CMS Attempting To Disclose Drug Costs

The battle over drug cost disclosure is heating up.  Last month, the federal government posted a RFP on its website to locate a firm capable of surveying and determining nationwide drug costs.  Apparently, CMS wants to create publicly available pricing databases on a monthly basis that would reveal the actual costs of drugs.  Imagine that!

As reflected in an article in Drug Benefit News, industry stakeholders are again mounting an attack to prevent cost information from being publicly disclosed.

Were CMS to overcome all odds — and be successful in publishing cost information — state Medicaid programs and commercial payers would finally have an easier means for determining the extent to which they are overpaying for drugs.  Until that occurs, Pharmacy Benefit Consultants will continue to provide our clients with claims data “X-Rays” to help our clients assess the competitiveness of their costs.

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PBMs Adding “Creative Pricing” To New Contracts

Industry sources confirm what Pharmacy Benefit Consultants always tells its clients, namely that PBMs are including “creative pricing” provisions in their contracts with clients, and thus greatly adding to client costs.

According to an article in AIS’s Health Business Daily, PBMs are unbundling their services and thus adding new fees for care management and disease management programs.  PBMs are also “creatively” adding contract terms like the following to their clients’ contracts:

  • Pricing Guarantees for the entire contract term (typically 3 years) — rather than annual guarantees — meaning clients will be unable to audit or enforce their guarantees until the full contract period has passed
  • Tiered Incentives and Pricing to Encourage Greater Mail Pharmacy Usage: Note that PBMs make their greatest profits from mail order drugs, unless clients are smart enough to contractually require pass-through pricing for every mail order drug dispensed
  • One Time Enrollment Fees for each client location
  • Annual Charges for electronic fund transfers
  • Pricing That Appears To Improve Over The Life of the Contract: Note our inclusion of the phrase “appears to improve”.  Unless clients insist on “airtight” contract definitions of “brand drug” and “generic drug”, PBMs’ purportedly better pricing discounts are likely never to materialize, since all PBMs need do is categorize more drugs as “brand drugs” to satisfy their purportedly improved discounts.

The AIS article also reports on the “most prevalent discounts” found in PBM/client contracts, and reports those discounts to be:  (i) AWP-18% for retail brand drugs; (ii) AWP-25% to 30% for mail brand drugs; and (iii) AWP-60% to 78% for retail or mail generic drugs.   However, don’t rely on — or be fooled by – any of the above numbers.

Don’t forget — virtually all PBMs include ambiguous definitions of “brand drug” and “generic drug” in their contracts, meaning PBMs can promise inflated AWP discounts, knowing they can easily satisfy their inflated figures simply by re-categorizing more “brand drugs” as “generics”.

Employee Benefit Advisor Cover Story

“In Plain View: Linda Cahn Makes The Case For PBM Fee Disclosure”  Read Article

Drug Benefit News

“PBMs Tout Their ‘Transparency’, But Model Doesn’t Always Lower Clients’ Costs” Read Article (bottom of page).

AIS’ Health Business Daily

“PBMs Allegedly Manipulate Definition of ‘Brand’ and ‘Generic’ Rx At Payers’ Expense” Read Article

Drug Benefit News

“PBM Auditing Increases As Rx Costs Rise, But Critics Allege PBMs Are Foiling Audits”  Read Article

Drug Benefit News

“CVS Caremark’s 29-State Legal Settlement Curtails Drug Switching, Leaves Questions” Read Article (see 7-8)