0. “Pharmacy Benefit Management Fundamentals” Greg Rucinski RPh.

1. Session Objectives Provide you with an understanding of:
(1) Where a Pharmacy Benefit Manager makes $$$.
(2) PBM Contracts
(3) Emerging Ideas in Plan Design, Utilization, and Cost Management.

2. KEY CONTRACT QUESTIONS
Does the contract create a fair deal for all parties?
Have I clearly defined the deal and can I explain it to all stakeholders?
Does the contract create accountability for all entities involved?
Does the contract match the RFP?
5. Is the claims processing in compliance with the contract?

3. HOW DOES A PBM MAKE MONEY?
The Four Glasses
Administrative Fees & Value Added Services
- Nickels & Dimes
- DUR, PA’s & DM
- Pricing Guarantees
Pricing Differentials
- Dispensing Fees
- Package Size
- MAC Programs
Manufacturer Revenue
- Rebates
- Other Revenue Forms
Mail Order
- Traditional
- Specialty Rx

4. The “A.D.D.” PBM Contract Evaluation Method
“A” = Accountability
“D” = Definition
“D” = Disclosure
Definition and Disclosure create Accountability …

5. Example- Definition of AWP
Contract Offered Definition
“AWP” means the Average Wholesale Price for a “standard package size” of a prescription drug as established by First Data Bank or other mutually agreed upon nationally available “reporting service” and is the “list price” as reported by drug wholesalers.
Broken Down by Components
a) “Standard Package Size” – 4 standard package sizes
b) “Reporting Service” – First Data Bank, MediSpan, Red Book
c) “List Price” – repackaging license qualifies PBM as a Drug
Wholesaler
AWP Questions
Q#1. How can I define which “Package Size”, “Reporting Service” and “List Price” are going to be used in the adjudication (pricing logic) of my claim?

6. AWP EXAMPLE- continued
Q#2. How will defining each of these affect my overall pricing and
claims cost?
Package Size- .3 to .5%
AWP Reporting Source- .2%
List Price (Repackaging)- $$$
Pricing Lag- .1 to .3%
Q#3. What is the preferred definition of “AWP”?
“AWP” is the price defined and distributed by First Data Bank for each drug in the database. If other pricing sources are used, at no time will pricing algorithms be used between pricing sources. All AWP’s are based on the 11digit NDC number of the container from which the medication was dispensed on the day it was dispensed to the plan member and billed to the plan. AWP prices will be updated weekly to reflect current AWP pricing. Re-packaging NDC’s are allowed as long as the AWP of the original package is used for pricing purposes.”

7. What Can I Negotiate? The Right to Participate in the:
PBM Selection Process
PBM Contracting Process
Benefit Delivery Process
Plan Design Process

8. Request for Proposal- RFP
PBM Selection Process
Request for Proposal- RFP
Weighting
What weight is given to each category?
Pricing, client service, member service, analytics, etc.
Number of Candidates
Have we gotten a good view of the industry?
Stability
Are they a candidate for acquisition?
Labor History
What references can they provide?

9. Benefit Delivery Process
Rx Claims Audits
Up to 2 Years Retrospectively
Full File Audit
Reversal & Rejections
Prior Authorizations
Formulary Flags
Contract Compliance
Claims Paid Outside of Plan Design
Eligibility?
Rebates?

10. Modeling Tools Plan Design Process On line Access Benchmarks
Net Cost Impact
Step Therapy Impact
OTC Strategy Impact
Patent Impact
Brand to Generic
New Brands

11. PBM Contract- Must Have Provisions
The inclusion of 11 digit originator NDC language in calculating retail AWP.
An overall annual net effective rate for generics at both retail and mail order.
The right to implement identical MAC pricing at mail and retail.
Keeping the manufacturer’s administrative fee within the “safe harbor” limit of 3% of AWP.
Specific protocols for auditing retail pharmacies on behalf of plan sponsors.
Specific protocols for auditing mail order pharmacies on behalf of plan sponsors.
Performance guarantees on critical service requirements.
PBM revenue disclosure language.
Specialty Pharmacy pricing and definition.

12. LAGNAIPPE “ A little something extra”
Annual Market Price Reviews
Liability Limits- annual admin. fees
Eligibility Rule Sets- exact matches
Compounds- definition & adjudication method
Admin Fee- “per paid and processed claim”
Refill Parameters- Mail vs. Retail
Retail Pharmacy Hard Edit Overrides?
Exit Strategies- “without cause”- 180 days

13. SPECIALTY PHARMACY Why is it important? Future overall cost driver
23% trend
600 drugs in pipeline
What can you do?
Find & negotiate a solid contract
Individual Line Item Pricing
Account for Generics & Rebates
Utilization Management
Hemophilia Units
CMS anemia guidelines- Aranesp, Epogen & Procrit
What can’t you do?
Oncologists
Profit driver- 60%

14. Plan Design Stuff Rand Institute- generics study ESI- co-pay Study
United Health Care- pill splitting
BCBS- zero dollar generics
Value based co-pays
Reference based co-pays
Towers Perrin- reference based formularies
OTC Strategies- GERD & NSA
Clinical PA’s- Tora, Tora, Tora

15. Industry Stuff
2009 Trend- the perfect storm of PBM profits, retail pharmacies & AMP, and blockbuster generics
Oh Canada- Dandy Don Meredith
Your government- your tax dollars at work buying drugs
Authorized Generics- hanky panky
Johnson & Johnson- Justin Wilson- “I gaerauntee”!!!
PBM’s- “We ain’t got no stinkin’ docs!”
Federal Diabetes- Keith Wilkinson- “Whoa Nelly!”

16. EMERGING UTILIZATOIN MANAGEMENT
STEP THERAPIES
Physician Education & Involvement
Antibiotics/GERD/NSA’s
GENERIC SAMPLING
Counteract Brand Sampling
MEDICAL CASE MANAGEMENT
Wellness
Early Intervention

17. EMERGING COST MANAGEMENT
CARVE OUTS
Carrier Premium Cheating
TPA Revenue
Claimed loss of medical case management
RETAIL/MAIL IDENTICAL MAC’S
Net Unit Cost Alignment Mail/Retail
BRAND MAC’S
Multi-source Brands
SPECIALTY RX
Principal Driver of Future Cost

18. PBM SELECTION CRITERIA
“Lowest Price”
“Highest Quality”
“Best Service”
PICK ANY TWO

19. CVS- Caremark Acquisition
First Data Bank Lawsuit
Ted Kennedy, Congress, and the FDA
PBM Specialty Rx Vendors Acquisitions
Purdue Pharmaceuticals- FDA Fine
Caremark- Florida Medicaid Judgment