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.

Meet Pharmer Rex. Rex lives in the country and runs the family apple orchard called the Apple Pharm, just as his father did before him. The local residents of the town regularly visit Pharmer Rex to get their apple-a-day to keep healthy. Pharmer Rex and his family have made a decent living over the years selling apples and keeping the town-folk healthy.

But things on the Apple Pharm have not been as good lately. Down the road, a big-box store opened up, and they too sell apples. Pharmer Rex’s business has declined because the competition is willing to sell their apples below cost just to get the town-folk into their store to buy other merchandise. Farmer Rex understands competition, so he invests in his orchard. Instead of trying to compete on price alone, our savvy pharmer starts growing fancy apple varieties that the competition doesn’t provide. Things once again pick up for Pharmer Rex, but even though profits are still down some, he is happy.

Soon, the competition notices the boutique apple selection up the road, and they don’t see the investment required to get into that business as insurmountable. They bring in their own boutique apple varieties. Like before, the big-box store looks to drive traffic to their store, pricing even their boutique apples much like fallen fruit in the orchard. Pharmer Rex once again sees profits and sales drop. But being a true apple pharmer, he reaches higher into his trees’ better fruit. This time, he invests in ovens and cider presses. Pharmer Rex starts selling fresh apple goods: pies, turnovers, and fresh apple cider. Pharmer Rex’s investment paid off once again. Sales and profits were up. And even though his apples were more expensive than the competition down the road, the town folk still bought some of his apples because they already had come for his other apple-related goods.

No doubt, by now, you recognized this as a thinly veiled parable about independent pharmacy. Independent pharmers, err, pharmacies have long been leaders in identifying and pioneering new fertile grounds for their practices. Each time an independent pharmacy reaches higher in their tree and invests in more valuable fruit, the big-box stores have to decide if they also want to follow the same course and invest. It is a lot like an arms race between the independent pharmacies and the chain pharmacies. Typically, the independent pharmacies forge ahead, but they are soon followed. But as the investment costs increase, the low-cost model of the chain pharmacies will eventually reach a tipping point. When will the required investment be too great to justify the chain store from following along?

We are already seeing signs that this is happening. Consider the Medicare Part D Medication Therapy Monitoring programs, usually referred simply as MTM. This is a significant problem for the chain pharmacies, as their pharmacists are very busy simply checking the high volume of fallen apples, err, prescriptions they are presented. Some chains have dabbled with a central clinical pharmacist to review and complete these cases. They have had varying degrees of success with this, primarily due to patient resistance: If patient doesn’t know the pharmacist cold-calling them to perform the service, they are less inclined to participate. There certainly still appears to be value in the patient-pharmacist relationship.

So how does Pharmer Rex’s story end? The ending has not been officially written. But as I see it, there is one inevitable ending for Pharmer Rex: He becomes a coffee farmer.

Now wait! you think. That makes no sense! Let me explain. Each incremental investment that our entrepreneurial pharmer made in apples was eventually matched by the big box competitor and then discounted. Our hero’s competitor put no value on the apple. Recognizing that the chains were so entrenched in providing low cost apples, to the point of losing money, he came to the conclusion that he had to completely change his focus in order to survive. Our pharmer, therefore, decided to invest in something completely different.

But now our agrarian simile loses some of its cachet. So let’s put some of this this back into pharmacy terms. The PBM industry is only paying pharmacies for fallen fruit, and that is not going to change. So instead of fighting to maintain that dying model by cutting costs and decreasing patient care, our hero instead elects to find payment for clinical services. This is a costly investment, as it necessarily requires more expensive pharmacist payroll and a completely different practice. None of this is easy. Finding sources of revenue requires significant work and investment, sometimes without immediate rewards.

Because Pharmer Rex is a visionary, he started this transition some time ago, he is now seeing the fruits of his labor. Pharmacists are close to receiving provider status with the federal government, and they have already received it in some states. The commercial insurance world is also taking notice of the savings the pharmacists can impact, and they too are starting to pay pharmacists for clinical services. Even Medicare Part D is moving in this direction with new emphasis being made on quality. Working hard, Pharmer Rex has several new opportunities that don’t revolve around the low-price PBM drug model.

But what about the chain pharmacies? Will they change their direction and follow? Because this change is so dramatic, it will take them a long time to decide. Ultimately, I feel that there will be two classes of pharmacy: dispensing operations, dominated by retail chain operations and mail-order, and clinical based pharmacies. Both will be paid (poorly) for product for the foreseeable future. The difference is that the clinical pharmacies will also be paid directly by the insurance plan for the impact they have on total health spend on their patients.

So if you identify with our friend farmer Rex, you need to start now. Invest in your practice. Work to develop the relationships with both payor and patients that will allow you to impact healthcare and be paid for your efforts. Make every encounter count!

I don’t know if Drug Channels is simply channeling the Thriving Pharmacist, or maybe its writer, Adam Fein, is wearing a Zoltar costume to trick-or-treat tonight. Either way, his Blog Post Walgreens Plays to Win: Our Exclusive Analysis of 2017’s Part D Preferred Pharmacy Networks is germane to Thriving readers as well. Please head over to read it.

Of course, I cannot help but add some community pharmacy specific perspective. Let’s start with Table 1 from his post. Adam’s take is that Walgreens wants to be preferred. I don’t contest this: they certainly appear to be willing to take more of these hyper-aggressive contracts than others. But sometimes, it is what is unspoken that is most interesting. In this case, we might ask: why would Walmart relinquish their number-one position on the list? Unlike Walgreens, Walmart stores are generally much larger, and contain a broader array of non-pharmacy merchandise. In other words, they appear to be better suited than Walgreens to absorb pharmacy losses by increasing sales in their other departments. But in spite of this, Walmart has contracted its participation, and that is truly interesting! Will we be seeing Walgreens warn of than expected earnings sometime in 2017 like Walmart did in 2015?

Also, while Adam correctly notes that CVS is less willing to play this game, he forgets to mention that some of profits for this company originate on the OTHER SIDE of the ledger: the benefit manager side. CVS may be the smartest one of the bunch because it doesn’t participate in most narrow networks. Likewise, Rite Aid appears to be following in the shoes of CVS, both by limiting their participation and acquiring a benefit manager.

Finally, the independents are not spooked. To the contrary, like CVS and Rite Aid, they might just be smarter than the others. Most independent pharmacies, if given the option, would not sign with any of the preferred or narrow networks. It is only because chains are willing to sacrifice pharmacy profits for store traffic, that independents have to participate in at least one preferred network to prevent significant erosion of their patient base. And this is really the key point. Patients seem to have a lot more loyalty to their pharmacy, both chain and independent, than to their Part D plan. Patients will generally chose a plan both on the overall costs and the ability to maintain access to their pharmacy or pharmacist. It is unusual for a pharmacy to lose a patient when that pharmacy accepts one or more plans that are similar in out of pocket expense to another plan if the patient is forced to change pharmacy providers to gain the advantages offered by the other plan.

Happy Halloween. And I promise that we won’t be referencing Drug Channels in the post tomorrow.

Adam Fein, with Drug Channels, recently posted an excellent analysis of the Kaiser/HRET 2016 Employer Health Benefits Survey. His analysis addresses, among other things, cost-shifting in the employer/commercial prescription insurance realm. See Employer Pharmacy Benefits in 2016: More Specialty Drug Cost-Shifting Means More Problems for Patients for his discussion. It is a worthwhile read.

Often, the analysis of Drug Channels is focused on the distribution chain in the pharmaceutical markets and only pays cursory attention to the end of the chain: providers and patients. But in the article above, Adam makes some great points about the impact of this cost-shifting trend as it applies to patients. Adam observes:

…employers continue shifting the cost of specialty prescriptions to their beneficiaries. Patients taking specialty drugs face economically-debilitating coinsurance—in some cases with no limit on out-of-pocket expenses. These benefit designs essentially discriminate against the very few patients undergoing intensive therapies for such chronic, complex illnesses as cancer, rheumatoid arthritis, multiple sclerosis, and HIV. But isn’t insurance supposed to help when things go really wrong?

In addition to the cost-shifting implications made by Adam, the employer or plan’s classification of many of these medications as specialty drugs forces the patient to use a very narrow pharmacy network that often includes a specialty pharmacy owned and operated by the plan. One might also presume, based on the lack of competition given by the specialty designation, the inclusion of a drug on the specialty list could also be motivated by the profit these drugs might generate for the specialty pharmacy. 

Another important distinction is that cost-shifting has not been leveraged solely on high-priced medications. This same strategy is also routinely leveraged with less expensive maintenance medications. In both commercial and Medicare Part D plans, a very large number of generic maintenance medications are dispensed to patients for less than $4 per month. This is often lower than the copay the plan might have for the medication. At this point, the plan has essentially cost-shifted the entire prescription to the patient. The plan contribution for the medication is often near, or even equal, zero. During the course of the year, many patients taking only a few of these low-cost maintenance medications will not even satisfy their plan deductible, further minimizing the plan’s risk exposure. All the while, the plan continues to charge the member a monthly premium for the plan.

The implications of this trend are far-reaching. The focus of many plans is now squarely on low price. There is absolutely no focus on outcomes and patient care. This, in my opinion, is the biggest problem with the cost-shifting phenomena.

Open Enrollment started Saturday, and we got our first look at how our customers’ medications will be priced in 2017 under Medicare Part D. There are several interesting observations to be made.

Preferred, Non-Preferred, and Mail Order

With the release of the 2017 data, we can actually calculate patient-cost and pharmacy reimbursement for one of the more popular plans last year. The object is to recompare the plan while using a preferred pharmacy, a non-preferred pharmacy, and the plan’s mail order pharmacy. For reference, I have also included the 2017 version of another preferred plan popular last year. It also happens to be the only 5-star plan available to my customers in 2017, and one in which I am included as a preferred provider in 2017.

The data below is arranged in columns by plan. This is actually data from a patient I worked up today, and represents their actual drugs. The columns show the Total Adjudicated Amount to the left of the “/” and the patient copay to the right of the “/” mark.

Drug Name	A Using a Preferred Retail Pharmacy	B Not Using a Preferred Retail Pharmacy	C Using The Plan’s Mail Order Pharmacy	D Preferred Retail 5 Star Plan
Amlodipine 10 mg	$1.62 / $1.00	$7.24 / $7.00	$2.63 / $2.63	$1.96 / $1.00
Atorvastatin 40 mg	$1.62 / $1.00	$7.28 / $7.00	$10.32 / $3.00	$7.65 / $1.00
Furosemide 40 mg	$1.60 / $1.00	$5.05 / $5.05	$2.54 / $2.54	$2.20 / $1.00
Gabapentin 300 mg	$4.00 / $2.00	$43.00 / $15.00	$26.60 / $6.00	$22.15 / $6.00
Copay Total	$5.00	$34.05	$14.17	$9.00
Pharmacy Total reimbursement	$8.84	$62.57	$42.09	$33.96

The example above is obviously not representative of all possible drug therapy combinations, but it does demonstrate several tendencies that appear to be reproducible with many different drug combinations I have run so far. For the sake of simplicity, it also is limited to only generic medications that are regularly subject to MAC (Maximum Allowed Cost) pricing. These types of drugs represent a majority of drugs dispensed in most non-specialty pharmacies.

Preferred Retail  vs. Non-preferred Retail

Looking at Column A and Column B, we can readily see the difference in both copay and reimbursement based on preferred status. The patient’s copays are significantly lower at the preferred pharmacy for this plan, saving the patient about $30/month or $360/year over a non-preferred pharmacy. The pharmacy, on the other hand, sees only $8.84 per month for these four prescriptions if they are preferred and $61.00 if they are non-preferred. Note that these numbers are not the profit made by the pharmacy, but rather the total reimbursement for these drugs. Given that the published national cost of dispensing, the amount that it costs a pharmacy to dispense a drug on top of the cost of the drug product, is between $9 to $12, the preferred plan does not come close to paying the pharmacy what it costs to dispense the drug. The non-preferred pharmacy, on the other hand shows a profit for its work. This alone explains why there are very few pharmacies in 2017 that accepted the Preferred Status for this plan.

The plan is essentially driving a wedge between the patient and the pharmacy by trying to move a patient to a preferred pharmacy. This access to lives strategy is hard to justify for the pharmacy unless it plans on making up the losses on prescription drug sales by increasing prices elsewhere. This may or may not work for big-box chain pharmacies or grocery stores with pharmacies. It is not even possible for independent pharmacies, and it is therefore no surprise that few independents elected to participate in this plan in 2017. Even a few chain pharmacies declined participation, leaving us with the question: exactly what is the point of this tactic?

Preferred Retail vs. The Plan’s Mail Order

This comparison (Column C vs. Column A) is a real head scratcher. The plan is forcing any preferred pharmacy to accept $30 less in total reimbursement than it pays itself to mail the prescriptions to the patient. Likewise, the plan makes the patient pay more for the same thing. One possible explanation for this is that in some areas, including mine, there are few pharmacies with preferred status. This means that the plan can try to coax these customers to their own mail order pharmacy, arguing that they are “saving” the patient compared to the non-preferred rate, all the while making an excellent profit using the pharmacy they own and operate.

Another Plan’s version of Preferred

While we were preferred in the plan represented in Column A in 2016, our pharmacy dropped the plan for the 2017 plan year. The reasons should be obvious: we cannot survive on such meager reimbursement. On the flip side, our contracting arm did sign a new preferred network, which includes the region’s only 5-star plan. I included this plan as an alternative way preferred networks can work with their pharmacy partners. In this plan, the patient would again pay more for going to a non-preferred pharmacy. I did not include a column for this, but its omission is not the point. The point is that a preferred plan can treat both the pharmacy and the patient fairly. Comparing the patient’s copays for this 5 star plan (Column D vs. Column A), we see that the patient would have lower copays with the 5 star plan. At the same time, the pharmacy is more often paid fairly for its contribution. Yes, reimbursements are lower than those to a non-preferred pharmacy. A more comprehensive analysis will be needed to determine if this contract is more actually more pharmacy-friendly than other preferred networks.  Note that some of the reimbursements are still too close to $1, but average reimbursement may be closer to the cost of dispensing and therefore easier for the pharmacy to recoup with other services and methods.

The Bottom Line

Now that we can see the 2017 landscape, my concern over not being preferred with the same plans as last year are somewhat alleviated. If my customers using the 2016 version of the plan in Column B have more loyalty to that plan than to us, their pharmacy, they will either switch pharmacies or start using mail order. But the Access to Lives argument cuts both ways. While plans certainly want to lure patients their way, I have found that patients actually have a lot more loyalty to their pharmacy and pharmacist than their plan. Because my pharmacy is preferred in at least one preferred network (the 5 star plan) which offers basically the same or better value to the patient, the real winner will be the 5 star plan. I have already seen many patients that plan on enrolling in this plan in 2017.

Perhaps, with time, that the whole paradigm could invert. Instead of plans trying to lure patients to them with lower copays, they will instead try to lure patient by enrolling the best pharmacies. That would be a very interesting change. So take time educating your patients during this 2017 Medicare Part D enrollment period. Be sure your patients know which plans you participate in and which ones you dropped in 2017. Let them choose their allegiance: the plan or the pharmacy. Support them, and they will support you. Make every encounter count!

The role of Pharmacy Benefit Managers, the PBMs, in the US healthcare system has been detailed on this blog several times. And each time, it seems, the public is able to better understand how detrimental some of theses practices are to our healthcare system. A few days ago, a blog post from Lexology entitled PBMs and Drug Pricing: Congress and Major U.S. Employers Start to Unravel the Hidden Pricing Mechanisms of PBMs describes many of these practices.

The overall of awareness of PBM tactics increasing rapidly. This is a good thing for healthcare in the United States, because these tactics have only emphasized the drug product while completely ignoring patient care. Increased transparency will hopefully put pharmacy back into the pharmacy benefit.