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Pharmacy’s Complexity is a Black Box

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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

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

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:

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