determining how plan sponsor is invoiced :

Retail generic drugs invoiced at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP

Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

PBMs insert MAC into contract language • Allowing PBM to define MAC • Allowing PBM to manipulate MAC

• Include or exclude MAC when advantageous to PBM • Change the drugs that are included or excluded • Select price determined by the PBM • Change the MAC list at any time

Exclude generics from MAC list• Option one drops off • U&C typically above AWP• Plan sponsor is invoiced the generic drug at AWP-18% • Pharmacy reimbursed at generic rate of AWP -70%

• Equivalent to a brand discount • Robs client of generic savings • Resulting in enormous profits for the PBM

Retail generic drugs invoiced to the client at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP

Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

Includes a generic on MAC but• PBM sets a MAC price that is weaker than AWP -18%

• MAC price now the lowest of the three alternatives • PBM will invoice client at AWP-18% which is lower than

AWP – 70% that they reimburse the pharmacy

Retail generic drugs invoiced at the lowest of: 1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP

Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

The PBM can also select any MAC price it wants• Includes the generic drug on the MAC list • Selects MAC for which the product is not available to the

pharmacy • Can pick and choose a subset of generics to provide

guaranteed reimbursement

lRetail generic drugs invoiced at the lowest of:

1) PBM's MAC OR 2) The retail pharmacy usual and customary OR 3) AWP-18% = 82% of AWP

Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

Balloon Strategies

• Squeeze one element of pricing matrix • Another element “pops” out somewhere else • Example lower admin fee = nonnegotiable dispensing fee

Clinical Service Fees • Prior Authorizations become higher

Administrative fees for the • Electronic transmission fees 0.35 • Cost PBM 0.13 • No fee for mail order

Understanding PBM Pricing Strategies Used by PBMs To Increase Profits

PMB Relationships The Role of the PBM in the Flow of Money

Consumer

Drugs dispensed $ Cost-sharing amount

$ reimbursement for plan share

$ Payment for drug and admin % of manufacturer rebates $

Real time billing for Rx

Prescription drugs Negotiate Rebate $

Pharmacy

Wholesaler

Plan Sponsor Benefit design

PBM

Manufacturer

Inventory transfer

Contracting

for rebates

$

Plan Sponsor Perspective

• Demand full pricing disclosure • Know the spread between plan pays and PBM

reimbursement to the pharmacy• Know the pricing model being utilized

• Transparency vs. Pass-thru • Know your definitions • Know charges for clinical services • Indicate an “out clause” in contracts in case of any issues

arise

Opportunities to Improve Outcomes and Control Costs

Pharmacy Perspective – Student Health Insurance

• Get involved in the Student Health Insurance RFP committee • Negotiate reimbursement rates for the pharmacy if this

does not impact the premium• AWP – 10% + $2.50

• Negotiate reimbursement for pharmacist MTM • Become MTM certified and utilize APPE students • Pharmacist CPT codes

• 99605: Medication therapy management service(s) provided by a pharmacist, individual, new patient face-to-face

• 99606: 15 minutes, established patient• 99607: Each additional 15 minutes

• $45.00 per 15 minute increment

Opportunities to Improve Outcomes and Control Costs

Pharmacy Perspective – Student Health Insurance • Know definitions • Control MAC• Set copays to incentivize students to your pharmacy • Advocate for OC’s, acne, smoking cessation to be included in

the plan • Partner with PBM to offer specialized opportunities for

students • Sponsoring health fair, career day events etc

• Partner with a College of Pharmacy to be a part of a pharmacy residency program

• Continue outreach programs for students • Continue to hire students when possible • Engage on University committees • Partner with affiliate to obtain GPO pricing

Opportunities to Improve Outcomes and Control Costs

Opportunities to Improve Outcomes and Control Costs

Pharmacy Perspective - Employee Benefit • Partner with HR to offer a cost saving model for employee

prescription benefits • Educate HR on the plan design and rebates

• Prepare a business plan demonstrating cost saving• Partner with academic medical center to engage in affiliate

agreement for discounted pricing • Engage in copay re-engineering project to demonstrate cost

savings • Use a portion of the savings for staffing

Incentivize employees to utilize in-house pharmacy • UT 1.5 million in savings 2013• Push envelope on clinical programs and IT capabilities

• Gaps in Care • Synchronization Programs • Adherence program • Specialty medication pharmacy

Negotiate better reimbursement rates for your pharmacy • Pass-thru transparent model – no rebates

Opportunities to Improve Outcomes and Control Costs

Medicaid

Union

Health Plans

Employer

DrugManufacturer

Rebates

Clin

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Tool

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Dru

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tiliz

atio

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view

Member

Web PortalPriorAuthorization

Mem

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Help

Desk

Form

ula

ry

Service

s

Pharmacy

Network

Long-Term Care

Medicare

Knowledgeable Pharmacy and Plan Sponsor

Teams

Opportunities to Improve Outcomes And Control Costs

PBM Partnerships

Questions

Cindy Puffer RPh Managed Care Pharmacy OperationsUniversity of Toledo Medical Center 3000 Arlington Avenue Toledo Ohio 43614 419-383-6668