1. Pulling Back the Curtain on PBMs
LeAnn C. Boyd, PharmD, CEO

2. Pulling in the Same Direction?
“Relatively few employers believe the goals of their PBMs strongly align with their own goals for managing employee health, productivity and costs.” ~TBV
*TBV throughout this presentation refers to: National Pharmaceutical Council. Toward Better Value, accessed 11/15/2017.

3. Pass-Through are not the same.
PBM Types & Buzz Words
….that current pharmacy benefit management models lack transparency and are overly complicated. ~TBV
PBM Model
Revenue Streams
Disclosure
Traditional
No limits
None
Transparent
Some limits
Required
Pass-Through
Strict limits
Hybrid
Varies
Sometimes
Transparency &
Pass-Through are not the same.
Traditional PBM retains a network spread and some or all of the rebates as compensation
Pass-Through PBM charges client the exact amount it pays pharmacies. PBM is compensated with an agreed upon fee for service
85% of the market

4. PBM Market 70% of all prescription claims processed by “Big 3”.
PBM Market Share, Drug Channels, accessed 12/5/2017

5. Quote from Toward Better Value Survey:
Notably, just 19 percent of respondents…..understand exactly how their PBM makes money for the services provided to their organizations. ~TBV
Toward Better Value, National Pharmaceutical Council, accessed 11/15/2017

6. How PBMs Make Money TRADITIONAL MODEL PASS-THROUGH MODEL 100%
“Sharing” Rebates
Secret “Other Monies”
Excluding certain Brands or Specialty
Spread
Reclassify Generics as Brands
Switch NDCs
Clawbacks
Backdoor Fees
Zero Balance Due Claims
“Guaranteed” Discounts
Waived Copays
Refill Creep
Package Size Billing
Repackaging
Waste
PASS-THROUGH MODEL
100%
Adapted from information credited to George Hill | (+1) | February 24, 2016

7. PBM Profit Levers TRADITIONAL MODEL PASS-THROUGH MODEL
Generic Discounts
Brand Discounts
Rebates
Admin Fees
Mail Order
Specialty
PASS-THROUGH MODEL
Admin Fees
Quote from Toward Better Value Survey:

8. Mail Order Profiteering
PACKAGE SIZE
STEERING
REFILL CREEP
REPACKAGE
Steerage of patients to mail order through waived co-pays. Client ends up paying the “waived” copay.
Mail order pharmacies will auto-refill when the member has only used 70% of the current supply. Medication is sent early creating 1 or 2 extra fills per calendar year.
PBM mail order pharmacies will bill for a package size of 100 even though only a lower quantity is actually dispensed.
PBM mail order pharmacies will buy a bulk quantity of a drug and repackage it into smaller quantities (such as 100) and assign a higher price point (AWP).
Biggest PBM profit center – the “crown jewel” of the PBM. Acting as Administrator & Seller.

9. Mail Order Waste
*These are actual images sent by participating pharmacies in the Dispose My Meds Program.
Patient information has been removed or obscured to comply with all applicable laws protecting
personal health information.

10. Discount Profiteering
SPREAD
RECLASSIFY
SWITCH
ZBDs
Pay the pharmacy at one discount rate and charge the client at a higher rate. PBM retains the difference or “spread” in the price paid to the pharmacy and the price the client is charged.
Reclassify a generic as a brand. Pay the pharmacy the generic discount and resell it to the client at a brand discount. PBM retains the difference in price between the generic price and the brand price.
Switch from actual NDC of drug dispensed to a different NDC of same drug with higher price point (AWP). Pharmacy paid off lower price point and client charged off higher price point AWP. PBM keeps the difference as profit.
ZBD – Zero Balance Due. Member pays full cost of the drug and plan owes $0. PBM will count this as a 100% discount. Allows PBM to charge client higher on other claims and meet the “guaranteed” discount number.
DISCOUNTS DOLLARS
Manipulation inflates “discounts” to increase PBM profits which increase costs.

11. Caution: “Guaranteed” Discount
“Guaranteed” Discounts gives a PBM “Guaranteed” Revenue
Pass-Through Discount
PBM Spread $$$$
Guaranteed Discount
Traditional PBMs keep over-performance savings on their guarantees.

12. Clawbacks & Backdoor Fees
NEGATIVE REMITS
NETWORK ACCESS
PERFORMANCE FEES
DIRs
Member is charged the full copay when the drug costs less. The PBM keeps the difference by paying the pharmacy a negative amount.
PBMs mandate pharmacies to pay the PBM an “access” fees on every transaction that is submitted, rejected, and/or reversed.
PBM charges the pharmacy a percentage or flat rate per script on a prescription.
Pharmacies are retroactively assessed fees if certain performance criteria are not met. Criteria many times are arbitrary.
Clawback – the recovery of money already disbursed
“They are a form of extortion but if we don’t pay, we are out of a PBM network.”
~Ted Okon, Community Oncology Alliance Executive DIrector

13. Rebate Profiteering STEERING TYPES RECLASSIFY CHERRY PICK
Placing drugs on a formulary to “pump” up rebates dollars. These drugs are not necessarily the lowest in cost nor are they the most efficacious.
PBMs are paid different types of rebates – Access, Market Share, Administrative, Educational, Clinical, etc… PBM does not share on ALL manufacturer dollars received.
Rebates received on a brand drug but PBM reclassifies it as a generic drug so rebates are not paid out to client but are retained by the PBM.
Paying rebates only on brands at certain delivery channels. Such as only paying on retail or mail and not paying on specialty.
The risk to employers in focusing too strongly on rebates is that it acts as a distraction, taking attention away from other important factors that can have profound impacts on the value they get in return for the money spent providing prescription drug benefits to their employees... ~TBV

14. Rebate Profiteering
Secret “Other Monies” Admin Fees & Price Protection Rebates
Price increased by Manufacturer  Rebate Increases
Formulary Rebates ONLY ones paid to client
~6.9% passed-through to the client – PBM retained the rest (over $8.7M).
Notable percentages express skepticism about the helpfulness of rebates in achieving and aligned and effective health care supply chain. ~TBV

15. Prescription Economics
Prescription with an AWP of $360:
The “typical” PBM generates:
$3.00 Retail Network Spead
$9.00 Retained Rebate
$6.00 Retained Admin Fee
$18.00 Total Per Script Revenue
In an environment in which transparency and complexity are such common challenges, it’s not easy for employers to get good value for money spent on prescription drug benefits for their employees. ~TBV

16. Employers Believe…
Toward Better Value, National Pharmaceutical Council, accessed 11/15/2017

17. What Employers Want
Toward Better Value, National Pharmaceutical Council, accessed 11/15/2017

18. Take Home Messages from TBV
The problem faced by most employers is that, while they are concerned about a lack of transparency, they are confused and intimidated by the sheer complexity of the prevailing PBM models…
A trust gap exists between employers and their pharmacy benefit vendors. Only about a third of respondents rated their PBM vendors as trustworthy…
The data reveal large gaps between the percentage of employers who rate key service elements as very important and the percentage who rate the performance of their PBM in delivery of those services as very good.
The issues of pharmacy benefit transparency, complexity and rebates repeatedly surface as concerns among employers.
In an environment in which transparency and complexity are such common challenges, it’s not easy for employers to get good value for money spent on prescription drug benefits for their employees.
In summary, the research demonstrated that a large majority of employers value the functions performed by their PBM. However, employers share concerns about alignment, trustworthiness and overall satisfaction with their PBM vendors.
Toward Better Value, National Pharmaceutical Council, accessed 11/15/2017

19. Pulling Back the Curtain on PBMs
LeAnn C. Boyd, PharmD, CEO