Pulse8's Scott Fries looks at why CFOs have started to take the lead within their organizations to control pharmacy spend and why this is the right approach to achieve a more efficient and effective pharmacy benefit program.

Every single day, more and more CFOs are taking control of their pharmacy program’s financial and clinical reporting, analytics, and benchmarking. They understand that their PBM and pharmacy benefit consultants are not providing them the transparent and objective information they need to manage this critical part of their business.  Here is an in-depth look at the main reasons why CFOs have started to take the lead within their organizations to control pharmacy spend and why this is the right approach to achieve a more efficient and effective pharmacy benefit program.

  1. Vertical integration has resulted in the top six PBMs, which incidentally control 95 percent of transactions, being owned by competing health insurance companies.
    • The downside: Your health plan competitor just achieved full pharmacy spend transparency and is working to cherry pick your best accounts.
    • The upside: They are aggressively competing on price to retain and gain new customers. They cannot afford to lose external customers of their PBM.
    • The solution: A source of objective analysis that will enable you to capture future opportunities.

In this section, we outline the insights on which these CFOs are working along with supporting facts that validate their credibility.

  1. Insight: PBMs do not provide transparent reporting on total reimbursement by pharmacy and pharmacy parent organization as they do not want customers to see how they preferentially price their affiliated pharmacies. 
    Fact: The State of Ohio Medicaid report shows CVS’ PBM preferential treatment of their affiliated pharmacies. Health plans have an obligation to understand and govern these reimbursement policies.
  2. Insight: Generic Maximum Allowable Cost (MAC) and/or Non-MAC price details are not disclosed as they do not want you to see how much you are being overcharged as a result of a scheme they call “spreadsheeting.” They use vague definitions of generics and MAC/Non-MAC to facilitate this sleight of hand.
    Fact: Oral solid generic pills experienced a steep decline in price starting in 2016 and it has continued through to present day. Between 2017 and 2018, oral solid generic pills have declined in price by -10 percent and -15 period, respectively.  Did you get your share?
    Fact: Medi-Span data provides for a very straightforward approach in making the brand vs. generic determination. The MAC/Non-MAC treatment is easily determined through the National Drug Code (NDC) Name level analysis of pharmacy discount levels.
  3. Insight: Pharmacy discounts at a key account, region, and product level are not disclosed because they do not want to provide you guarantees at this level in order to have an advantage while they compete with you.
    Fact: National health plans use aggressive pharmacy benefit pricing to gain a foothold with new accounts via carve-out. They ensure that this business is profitable by creating account/market specific contracts with their PBM to align risk.
  4. Insight: Total spend by pharmacy manufacturer and parent organization is not disclosed as they do not want customers to have direct conversations with manufacturers regarding value-based agreements
    Fact: Fifty percent of health plan spend on pharmacy is concentrated within 10 manufacturers.
  5. Insight: Pharmacy manufacturers historical Average Wholesale Price (AWP) inflation moves by product and in total. They rely on this to help them meet their discount guarantees and to be able to sell you inflation protection.
    Fact: Brand name drug wholesale prices rose 3.1 percent year over year (YOY) in Q2 2019 on top of a 4.6 percent increase this time last year. AWP inflation is alive and well.
  6. Insight: Pharmacy manufacturers are supportive of eliminating rebates. However, PBMs are not as they rely on them, along with other back channel payments, to support their profits. 
    Fact: Brand name drug net prices (minus rebates) declined 8 percent this year on top of the 6.1 percent reduction last year. Rebates continue to grow.
  7. Insight: With respect to prescriber, member, and pharmacy detailing, they want you to continue to be reliant on the PBM to deliver high-margin clinical programs.
    Note: Integrating pharmacy gaps opportunities into your provider or member engagement programs will significantly improve your performance, much like risk adjustment and quality.
  8. Insight: CFOs understand that pharmacy benefit consultants do not have complete data and they are not objective as a result of their relationships with PBMs and drug manufacturers. Unfortunately, they are not a reliable source of transparency for their health plan clients either. Why?
    Fact: Pharmacy benefit consultants receive substantial fees from PBMs and drug manufacturers in the pay-to-play culture that defines this portion of the industry–commissions, consulting fees, access fees, etc.
  9. Insight: The established players are engrained in the current re-procurement process. This includes PBMs, pharmacy benefit consultants, and in some cases the health plan’s pharmacy director.
    Note: Pharmacy benefit consultants only have benchmark data related to the market checks and re-procurements that they run, and conveniently for them, such data enable them to appear to be doing a good job.
    Fact: Pulse8 uses a dataset based on 3.8 billion pharmacy claims to develop its Domestic Price Index at an NDC level and is updated on a monthly basis.

Chief pharmacy officers and chief medical officers are asking their CFOs for help. They often have aligning concerns and insights. Here is what they are saying:

  • Biologics and gene therapies are going to eat their lunch if they aren’t capturing the opportunities associated with declining generic pricing and integrating pharmacy gaps into their provider and/or ACO partnership programs.
  • The only way to get improvement in pricing is to move to a two-year contract re-procurement cycle. They do not trust the information provided by their pharmacy benefit consultant and need finance to partner with them during the re-procurement and ongoing management of this relationship.
  • Reducing reliance on their PBM for reporting can significantly lower their switching costs as they maintain continuity of their prescriber, pharmacy, and member programs.
  • The regulators are significantly increasing state-based and federal-level reporting requirements and they do not receive what they need from their PBM to be compliant.
  • States have enacted 78 new laws related to regulating pharmacy activities over the last 18 months.
  • Switching PBMs will not give them the information they need to objectively run their programs. They are all the same when it comes to transparency and they are owned by your competitor.

CFOs are driving investment in objective and transparent pharmacy reporting, analytics, and benchmarking. What they are looking for:

  • The ability to take control of your pharmacy reporting, benchmarks, and analytics
  • The information necessary to steer the relationship with your PBM and pharmacy benefits management consultant
  • The ability to identify unit cost overcharges by your PBM, typically 5-8 percent of pharmacy spend, using the best-in-industry NDC level external benchmarks
  • The enablement of your utilization and clinical management programs including formulary adherence, brand-to-generic transitions, preferred brands, opioids, and controlled substances

Pulse8 is proud to offer health plans the ability to evolve their relationships with their PBM, pharmacy network, and manufacturers. Formul8™, our Pharmacy Program Management solution, is powered by advanced analytics, industry-accepted benchmarks, and intelligent reporting. It consistently identifies 5-8 percent in unit cost and utilization savings opportunities and delivers over a 5-to-1 return on investment. It’s the reporting that you wish your PBM would provide you, but chances are never will. Click here for more information.

About the author
Scott J. Fries, MBA, CPA, is a well-rounded health care executive having held leadership roles across the payer, provider, and life sciences spectrum. Scott has served as chief operating officer of a national Pharmacy Benefit Manager (PBM) with accountability for specialty pharmacy, mail order pharmacy, and pharmacy benefit management functions. He has served as chief financial officer and clinical operations of an integrated provider/payer organization serving Medicare and Medicaid members nationally. As an executive consultant, Fries has assisted organizations to evolve their financial, quality, and clinical programs.