Pharmacies dispense medications, and by default are a part of the drug distribution channel. Drug Channels, a blog by Adam Fein, which covers topics across the entire pharmaceutical industry, regularly writes analyses that include pharmacy. The public has a similar perception centered on drug (medication) distribution. The dictionary is also among those that primarily identify pharmacies and pharmacists as distributors of medication. Consider two common definitions of Pharmacy and Pharmacist:

pharmacy (noun) /ˈfärməsē/ — a store where medicinal drugs are dispensed and sold

pharmacist (noun) /ˈfärməsəst/ — a person who is professionally qualified to prepare and dispense medicinal drugs.

But it is interesting to note that many pharmacists do not identify as part of this channel. Their definition of pharmacist and pharmacy would be very different, and would include, or even focus on, many aspects of patient care.  Consider AACP’s (the American Association of Colleges of Pharmacy) description of the role of the pharmacist listed on their website:

Pharmacists are essential healthcare professionals, who enhance patient care and promote wellness.

While the disconnect between the public’s perception of pharmacy and the professionals engaged in its practice is troubling, one needs to look no further than the “top” pharmacies (at least as far as drug distribution goes).  Represented on the list are such giants as Walgreen, CVS, Rite-Aid, and many, many mail order pharmacies. Unfortunately, most Americans use pharmacies that, as a rule, focus only on drug distribution. Very little patient care takes place in the large retail pharmacy chains and mail order pharmacies.

One reason this perception has been so pervasive is the nature of the industry that has grown around pharmacy over the last 30 years. The main beneficiary of a product-focused definition of pharmacy is the pharmacy benefit manager (PBM) industry. These giants of industry are lucrative, cash generating machines. As long as pharmacy reimbursement focuses only on drug distribution, the PBM industry remains in tight control of not only pharmacy, but also pharmaceutical manufacturers and insurers.

So the fight for pharmacy comes down to a battle to change public perception.  Chain pharmacies like CVS and Walgreens are doing little to help change the public’s view of the profession, but independents and smaller chains are starting to turn some heads. There are some cracks.

The most recent fissure in the PBM oligopoly of the drug distribution channel are the emerging high performing pharmacy networks appearing at both the state and national levels. These networks are independent of the PBM industry and market not drug product, but savings on the total health spend of its patients created by pharmacy directed patient care. The same definition of pharmacy that AACP extolls. These pharmacies are paid using a very different model than the drug channel based networks. These pharmacies are reimbursed not only for the drug product dispensed, but also for the savings they generate in the healthcare system. These networks are attracting significant attention and interest.

The push for quality in healthcare and the emergence of these pharmacy networks is not a coincidence. Over the last few years, it has become increasingly apparent that by working directly with the patient to manage medication use and to achieve therapeutic goals, pharmacy can save the system a lot more than the current drug channel based model that works to manage access to expensive drugs. The difference is the pharmacist-patient relationship.

So pharmacy is at a crossroads. I do not know which definition will win going forward, but I do know that it will be pharmacy that loses if it continues to be simply a drug channel.

Pharmacists need to work closely with their patients. They need to help them reach their therapy goals. Because pharmacists see their patients regularly, they are able to create meaningful relationships with their patients. With this access, they must, in short, make every encounter count.

Over the last two or three months, we have been observing an accelerating pace of critical news stores focusing the business practices of both the PBM industry and Drug Manufacturers. Now, Rueters is reporting that twenty states are suing Mylan and Teva over drug pricing. Knowing what I do about lawsuits, it will be quite some time before this is resolved, but I would not be surprised if the PBM industry and drug wholesalers are soon included in this type of action. In many ways, the story of greed and corruption in the drug industry is starting to resesmble a line of dominoes, each one falling on the next.

To read the Rueters story, point your browser of choice to U.S. states sue Mylan, Teva, others for fixing drug prices.

Among the topics regularly covered on the Thriving Pharmacist are several articles discussing rewards for performance paid to pharmacies. Few of the examples shared here, unfortunately, are actually representative of pay for performance. Today, I will share yet another pay-for-performance program that misses the mark.

This program is regional, and is called Intervention Messaging, or IMRx. It is designed to increase medication adherence using real time alerts sent to the pharmacy during the claim adjudication cycle.  The plan is supposed to benefit both the patient and the pharmacy by paying the pharmacy an incentive fee for each adherence conversation they have with the patient. Payment is dependent on the patient filling the offending (late, unfilled) maintenance prescription.

Like most programs, there are positive benefits to the pharmacy:

• The incentive payment is welcome revenue
• The pharmacy should see additional fills, which adds additional revenue
• The pharmacy’s adherence measures should be positively impacted, assuming the medication flagged by the program falls in an EQuIPP category.

These are all true, and one cannot contest the positives. But the program misses the point. It only addresses a problem after it has occurred. If a pharmacy successfully addresses the noncompliance , the reward becomes a one-time bonus unless the patient falls back into non-compliance. A pharmacy that is  proactive with adherence management, using MedSync and motivational interviewing techniques to ensure high levels of patient compliance, would see no reward for their work and high performance.

There should be two parts to any performance incentive: an incentive to improve, and an incentive to maintain high performance. This program, like many that have come before it, fails to address the last part. Just like pharmacists caring for patients, the performance incentive programs need to make every encounter count.

This year’s Medicare Part D open enrollment (which ends on Dec. 7th) has turned out to be one of the more interesting  since the program was rolled out more than a decade ago. Previously I reported that our pharmacies elected to drop preferred status with one of the more aggressive plans for 2017. The plan we dropped was very proactive, and called patients to let them know that their current pharmacy would not be preferred next year.

Many patients that received these calls contacted us wanting clarification and guidance. They did not want to change pharmacies, but many were left with the impression from the call that they had to change. As I previously wrote, this was not necessarily accurate: there are often several options available. We quickly recognized that if we did nothing, we stood to lose patients unnecessarily. We immediately developed a plan to address this new challenge.

The first thing we did was to identify all of the patients using the plan in question. In all, we had about 200 patients on the plans representing a small but significant percentage of our active patient population. Next, we eliminated all of the dual-eligible patients from the list. These patients receive assistance on their premiums and copays, and the preferred status of their pharmacy does not impact the out of pocket costs to these patients. That left about 100 patients for us to contact.

We started making calls, offering to answer questions and perform plan reviews for each patient. Within about two weeks, we were able to call and schedule most of these patients. Once we had the patient in front of us, we had to determine which type of plan the patient was on: a plain Prescription Drug Plan (PDP) or a Medicare Advantage plan with a PDP (MA-PDP). From here, we used iMedicare, a third-party service to help up quickly outline all of the options available to each patient. The options available depended on the type of plan they were currently enrolled with: PDP or MA-PDP.

Prescription Drug Plans (PDPs)

Patients with simple prescription drug plans were very easy to help. While our pharmacies will not preferred in 2017 for the patient’s current plan, there are several plans that are very competitive in 2017 in which we are preferred. In fact, in almost every case, the patient was better off switching plans than switching pharmacies. These were the low hanging fruit, and we are confident we will be able to maintain all of these patients going into the new year.

Medicare Advantage Plans (MA-PDPs)

Patients using a MA-PDP create a more difficult challenge for the non-preferred pharmacy. These programs bundle both the Medicare benefit along with a prescription drug plan. In our region, there are only a few companies offering MA-PDPs compared to more than 30 PDPs. To complicate matters, the drug expense is only one part of the plan, making it much more complicated to compare different MA-PDPs for the patient. This is, unfortunately, best left for the insurance agent.

But this does not mean that making an appointment with these individuals is a waste of time. In fact, it was a great opportunity to discuss exactly what the cost associated with pharmacy choice actually would be for the patient. The end results varied, but can be divided into two categories:

1. The patient would pay an less than an extra $240/year to use our pharmacy instead of a preferred pharmacy. That amounts to less than $20/month
2. The patient would pay more than $240/year to use a non-preferred pharmacy. Sometimes the additional cost was more than $1000!

There are a variety of reasons a patient might fall into either of the above categories. For example, a patient reaching the catastrophic coverage phase of the plan would often end up in the first category. There is little difference at that point between preferred and non-preferred pharmacies. Other patients, taking a more expensive generic medication or brand medication found that copays were very comparable between preferred and non-preferred pharmacies. Again, these often ended up in the first bin. Conversely, we did find several individuals taking medication combinations that would cost them more than $100/month more to use a non-preferred pharmacy. It is hard to justify spending over $1000 more for pharmacy choice. There were patients several falling into this group.

In almost every case, the patient planned to continue to use the Medicare Advantage plan in which they were currently enrolled. Only a few were going to consider other plans. I wish I could report that we were able to maintain all of these patients, but that would have been an unrealistic goal. That being said, we did manage to maintain a significant number. As it turns out, many of the customers placed significant value in their pharmacy choice. In the end, if the difference was less than $240/year, we stood a good chance of maintaining the patient.

In the end, we expect to maintain more than 90% of our customers we targeted. Many chose to switch their PDP, and others were fine paying a small premium to stay with their chosen pharmacy. In the end, I think it is safe to say we made every encounter count!

News articles looking closely at the PBM industry appear to becoming popular. Ken McEldowney, with Morning Consulting takes yet another look at the practices of this middle-man industry. He makes several good observations including:

The oligopoly that is the PBM industry not only hurts struggling consumers, it also makes jaw-dropping profits off of them. In 2015 alone, the PBM industry accumulated about $11.5 billion in profits and revenue increased at a “whopping annual rate of 20 percent over the last 5 years,” according to consumer advocate and lawyer David Balto.

Read Health Care Has a Middleman Problem at Morning Consult.

Pharmacy is an interesting business. Unlike most other business models, pharmacy does not completely control the price it charges for services and product. Pharmacy Benefit Managers have leveraged several aspects of contracts and healthcare to remove significant parts of the free market. These include indirect manipulation of a pharmacy’s Usual and Customary Prices, maintaining independent MAC lists, and taking advantage of the requirement that patient claims have to be submitted at the point of sale for them to be counted toward out of pocket expenses and deductibles. The end result is that the some plans actually charge patients more than the plan pays the pharmacy for the medication, a tactic known to pharmacists as a claw-back. Let’s look each component before we look more closely at the claw-back.

Usual and Customary Price

Usual and Customary (U&C) Price is the price a business charges for a product or service. The pharmacy is required, by its contract with the benefit manager, to submit its U&C price to the PBM: it cannot have a lower price for cash customers. A typical contract between the PBM and a pharmacy provider stipulates that the PBM will pay the pharmacy the lesser of:

• Average Wholesale Price (AWP) minus a percentage, plus a dispensing fee or
• Maximum Allowable Cost (MAC) plus a dispensing fee or
• The pharmacy’s U&C price

If a pharmacy submits a U&C price lower than either of the other two arms of the contract, it leaves money on the table. Ten years ago, we regularly submitted U&C prices that were lower than the MAC rate for common generics in order to keep our cash business competitive. Back then, a lowered U&C price, even if it means getting paid less buy the insurance, still represented a respectable margin and profit.

The same concept is not true today. MAC Reimbursement, being applied to virtually all generic medications sold today, is often so low that leaving even a few pennies on the table becomes significant. Today, pharmacies must ensure that they are paid the full allowable amount on every claim simply to keep their doors open.  In short, the nature of the PBM contract forces pharmacies to inflate their U&C price in order to ensure maximum allowable reimbursement for all prescriptions.

MAC Heterogeneity

If a pharmacy only had to deal with one PBM, manually adjusting the pricing of each product on the MAC price list would be possible. In this way, the pharmacy could maintain competitive cash prices and not violate contracts. But few pharmacies deal in such a limited environment. Most have dozens of different PBMs, and each PBM can have multiple MAC lists, one for each plan.

Each of these lists contains different drugs and different prices. Attempting to ensure a pharmacy’s U&C is slightly above every MAC price would be impossible. Any attempt to be competitive in the cash market would necessarily be decreasing pharmacy reimbursement on the insurance side. That being said, there are examples of companies trying to do just this. The most notable example is Walmart, who attempted to leverage the idea of the $4 generic as a loss-leader. Their goal was to drive customers to its pharmacies and therefore increase traffic in its stores. While they would not make the same margin / profit on the prescription, they hoped to increase sales elsewhere in their stores. This worked for Walmart for awhile.

But gradually, this tactic began to fail. At the time Walmart started this program, getting $4 for a 30-day supply still made the pharmacy a small profit. The PBMs, however, moved to decrease their MAC prices for on these drugs. This impacted not only Walmart, but all pharmacy providers. At first, the PBMs reduced the MAC prices to $4, but later they went even lower. So even Walmart’s loss-leader U&C price ended up above the PBM’s MAC prices.

Trapped by Insurance

Whenever insurance in involved, the equation is always more complicated: the provider has to be in-network, or the service provided to the patient may not be covered. So if a patient finds a product or service to be less expensive outside the network, they risk spending money on healthcare that does not apply toward their deductible or out-of-pocket maximum expenditures. While there are instances where the patient can submit the expenses themselves to have them counted, this is not universally true. In cases like Medicare, patients cannot submit expenses themselves. Many HMO organizations have similar requirements.

The Art of the Claw-Back

To summarize the constraints outlined above: the current healthcare system tends to artificially elevate a pharmacy’s U&C prices. The net effect: plans look like they are saving consumers money. This subtile subversion of the free market is enhanced by the fact that patients must use participating providers to use their insurance benefit. It is this tight control over providers that allows the claw-back to exist today.

What is a claw-back? With a standard claim, the provider submits the service or product to the insurance and the benefit manager or plan will price the product and return the patient’s copay. In this case, patient’s copay represents all, or some part of the total price. But in a clawback, the copay is actually greater than the total price (the amount paid to the pharmacy). Let us look at a concrete example of a clawback.

A patient goes to a pharmacy and fills a prescription for a sertraline 50 mg tablets # 90. The pharmacy bills the insurance its Usual and Customary of $305.48 The insurance returns the following:

• Total Authorized amount (the amount the pharmacy is to be paid): $6.68
• Patient Copay: $25

The pharmacy will collect $25 from the patient. The insurance will withhold $18.32 from the pharmacy’s next remittance, effectively collecting a clawback. In this case, the “cash” price (U&C) is not less than the copay. That does not mean, however, that there are not other programs outside the patient’s insurance that would result in a lower copay to the patient.

So what happens if the pharmacy lowers its Usual and Customary Price from $305.48 to $10 to be competitive with the Walmart 90 day plan? The same $6.68 is authorized by the insurance. The same $25 copay comes back to the patient.  Now the cash price IS lower than the patient copay!

Now what happens if the pharmacy further lowers its U&C below $6.68? This is where things get interesting: the claim comes back HIGHER. The pharmacy sees more than it asked for (the same authorized $6.68) and the copay is still $25. There is no rational, contract-based explanation for this.

Are clawbacks common? Most every pharmacy sees them. In our case, we see only a few. This year, to date, we have only seen 11 clawbacks. All 11 are from two plans that are not highly represented in my geographic region. In other areas of the country, clawbacks are much more prevalent.

What can a pharmacy do to educate patients? Our answer is to put the authorized amount and the copay on the patient’s receipt. This allows us to easily point out the practice to the patient while they are standing in front of you at the point of sale. This is yet another example of making every encounter count.

Patients and pharmacies are currently in the middle of the 2017 Open Enrollment period for Medicare Part D Prescription Drug Plans. Pharmacies must follow Medicare guidelines if they are helping patients choose a plan in 2017: they cannot guide patients to specific plans that are better for the pharmacy. Pharmacies are limited to providing non-biased facts to the patient. In practice, pharmacies can show the patient all of their options and answer questions about the process. Our pharmacy uses a product called iMedicare to enable us to do this quickly and accurately for our patients. Unfortunately, the same rules do not appear to be applicable to the plans themselves, and this is frustrating to pharmacies

The Scenario: Next year, our pharmacy will move from being a preferred provider with a plan to simply being a provider. The implications are that patients on that plan will pay higher copays when using a non-preferred pharmacy. The plan is calling patients that use our pharmacy and telling them that we are not going to be a preferred pharmacy next year and (I’m paraphrasing here based on conversations with many patients) they need to switch pharmacies to achieve the maximum savings they are eligible to receive.

Now while this statement is factual, it is also conveniently incomplete and misleading to the patient. It incompletely addresses possible courses of action for the patient, mentioning only on those that benefit the plan. If I did something like this in my pharmacy, I would be investigated by Medicare and likely subject to sanctions or monetary penalties.

The problem is simple: the patient has three possible courses of action for the 2017 plan year:

1. Keep the current plan and pay higher copays at the pharmacy of the patient’s choice
2. Keep the current plan and switch pharmacies to a preferred pharmacy
3. Choose a different plan entirely based on cost and pharmacy of choice.

The plan’s phone calls cover only the first two options, and as it turns out it doesn’t address any of the various permutations of these choices. We have done impartial analysis on dozens of our customers that have received these phone calls, and this is what we have found.

Using a non-preferred pharmacy does not necessarily mean the patient will pay more. The plan making the phone calls urging patient to switch pharmacies is not actually looking at the patient’s medications and situation. As it turns out, using a non-preferred pharmacy does not change copays for patients on a Low Income Subsidy (LIS). Additionally, patients taking some very expensive medications that result in the patient reaching the catastrophic coverage phase also end up paying almost exactly the same amount out of pocket at a preferred and non-preferred pharmacy. In short, several of our patients that have received calls could continue to use our pharmacy despite us not being preferred, and not be financially impacted.

Staying with the current plan and switching pharmacies is not always the least expensive option for the patient. One of the first things we do when helping a patient consider plans is to look at all plans without respect to a given pharmacy. This gives us a baseline for the lowest possible cost plan with respect to yearly out-of-pocket expense (this includes the plan premiums plus medication copays). Once we have established a baseline, we can add in the patient’s preference for pharmacies and compare this to the baseline. What we routinely find is that often patients better are off, compared to their current plan, choosing one of several different 2017 plans. What’s more, the patient can often achieve this savings without sacrificing their choice of pharmacy. By not broaching the possibility that the patient’s current plan may not be their lowest cost option in 2017 during its calls, the plan is withholding critical information and misleading the patient. This is fraud, in my opinion. 

There is actually a fourth option available to patient, but it is rarely discussed: Medicare Part D is optional, and the patient can simply not participate. This does invoke a 1% per month penalty on future premiums for each month that the patient does not carry creditable (comparable) coverage for prescriptions drugs, and I always discuss this if a patient is considering opting-out.  Choosing a Medicare Advantage plans is also a possibility, but this further complicates the discussion, and is better discussed with a license insurance agent.

So the take home point is that patients have to be careful about what they are being told by others. In our case, we have identified all of our customers on the plan making these calls, and we are contacting each one to discuss all of their options. We do this completely within the Medicare guidelines, and we have occasionally have to recommend (reluctantly, of course) a plan in which we are non-preferred, possibly leading them to use a different pharmacy. But by working with each patient, we are making each and every encounter count.