1. Pharmacy’s Complexity is a Black Box
PBM Black box
Pharmacy’s Complexity is a Black Box
June 22, 2017
Presented By:
Todd Kurth, Principal & Senior Consultant
PROPRIETARY AND CONFIDENTIAL

2. “The only place where success comes before work is in the dictionary.”
~ Vidal Sassoon~ 2

3. Discussion points and topics
Agenda
Discussion points and topics
Pharmacy Benefits Manager (PBM) – What do they do?
Pharmacy Benefits No Longer a Throw in Benefit
Common Myths
Why So Complicated?
How Does a PBM Make Their Revenue?
Formulary – Rebates or Lowest Net Cost
Growth of Specialty
Carve In vs. Carve Out
Takeaways
Questions

4. Pharmacy Benefit Manager
What is a pharmacy benefit manager?
A organization that helps:
Manage the purchasing, reimbursement and dispensing of prescription drugs for employers, plan sponsors or health plans
Create and maintain pharmacy networks
Create formularies that influence physician prescribing patterns to aid in securing drug manufacturer rebates
Negotiate with all parties in distribution chain for discounts, rebates, etc.
Administer clinical and disease management programs to manage utilization

5. 29% 24% PBM 2014 Market Share by total equivalent prescriptions 13% 6%
Life Group
10,000
29% 6%
13% 9% 5% 7% 6%
Published on Drug Channels ( on March 31, This chart originally appears as Exhibit 47 in the Economic Report on Retail, Mail, and Specialty Pharmacies, January Available at

6. Pharmacy Benefit Trends
Pharmacy benefits are no longer a “throw in” benefit
Today’s pharmacy benefits are demanding more time and expertise than most employers and unions are able to provide due to many factors:
New drug therapies
Complicated benefit designs
Double-digit annual increases
High-cost specialty medications
Predatory industry practices

7. True or False?
Mail Order saves you money Transparency is transparent High rebates mean low costs The FDA reviews the safety and efficacy of compound drugs Coalitions focus on the cost of the drug RFPs bind the PBM The drugs you cover drive low net cost

8. the more you explain it, the more I don’t understand it Mark Twain
Why so Complicated?
the more you explain it, the more I don’t understand it Mark Twain
Pharmacy is multi-faceted and unregulated
There is a lack of transparency & disclosure
For a PBM, revenue or shareholder value is the #1 priority; #2 priority is the customer
Solution: Educating the buyer is key

9. PBM Optics: Full disclosure
Near-infinite number of ways to hide PBM revenue
Spread vs Pass-through Pricing
Administration Fees
Average Wholesale Price (AWP)
MAC Pricing
Mail Order
Specialty Network
Pharmaceutical Rebates
Add-on Services
“Branded” Generics
Pre-Settlement
AWP
Claims Re-pricing
Client Contract

10. Formulary – Rebates or Lowest net cost?
Designing a strategy
Formulary drives to low net cost?
If true, then why are more expensive drugs listed as preferred?  Formularies can be greatly influenced by rebates the PBM receives from drug manufacturers
Each PBM selects its own list of drugs, which results in different drugs on each PBM’s list
Therapeutic interchange programs are used to allow the PBM to switch a drug to a formulary medication instead of a non-formulary medication
Option –Select a PBM vendor that is not driven by rebates
Or, throw out the formulary

11. Treats High Triglyceride Levels
Brand vs Generic Drug Prices Drug cost is cash price and does not reflect PBM discount
Treats Cholesterol
Lipitor 40mg
$374 to $390
Atorvastatin 40mg
$13 – $60
Treats High Triglyceride Levels
Lovaza 30 caps
$80 to $82
Omega-3-acid ethyl esters 30 caps
$28 to $35
Treats Heartburn
Nexium 20mg
$265 to $325
24HR OTC – Nexium 20mg
$16 to $25
Esomeprazole 20mg
$41 to $90
Treats Blood Pressure
Diovan HCT 160mg
$230 to $240
Valsartan 160mg
$26 to $70
Treats Asthma
Singulair 30 tablets
$228 to $236
Montelukast 30 tablets
$14 to $63

12. Lowest Net cost requires much more than “good rates”
Price vs cost
Lowest Net cost requires much more than “good rates”
Mix Management:
Which drugs / treatments?
Utilization Management
How much?
Channel Management
Where?
Total Cost
Mix Management
Appropriate choice of treatment, across all treatment options, regardless of whether they’re covered by the medical, pharmacy, or a combination of benefits
Formulary Management – having the right products on the formulary
Programs driving to the use of lower cost medications over higher cost medications, when they’re equally effective
The approach selected takes on increasing importance with the growing number of medication options that span both medical and pharmacy benefits.
Utilization Management
Benefit plan – modifying behaviors and incentives, and alignment of Rx and Medical benefits
Programs to control waste and abuse
Regence uses scientific evidence for objective and reliable basis for pharmaceutical decision-making to provide members with safe, effective medication options at good value
Channel Management
Driving to less expensive channels or networks

13. Growth of specialty drug costs
Past and projected specialty drug cost trends

14. Specialty management strategies produce results
Specialty drug trends
Specialty management strategies produce results
13.6%
Specialty
Increase
Tightly Managed Employers
27.8%
Unmanaged Employers

15. Pieces of the Self-Funding Puzzle
MEDICAL
STOP LOSS RX
ACA

16. Carve In Disadvantages Advantages
Account team is focused and trained on medical benefit to detriment of Rx benefit.
Better outcomes are often limited and not effectively reported to the employer
Reporting often provides less Rx detail than stand-alone PBM provides
Less transparency, and no stand- alone PBM contract; pricing (discounts) is rarely guaranteed.
Rx discounts disappear as bundling takes place. Rx pricing becomes a function of admin fee only.
Terms, definitions, calculation methodologies are not articulated in ASO contract.
Rebates are rarely shared at 100%; exclusions of drugs is typically not allowed
Relationships w/ physicians due to PPO contracts make specialty med negotiation difficult.
One vendor and one account team may simplify vendor and benefit management
Potential for combining Rx and medical data for better medical outcomes
Already established relationships with physicians
Potential for more effective management of population health
Bio-metrics are under one roof if lab results; physician visits; Rxs are all integrated for outcome
Marketing is easier at renewal

17. Carve Out Disadvantages Advantages
Two companies, two account teams – more administrative work?
Focus on Rx outcomes does not realize potential value of focus on combined medical and Rx
May limit opportunity for real-time exchange of medical and drug data and eligibility for CDHP
Paid claims data must be integrated for re- insurance or DSM programs or lifetime maxes
Two invoices to pay
May require 2 ID cards if medical payor insists
Use Rx data to focus on Rx outcomes with results
Some PBMs combine elements of medical data for improved clinical management information
Detailed reporting specific to the needs of the employer
Flexibility with clinical programs and administration
Likely more rapid implementation of leading-edge technology and capabilities
Separate contract for Rx only that discloses more information on PBM practices
Easier to mange Rx benefit and administration

18. Pieces of the Self Funding Puzzle
MEDICAL RX
STOP LOSS
ACA

19. Takeaways Be innovative
15% to 25% of a Health Plans Expense is directly related to Pharmacy
Data is Power - Carve Out allows you to see your Rx Plan Data
Discounts only go so far – Plan Design, which drugs you cover and changing member behavior help reduce Plan Costs
Specialty Drug/Biologics sales has and will continue to explode
Get Contractual Guarantees

21. Experience & expertise
TODD KURTH, PRINCIPAL & SR. PHARMACY CONSULTANT
Todd is a Principal and Senior Pharmacy Benefit Consultant with over 20 years’ experience in the healthcare industry—13+ of which are in pharmacy benefits. Todd has significant experience in, and knowledge of, the PBM industry having held a position with The Segal Company as a Senior Pharmacy Benefits Consultant for their National Health Practice and heading up the Western Region. Todd also worked for Caremark as a Senior Underwriting Analyst where he analyzed, provided recommendations on client pricing, and financial terms within the client contracts. As a Senior Pharmacy Benefit Consultant at ScripPoint, Todd is an expert in PBM pricing methodologies, contract evaluations and negotiations, electronic claims audits, PBM RFP development and analysis, PBM training, and benefit design modeling. Todd has extensive experience working directly with clients in the Taft-Hartley and employer group markets administering prescription drug plans and serving as the main point of contact between the benefit plan and the PBM. Todd also spent seven plus years working for the State of Illinois in employee benefit administration, serving the last year as the Director of Local Government Health Plan. In this role, Todd served as the marketing representative and spokesperson, analyzed PBM RFP’s, managed administrative functions and worked with the actuary to develop sound funding strategies and plan designs. Todd resides in Phoenix, Arizona. He holds a Bachelor’s Degree from Washington State University and is a Master’s Degree Candidate in Public Health. He is a Veteran of the U.S. Air Force. Todd is also a nationally recognized pharmacy expert who has contributed to articles published in several trade journals. T: