Pharmacy Benefit Management

As you come in, please get the 1 page handout for the lecture today, and the 1 page survey which you can fill out while you wait for class to start. Also note, the lecture notes for class today can be found on the PHRM 3900 (Communications) web page.

Fact: 60% of all employers offer a drug benefit.

To manage drug benefits, employers contract with PBM’s or pharmacy benefit managers.

Tell me about your impressions of PBMs based on your experience in pharmacy.

In the news……..headlines: “Prescription middleman faulted for cost spiral” “PBMs push generic drugs to save their clients money, but what’s in it for them?” “Some PBMs Benefit from Price Spread at Pharmacists Expense”

In the news……..: Researchers at Creighton University reported: – There appears to be some discrepancy between what PBMs are paying pharmacies and what they are charging employers: Ranitidine – Billed Employer $200 – Paid Pharmacy $15 Atenolol – Billed Employer $80 – Paid Pharmacy $7

Today we will talk about: How do PBMs work? How do they (or do they) save money? What role do PBMs play in drug benefit design, implementation and control? How do PBMs result in monetary savings for employers? Are customers happy? – Employers and primary customers…. – Recipients as secondary customers…. What impact can a PBM have on pricing?

Are medications a good deal? There is evidence that medication use can lower total HC costs: Evidence is overwhelmingly indicating that drugs are a good deal compared to other more expensive forms of treatment Some of these forms of treatment are more dangerous….? Drug therapy usually preferred over surgery, diet, exercise, etc.

If drugs are a good deal, why worry about managing the drug benefit? Medications are becoming a much bigger part of total HC costs – Last year, a staff member was making an annual salary of $36,500 per year at UGA. – Received a 4% raise, new salary is $37,960. – Health insurance premium went from $1,560 per year to $3,024. – Raise = $1,460. Premium increase = $1,464. – Net Loss of $4 on the year. – What about those who make less than $36,500?

If drugs are a good deal, why worry about managing the drug benefit? Silo thinking – not seeing the big picture. The cost benefit – cost effectiveness of medications. 3 Billion scripts this year Rx costs increase at 10-15% this year

Well Managed = Cost Contained

The goal of benefit managers: To provide a good drug benefit at an affordable price But, good benefits usually increase unnecessary utilization (survey results) So, how do you provide a benefit that works but does not cost too much?

The goals of PBM’s include establishing a benefit program that: Does not inflate drug costs to the program Is integrated with other aspects of health care Why pay for doctor visits but not drugs like Medicare used to do? Is easy to understand and work with Doesn’t cost a lot to manage If program administration costs are high, why not do away with the program and spend all the money on medications?

With these goals in mind: Top 10 Tasks of PBM’s Top 10 tasks of a pharmacy benefit manager: – Contract directly with HC providers to provide services – Communicate policies between providers, employers and patients – Reports to employers (or other plan sponsors like DCH)

Top 10 Tasks of PBM’s – Verification of eligibility – Maintain formularies or PDLs – DUR (drug utilization review) – Claims processing – Reimbursement of providers and patients – Strategies for cost/utilization controls – TQM (total quality management)

An important consideration: PBM’s only have the power that is given to them by the persons or organizations purchasing their services, and the providers who contract to accept their role as a payer.

PBMs help make tough decisions on: Who will be covered – Elderly, employees, employees and dependents, managers, only the salaried employees, only those who make less than….etc. What will be covered – Rx only, OTCs and Rx, certain drugs, not others Will there be any cost sharing – Copayments,deductibles, coinsurance, mix of all of these How will excess utilization be controlled? – Cost, quality, fraud and abuse

Six Basic Containment Strategies Cost Sharing Formulary Management (including rebates?) Generics Therapeutic Interchange Drug Utilization Review Drug Limitations

Cost Sharing Cost sharing methods – Coinsurance – Deductibles – Copayments and multi-tier copays To decrease program costs by lower utilization just increase the level of cost sharing

Cost Sharing Rationale Price Quantity Low High $50 $15

Cost Sharing Question, in setting cost sharing levels: – How do you know what level is right? – What is right for medicaid? – An elderly person on a fixed income? – How much is too much? – Should some drugs have higher copays, like Retin A? Viagra? Propecia?

Formulary Management Use of more “cost-effective” drugs Open versus closed Incentivized formularies encourage patients to use the drugs most favored by the plan. An example of incentives is: – Tier 1 copay $10 (generics) – Tier 2 copay $25 (branded, formulary) – Tier 3 copay $40-$100 (covered, non formulary, branded or generic) – Tier 4 copay 100% of price (not covered medications)

Formulary Management: The rest of the story….. From a PBM: “We select the safe and effective therapeutic option, then consider cost after that determination has been made.” Translation: “We pick the cheapest drug to put on the formulary.” How so? The FDA establishes that only drugs that are safe and effective can be sold. So, this decision is made for them! There are some who really look at the therapeutics – 6 month waiting periods – but even this can be challenged because new drugs almost always cost more

Generics BIG SAVINGS HERE – 6-10% per year – Sales are > 14 billion annually – Scandal in early 90’s hit the industry hard and shook consumer confidence – Are consumers OK with generics? – Think of the impact a pharmacist can have on this…..take home message for insurers….you want to see more generic use….make friends with pharmacists…

Therapeutic Interchange Estimates are that therapeutic substitution can save as much as 1-5% per year. Use of preferred drugs results in lower cost to patients and insurers (rebates) About 12% will elect to go with a substitute to get the lower price Patient education is vital here – highlights the important role of the pharmacist

Drug Utilization Review ID patients and providers who meet specific criteria then recommend changes or protocols – Diflucan, qd X 14 days didn’t fit – Zantac (ranitidine) 2 BID for GERD didn’t fit – Need flexible program with a range of choices – But, not too many choices or you loose the savings

Drug Limitations Limit what patients can get – No more than 18 prn sleep meds per month – 1 Diflucan per week – Not more than 10 day supply of antibiotic – Prevents stockpiling, sharing, inappropriate use Could also force mail order….. – Increases use of generics – 90 day supplies are the way to savings here which can cause waste!

Common PBM Questions Stuff you’ve always wanted to know, but, were afraid to ask.

Q. Have discounts negotiated by PBMs increased drug prices for those who pay cash? – PBMs argue no – Pricing plans at retail level do incorporate “cost shifting” to cash, even though this is not viewed favorably in the marketplace – To test this: go into the computer and price a script as “cash” then rerun it for ESI, or any other plan.

Q. How do PBMs make prescriptions more affordable? – The answer depends on who you are talking about – Discounts from manufacturers – Discounts from retailers – Encourage use of generics and other lower cost alternatives (these 3 = 24% savings) – Promote mail order pharmacy (6% savings)

Q. Are customers satisfied with PBMs? – One PBM boasts: Services 95% Mail order 96% Pharmacy 93% – This same PBM says the average wait for a real person to talk to on the phone is less than 15 seconds.

Q. How much do PBMs make? – Top 13 brand name pharmaceutical companies: Earn $44.50 per prescription – Top 7 pharmacy retailers: Earn $2.35 per prescription – Top 4 PBMs Earn $1.37 per prescription

Q. How much do PBMs make per prescription?

Q. Who are the clients of PBMs? – Federal Government DOD, VA etc. – State and Local Governements – Employers – Unions – HMOs – Insurance Companies (like BCBS) – Other third party plan administrators

Q. What are drug rebates and how do they benefit PBMs clients and their members? – Money from pharmaceutical manufacturers to PBMs in exchange for formulary / PDL inclusion – Basically a volume discount. – Paid to Federal and State programs – There are some private deals as well, no documentation of this I can find. – Effect: Reduce plan costs Lower copays for members

Q. Who regulates the PBMs? – CMS (Centers fo Medicare and Medicaid Services) – HHS – US Dept of Labor – FTC – HHS Office of Inspector General – Consumer Protection Agency / Other State Agencies – State Medicaid – State Dept of Insurance – State Board of Pharmacy

Q. How are formularies developed within PBMs? Clinical Review (MD, Pharm D, etc.) Cost evaluation (Rebates, prices) Discussion with Clients (DURB, consultants) Selection (high quality – low cost)

355 Million Prescriptions 33 Millions Safety Warnings 572,000 prescriptions changed as a result of ESI Warnings Do PBMs enhance safety? Source: ESI, Inc., 2003

Summary PBM’s play an important role in drug benefits Pharmacists and PBM’s don’t usually get along very well Pharmacy has a valuable product – but the most saving can be achieved through effective medication use PATIENT COUNSELING can ensure that medications are used correctly and that patients actually get better