Month: February 2019

Back in 2013, Congress enacted The Drug Quality and Security Act. In this act, The Drug Supply Chain Security Act or DSCSA was born. This legislation was designed to create a mechanism to trace prescription drugs from origin to patient, with each step in between identified. At its core, the DSCSA is about formalizing the product’s pedigree and keeping track of each lot of product from origin to consumption. DSCSA eventually wants to serialize each package the manufacturer ships by assigning each package a unique identifier. This is a worthy goal but like many concepts, the execution is a lot more involved than a simple acronym implies.

Fast forward to 2019. Recently a pharmacist asked me if they could determine which lots of a given drug they received from their wholesaler. The short answer is no, and this was surprising to the pharmacist. DSCSA has been the law of the land for over 5 years now and this is exactly the type of information that it was designed to track! The reason this is still not possible is that this is truly a monumental change. Implementation of DSCSA was planned out over several years, extending into the year 2022. This could be further extended as more logistical hurdles emerge.

As a pharmacist, I tend to think locally. I concentrate on my pharmacy and my patients. The current level of DSCSA implementation is limited to a pedigree record of what I have purchased. Currently, no lot information or other identification is being tracked through the system. Once I receive a product, I can locally document its lot number. I can even document which lots are dispensed to which patients in my pharmacy system, though this is not yet required by DSCSA. When you start to think globally, the real problem starts to emerge.

Data entry becomes a rate-limiting step in DSCSA. In my pharmacy, my employees have to hand-type the lot and expiration into the software in order to track what is leaving the pharmacy. This is time-consuming and prone to errors. Consider what it would take to perform the same level of data logging in a warehouse shipping thousands of orders to pharmacies each day with each order consisting of tens to hundreds of individual manufacturer packages. And that is just for lot and expiration date and does not include any form of serial number. Many of these warehouses are automated so the actual input of information would have to be something a robot could do efficiently.

There are technologies that can handle the serialization and encoding of lot and expiration date available right now. Two-dimensional barcodes can easily be encoded to handle this task and if I had to bet, this is what will eventually be used. The true problem is twofold: 1) developing a standardized coding that every manufacturer uses for its products and 2) placing this information upon each and every product label. Keep in mind that while the government might be able to drive the adoption of a standard coding system, the second option includes caveats like the physical size of individual packages. Some pharmaceuticals, like injectables, have labels that are less than 1 square inch in size!

So DSCSA is far from complete. A lot of work is going on behind the scenes to adopt standardized coding and labeling requirements. With these in place, wholesalers can adopt new processes to consume that information and pass it down to pharmacies, which will, in turn, require pharmacies to adopt new workflows to use the information to complete the life-cycle of the product when it is dispensed to its final destination–the patient.

About the Photo: Winston “Churchill” is an AKC registered Tri-Color Welsh Pembroke Corgi currently living with the this blog’s primary author.

This is a quick follow-up to the recent post about commercial insurance and businesses Ignorance, Inertia, and the Pharmacy Benefit. Among the observations made was a surprising tactic–some insurance companies refuse to carve out the pharmacy benefit from their insurance product offerings. If they do allow a carve-out, the medical insurance premiums often increase rather than decrease. I have long speculated that there are financial incentives for the insurer at work here but I had little to back up that assertation.

Recently, however, it was pointed out to me that there is often language within the insurance contract with the employer that supports this assertion. Specifically, the following statement came from one insurance plan:

[Insurance Company] may receive from these providers discounts for prescriptiondrugs dispensed to you. Neither the group or you* are entitled to receive any portion of any such payments and/or other allowances.

Furthermore, most of these contracts include language about rebates similar to this:

The Pharmacy Benefit Manager may share a portion of those rebates with [Insurance Company]. Neither the Group nor you are entitled to receive any portion of such reabates…

Both of these statements corroborate my speculation about insurance companies and pharmacy benefit managers sharing the financial gains which come from the PBM spread and manufacturer rebates.

Medical Insurance is, at its basic level, a simple transaction. The insurance company purchases resources at a discount and sells these to end user, often a company, at a profit. This paradigm appears to have been corrupted over the years by apparent greed for profit. To make matters worse, the current trend of vertical integration, being done in the name of efficiency, further mask these types of agreements.

Perhaps more businesses need to take a closer look at Amazon, Berkshire Hathaway, and JPMorgan’s current strategies. Creating local healthcare programs without outside interference of middlemen may seem daunting, but the experience may be liberating for the company and the local providers.

With all that is happening in healthcare today, now is the time for the grass-roots patient care initiative to come to the forefront. Employers contracting directly with both pharmacy and medical providers offers some significant advantages both in levels of care and cost. Eliminating the middleman is truly the next logical step in saving money in healthcare. Now is the time for you to make your mark. Make your next goal to speak with local business owners in your area about the significant savings and improved outcomes possible by working with your pharmacy directly. Get the grass-roots care message out!

Footnote

* The contract quoted above actually had some grammar issues–gasp! The full quote in the contract is included below for completeness. The edited version uses the exact language from the second quote within the same contract. The only change was replacing the word With with the word Neither. This makes sense and was consistent with language elsewhere in the contract.

[Insurance Company] may receive from these providers discounts for prescription drugs dispensed to you. With the Group nor you are entitled to receive any portion of any such payments and/or other allowances.

Chris Hayes publishes a wonderful podcast dealing with details behind current trends and news. Recently he published a podcast entitled “Amazon’s Wishlist” which featured business expert Stacy Mitchell. This podcast series and this is well worth a listen for a lot of reasons, and this specific episode spends a lot of time delving into the mechanics of pharmacy and pharmacy benefits. Take some time to listen in.

*** Update ***

The above link will work if your computer or phone correctly points to a podcast app. For a web-page version of this visit the iTunes podcast page here

We have discussed the tactics of Pharmacy Benefit Managers on this blog many, many times. A recurrent theme is the middleman nature of this industry, making money by paying pharmacies less than they charge the payer–the “spread.”  Making money this way is not evil, of course. Every business makes money in this manner. The issue that pharmacists have with the lack of transparency in the PBM “spread.” But if we cannot see the spread, we are just guessing.

But recently we have seen the spread in the PBM industry come to light, and it has been significant. These glimpses into the profitability of the PBM industry while pharmacies are struggling to keep their doors open strikes a dissonant chord for those working in the pharmacy profession.

But these glimpses into the PBM spread are still few and far between, and many of the recent insights have been centered on state-run Medicaid programs. We rarely hear about commercial plans.

Over the years, I have been privy to actual payer data on a few separate occasions. Each time I have been floored by the amount the PBM is making compared to what the pharmacy makes on the same transaction.

Recently, I was asked to review a smaller employer’s prescription drug plan, and I was presented with this company’s detailed and itemized bill from their PBM. This is a great opportunity to take a small glimpse into the PBM Spread.

The Data

The employer has fewer than 50 employees, and not all of them are enrolled in their health plan. Over the course of 6 months, the employees filled just over 400 prescriptions at roughly 12 different pharmacies around the area. Let’s look at some summary data.

These pie charts demonstrate the importance of maximizing the use of generics, something that the PBM industry uses as a key selling point. Despite having an effectively 85% generic compliance rate, the payer spends almost 60% of its dollars on the brand name medications. In this case, most of the brand name medications being used are fully justified, with insulin and other diabetic medications making up a large part of the brand name spend.

If we break out the dollars spent, we see that the company’s liability for prescriptions is over $52,000 yearly. This is after the employee cost share is subtracted. The average cost for each prescription was about $74 with $20,000 being spent on generic medications and the balance, almost $32,000 on brand medications.

The data to this point are not all that interesting unless you are paying the bill. What the employer wanted to know was were they getting a good value? The answer to this requires knowing what the PBM paid the pharmacy and what they reserved for themselves.

This is a much more difficult attribute to estimate. The individual pharmacies technically cannot tell the employer what they were reimbursed without violating their contracts. Instead, we have to resort to estimations.

For each of the 400 plus prescriptions, two pieces of data were collected.

1. the current acquisition cost (invoice price) per tablet or capsule for each item
2. The average reimbursement to the pharmacy for that item over the time period represented by the data.

This data was pulled from an independent pharmacy used as a reference pharmacy. This pharmacy has a moderate to high prescription volume with a competitive cost of goods sold. Likewise, reimbursement to independent pharmacies has been reported to be at or slightly higher than certain chain store (see Drug Topics). Both estimates should give us a reasonable estimate.

With the claims data and acquisition cost, it is possible to estimate both the price paid to the pharmacy by the PBM for each product as well as a rough idea of the profit or loss that a pharmacy made for that transaction. Subtracting the estimated pharmacy reimbursement from the amount the employer paid gives us an estimation of the “spread” or profit the PBM made. It also allows us to compare the PBM’s estimated profit to the pharmacy’s estimated profit.

There are some assumptions challenges. First, we are assuming the reference pharmacy is representative. Second, brand name comparisons are confounded by price increases that typically happen at the beginning of the year. The current prices were used in the analysis, which decreased profits on drugs that had price increases. On top of this, the reference pharmacy did not have sufficient claims data on a few items, and these were omitted from the analysis.

So how much did the pharmacy make and how much did the PBM make? Let’s take a look:

On average, the pharmacy is estimated to make just under $10 for each prescription sold to this plan’s members. This is generally considered to be a sustainable profit as it is very close to the NCPA Digest reported average cost to dispense. What stands out, though, is that this estimate also shows that the PBM averages twice the profit the pharmacy sees! Remember, the PBM’s don’t actually sell any product or work with an individual patient. They provide a service but hold no inventory or provide no direct care. I won’t go so far as to state what I think the PBM should make. The PBM does not, however, have more impact than the pharmacy and, therefore, their reimbursement would appear to be an outlier with respect to the value they provide to healthcare.

There have been several reports in the news over the last 12 months about pharmacy benefit managers taking advantage of state-run Medicaid programs by charging exorbitant spreads on prescription drugs. Arkansas, Ohio, Kentucky, and West Virginia are a few of the states currently looking into what amounts to price gouging on the part of the middleman PBM.

But this phenomenon is not limited to state-run Medicaid programs. The same spread tactic the states are hopping-mad about happens in just about any commercial plan and even in the grand-daddy of them all, Medicare Part D. This raises the obvious question: why would a company offering a pharmacy benefit to its employees not connect the dots? If States believe that the PBMs are overcharging them, one would think that at some level a savvy executive would ask similar questions.

The answer is at the same time both simple and complex. To make matters worse, industry trends like vertical integration muddy the waters. Let’s take a look at some possible scenarios to explain why companies are not looking for alternatives to the PBM prescription model.

Ignorance

There is bound to be some of this around the industry; CEO’s and small business owners not understanding the complex details involved in the prescription benefit, including the spread model, service fees, and manufacturer rebates. I would hope that this would be predominantly a trait of smaller businesses that do not have a dedicated HR and/or benefits staff as an understanding of the inner workings of health benefits would be expected in those cases. But we are seeing very few large companies challenge the existing model. There are exceptions: Amazon, Berkshire Hathaway, and JPMorgan actively looking at new models.

Inertia

Sometimes change is hard. Okay, change is always hard. And another reason we don’t see companies investigating alternatives is that the current system has become easy to ignore. And the PBM industry, which benefits from the status quo, is smart enough not rock the boat too much. There are few smoking guns, and if you have to root around a lot to find smoke, then the logical conclusion is that there is not fire. In fact, the fire has been smoldering and growing for years now, with the state Medicaid programs being some of the first ones to identify the hot spots.

A Stacked Deck?

Another issue that I hear about is a little surprising: some insurance companies will not allow a business to carve-out the prescription benefit. Or, if they do allow this, the health insurance premiums for the insurance actually increase. When this happens, the company is essentially handcuffed to one model. This, of course, loops back to the inertia problem. In order to investigate a new model, a company would have to be willing to change not only the prescription benefit but also the health benefit!

Become an Educator

Few people outside of the pharmacy world actually understand the complex workings of the prescription benefit. It is complex, convoluted, and the entrenched entities–the PBMs– work hard to keep it that way. Part of the PBM value proposition is they make this “easy” for the company wanting to offer a prescription benefit.

But there are alternatives. Independent pharmacies and associations of pharmacies could easily offer a direct to employer prescription benefit that offers much of the same value the PBM offers without a middleman adding costs.

If you look at what is standing in your way, the biggest hurdle is identifying the right persons to talk to and educating them. Simple in concept, difficult in practice. But the possibilities for savings by a business are significant. A recent analysis we did for a local employer showed that a direct contract with our pharmacy, eliminating the PBM, would save them almost $20 per prescription. For that small business, the difference in expense was thousands of dollars every quarter.

Ignorance and Inertia can be overcome. There may be little you can do to overcome back-room deals with bigger players like insurance companies and large corporate customers, but in reality, an independent pharmacy is much better suited to service the smaller businesses in their local area. The relationship can be a win-win. The business saves on drug spend dollars, and the pharmacy develops a new, profitable revenue stream allowing it to persevere.

And now comes the icing on the cake. Published studies show that an involved, independent pharmacy may be able to save the business on its medical spend by reducing total cost of care. This could be a game changer to the current system. Discuss the possibility of studying any impact that a direct contract might have on spending outside of the drug spend! It can become a win-win-win!

Make your next encounter with a local businessman or businesswoman count. Take the time to learn about their needs and educate them about the possible savings they could achieve.