Avoid Becoming a Victim of Unexpected Pharmacy Costs

Here is a simple story: a patient with a pain complaint sees a doctor who then prescribes a newly released pain patch. Seems like a very straightforward exchange until this patient’s employer with the self-funded pharmacy benefit has been charged $4800 for a patch that turned out to be non-FDA approved.

How does this happen?  Well, the answer is clouded in much mystery and unanswered questions. Was the physician even aware he prescribed a Non-FDA approved patch?   We can only assume that no discussion of FDA approval, safety, or costs were considered before prescribing.   The result is that the paying client of the pharmacy benefit finds out about the exorbitant cost on the quarterly plan review.  So, the plan is adjusted to not allow any further payment for that Non-FDA approved patch. The patient is delivered the bad news that their patch will no longer be a covered item under the pharmacy benefit.  Here is the twist: turns out the patch did not even work on the patient and was discarded after a couple of uses, so they were not planning to refill it!  Ouch!

So what was in the patch?

Lidocaine and menthol.

Really?!

There are menthol and capsaisin pain patches available for purchase by a pharmacy for resale that are also not approved, as well as a whole plethora of other patches and topical agents which present the same financial implications to the paying client.

Note the Orange Book reference.  Here is an example: Sinelee-Orange Book Therapeutic Equivalence Code NA= NA (Not Applicable) - Products that are not reviewed by the FDA such as those marketed before 1938, vitamins, and nutritional supplements. NDC:  69263-0021-15 (box, 3 pouches, 5 each Capsaicin 0.05%, Menthol 5%, Medicated topical patch)

It’s an easy mistake to assume that all products with a National Drug Code (NDC) are FDA approved.  Not necessarily.  An NDC is comprised of three parts: 1) Labeler code 4 or 5 digits long, 2) product code 3 or 4 digits long, 3) package code 1 or 2 digits. For CMS classification, they now require that all NDC’s have 11 digits.  If CMS does not require that a particular product be classified under their designation, it can have 10 digits. FDA assigns the Labeler code.  Labeler assigns product code and package code.  If one looks at the Orange Book for designation, one will find these unapproved drugs under marketing information/marketing category of an unapproved drug other. Bottom line: NDC does not equate to FDA approval.

Vigilance is required to identify, address, and catch these items. PBM’s are likely to pass these products through for payment under the category Unapproved Drugs Other.  Equally important is a strategy for addressing similar, future products entering the market.

APC can monitor your plan for specific directions as to how or whether these products should be a part of the pharmacy benefit.  New FDA approved treatments that have demonstrated their safety and efficacy through clinical trials can already be a hefty financial responsibility.  APC can help the plan focus resources for approved therapies and new cures for Hepatitis C and other innovative treatments to come which truly offer clinical outcome improvement and positively impact member lives.

Medicare’s Anti-kickback Law Reveals the Impact of Couponing and Rebates on Rx Benefit Payers

The Office of the Inspector General (OIG) has found that 6% to 7% of Medicare Part D participants are using coupons to cover copay costs.  Federal anti-kickback laws prohibit suppliers from offering side-payments to encourage increased use of federally subsidized goods that preclude using copay coupons within the Part D benefit. However, the survey has discovered that there are no adequate safe-guards currently in place to prevent copay coupon use by Medicare Part D participants.

The OIG report also points out what non-Medicare funded pharmacy benefit programs are facing with expanded copay coupon use: higher costs.

A survey by the Pharmaceutical Care Management Association (PCMA) revealed that copay coupon use could increase drug costs in Medicare Part D by $18 Billion over the 2012-21 period due to the support of brand drugs over equally effective but far less expensive generic drug use.

Rebates are also impacted.  Rebates are moneys paid for inclusion in a PBM’s formulary that by the power of wordsmithing avoid the negatively connoted term “kickback.”

Because of the anti-kickback laws, PBMs have to refocus their business direction to participate in Medicare’s Part D pharmacy programs.  Fully 40% of a PBM’s profit are earned through rebate management.  The avoidance of anti-kickback possibilities means that rebates for prescribed drugs cannot be passed back to the payer which in itself increases costs of brand drugs to the Part D participants.  There must be a monetary fire-wall separating Part D business with the rest of the contracted paying partners not involved in federally supported drug purchases.

Interestingly, PBMs that do participate in Part D benefits are showing a savings over expected budgeted costs yearly.  By avoiding rebate manipulation and covering generic drug alternatives as soon as they are available, PBMs can be a positive factor in overall cost savings by not chasing rebate dollars.

While copay coupons and rebates appear to lower drug costs for the end user, real total costs for the plan payer escalate.

Navigating through the copay coupon and rebate cost decisions faced by plan administrators is what APC does every day.  A partnership built on knowledge of the PBM industry is what APC brings to the pharmacy benefit discussion.  Let us help you solve the cost equation for your pharmacy benefit dollar with our understanding of plan design impact.

Murky Transactions and PBM Accountability

In the special universe known as “facilitator of Pharmacy Services” PBMs became necessary and indispensable for retail pharmacy transactions. Without having any product or money invested in the transaction, PBMs live in that murky place between the payer and supplier of pharmacy services by acting as middle man in the high dollar world of buying and supplying pharmacy services and prescriptions products.  Bringing another level of mystery to pharmacy transactions many PBMs joined this supply and product industry by owning their own pharmacy mail order facilities.

Since PBMs act as the ATM of the pharmacy transaction, shouldn't a dollar paid buy a dollar’s worth of goods?  Almost, but not quite.  Here’s why.  The digital transfer of money over telephone wires and through computer services provided by the PBM should necessitate a fair fee.  Okay then, a dollar paid should buy a dollar’s worth of goods and services plus an administration fee of some amount.

Question: what is a fair amount for these transaction services?  Well here is where the games begin.

Let’s explore the transparent pass-through model to see where the unknowns are.  Here is what is supposed to happen.  The PBM passes through to the payer all discounts and rebates acquired by the PBM and then charges an administration fee, usually a dollar figure of some agreed upon sort per prescription transaction.

It sounds simple enough.  Except there are too many opaque functions handled by the PBM to call this transparent.  Rebates are passed on with the understanding that the payer will never see what that agreement with the manufacturer and the PBM actually is.  By proprietary agreement, rebate amounts are not disclosed. Nor are rebate admin fees disclosed.  Nor are formulary access fees disclosed.

What about the retail network supported by the PBM? Discount agreements between retail pharmacies and PBMs are not disclosed.  Generic pricing from a various number of MAC (maximum allowable costs) lists are not disclosed.  Different pharmacies have different deals with different PBMs.

Whether or not pricing is figured on the same or different MAC list between what is charged to the payer by the PBM and what is paid to the retail pharmacy is not disclosed.  What is the real discount at mail services?  Who knows?

Since PBMs are in the middle of the transaction, shouldn’t we be able to see clearly what is owed and what is due for the value of services rendered?  Let’s audit the PBM!

Nope. PBMs are not regulated.  There are no federal rules that require what a PBM must do or what a payer can see.  The PBM sets its own rules.  OK, pick an auditor and let’s go to work.  Read the contract.   PBMs will allow an auditor to audit their books and transactions if both parties (PBM and payer) agree to the auditor.  Low and behold, no auditor suggested by the payer is suitable.  Now what?

How about letting the PBM charge a reasonable fee by contract that allows you to verify those contracted numbers throughout the service year?  Accept that there are many unknowns behind the curtain of PBM transactions.  Let PBMs bid on your business and choose the PBM that will allow the payer to build a pharmacy benefit on the lowest unit cost for prescription services.  Avoid the rebate game by supporting generic usage.  Since every dollar gained in rebates cost many dollars more in plan costs, design a pharmacy plan that avoids this disheartening math.  Let APC help navigate through the murk to a reasonable outcome. 

New Treatment for High Cholesterol at a High Cost—PCSK9 Inhibitors Loom Large

If you feel as though you are being cultivated and farmed to pony-up for another expensive drug treatment option, you are not alone. While generic statins for treatment of high cholesterol are about $80 to $270 per patient per year, a biologic entity to treat high cholesterol is arriving to the market at 100 to 150 times the cost of generic statins. It would be like expecting to buy glass of milk but having to purchase the whole cow to get it.

Health care in this country currently costs the American consumer $4 trillion per year. This emerging biological entity will contain the new monoclonal antibody agent PCSK9 Inhibitor (proprotein convertace subtilisin/kexin 9 inhibitor), which threatens to add significant cost to that total.

The PCSK9 inhibitors are injected once or twice a month and has shown to lower cholesterol by 50 + % alone and by 70% in combination with the statins. Studies are suggesting that it is relatively risk free, but necessary long term studies will verify early positive expectations. Data from long term studies confirming reduced cardiac event risks will not be available until late 2017. According to the CDC, 13.4% of the U. S. adult population has high cholesterol, 90% of which can be adequately controlled on a statin alone. So, candidates for use with PCSK9 inhibitors will come from the 10 percent of the population that is either inadequately controlled or has limiting side-effects that preclude statin use.

Here is the math that has Sanofi/Regeneron with Alirocumab (Praluent) and Amgen (Repatha) with Evolocumab so excited. Cost of the PCSK9 inhibitor is expected to range from $7K to $12K per year. Just treating the 10% population (3.5M) not under control with statins, at a presumed average cost of $9.6K per year, will increase the cost for cholesterol treatment by $33.6B. For a reality check, PBMs have conservatively estimated the costs for the PCSK9 inhibitors will be in the $3.4B range by 2020, and $10B by 2030.

How these drugs are labeled is yet to be revealed. Expectation is that initial labeling will be for Familial Hypercholesterolemia (FH) an inherited condition that leads to very high cholesterol levels not normally controlled with statins alone. This condition affects only 1 out of every 500 people in the U. S. Two relatively new specialty drugs Juxtapid and Kynamro have come to market for treatment of FH at a cost of $175K to $250K per patient per year. If these FH patients are successfully converted to the PCSK9 inhibitors, there may be a cost savings opportunity in these circumstances.

PBMs will be tasked to maintain high vigilance with their prior authorization (PA) process to keep control of the expected overlap into non-indicated areas where traditional statin therapies would show adequate response at a significantly lower cost. PBM Specialty Pharmacy services will also need a solid game plan to support treatment adherence for a relatively asymptomatic condition with an injectable route of administration.

Since there are two PCSK9 agents hitting the market in the third quarter of 2015, a market share bidding war with manufacturer rebates for PBM formulary status supremacy could break out and would be a windfall for the PBMs. PBMs will then have the responsibility to manage considerable rebates as has been the case with the new Hep-C treatment drugs.

With the introduction of Specialty treatments which are no longer limited to low prevalence or rare conditions, communication between the employer pharmacy benefit plan and the PBM is crucial for a smooth transition to where PCSK9 inhibitors are best utilized as they enter the marketplace. Closing barn doors after the cows have gone is a poor way to run a farm. With the knowledge of how the gate-keeping is maintained at the PBM, APC can help establish prior authorizations and/or step therapy before these new biologic agents are available.

Drug Manufacturers Compete for Market Dominance with Hepatitis-C Treatments

New oral entities are now on the market that have increased the treatment options for the six genotypes of the Hep-C virus.  These products work to affect a cure in a large majority of cases while lessening troublesome side effects.

Gilead Science has introduced two new agents, Solvadi and the combination treatment agent Harvoni that packages Sovaldi and Jannsen’s Olysio together, while Abbott has introduced one new agent, Viekira.  These new drugs used singly or in combination with peginterferon and/or ribavirin are eradicating the Hep C virus with an 8 to 24 week course of treatment.1 

There are several drugs being researched both singly and in combination with other Hep C drugs with three companies entering the market in 2 to 5 years with Hep C agents that are at the Phase 3 trial level.2 They are:

• Bristol-Myers Squibb (BMS) with Daklinza in combination with Gilead’s Solvaldi and two other new in-house agents Sunpreva and yet to be named BMS-791325.

• Merck with Grazoprevir being studied along with Elbasvir.

• Gilead with Sovaldi in combination with ribavirin and pegylated interferon, and in combination with their yet to be named GS-5816.

There are drugs also in Phase 2 trials, 5 to 7 years to market, hopefully not far behind drugs in Phase 3 trials. Achillion has three products under investigation alone and in combination.  BMS has Daklinza in trials in combination with agents from Jannsen and Vertex. And Jannsen’s Olysio is being studied with Daklinza , Merck’s Samatasvir, and their own TMC647055 with Ritnovir.

That’s the good news.  Cost is another issue.  Course of treatment hit the market at $1000 per pill translating into treatment costs that range from $86,000 to $160,000.  While new entities entering the market could have a major impact by cutting costs, there is no guarantee that costs will be significantly less.

Already market share games are being played at the PBM and health plan level with exclusive agreements that Gilead has with PBMs CVS CareMark, Envision Rx, and health plans Aetna, Humana, and Anthem while AbbVie has a discount agreement (undisclosed rebate) with exclusive formulary position with ESI and United Health Care.  Prime Therapeutics has firmly established themselves on the fence by putting both Gilead and AbbVie on their formulary.

How these undisclosed rebates will impact total patient costs remains to be seen. Self-funded employer groups need to be aware of the games being played and the potential impact patient population has on the pharmacy benefit budget.  There is money on the table; but without specific contract language, the amount of money shared could all remain with the PBM.



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1. A cure is considered if a sustained virologic response (SVR) is achieved after 12 to 24 weeks following therapy.

2. Clinical trials examine the safety and efficacy of an investigational medicine in a larger number of patients who have the disease or condition under study.  

New Drug Pipeline: A Shift in Focus

Exploding costs are looming over pharmacy benefits plans.   Manufacturers have done the math and have come to the conclusion that pursuing traditional pathways for maintenance medications for mass market disorders with simple compounds is financially risky.  Cost of R&D, innovation, phase trials, and marketing leave a slim margin for profit.  After patent expiration, generic manufacturers reap the remaining benefits of successfully marketed drugs leaving the innovators out in the cold.  To minimize these financial risks, it appears as though drug manufacturers have changed direction and have a laser focus on a higher cost future.

For years, the drug manufacturers' focus has been on providing products that would reach a wide population base. The new drugs that entered the marketplace targeted disease states which could be found on most, if not all plans: diabetes, high cholesterol, and depression to name a few. Recently, however, we have seen a shift in focus and direction as manufacturers are turning their focus to acute disease states, gearing their research/product efforts towards complex biological that would treat diseases with a smaller population base for which a therapy may not exist. During 2014, the FDA reviewed and approved 41 new drug therapies, of which nearly 40% were for rare diseases.

Why the shift? Since these specialty therapies target a small subset of the population, they inherently carry with them a high price tag, often reaching over $100,000 per year for treatment. There is little to no competition in the marketplace, which allows manufacturers of Specialty products to set a higher price. Manufacturers that were previously developing products for the more traditional marketplace (e.g. diabetes, respiratory medication, high cholesterol) are moving into the Specialty space, as there is less competition/pricing pressures.

What can Plan Sponsors do, taking into account the recent shift in focus to Specialty development? When reviewing their program offering, Plan Sponsors will want to able to answer the following questions:

• Do we currently have any utilization management controls in place for Specialty medications to ensure proper usage (e.g. Prior Authorization, days' supply limits, etc.)? 

• How does my current PBM handle 'New to market' drugs? Are they immediately placed on the Formulary or are they excluded from coverage until they have a chance to review?

• As more competition enters the marketplace for specialty disease states, does my PBM have a strategy in place to target utilization for the lowest net cost therapies?

Please discuss how these important questions impact your PBM and your plan with your trusted Health Care professionals.

PBM myth: RFPs bind Pharmacy Benefit Managers

Many times clients go through great effort putting together an RFP for the PBMs to answer in great detail, then nothing ever gets put into the contract.

If a PBM expects to gain your trust and manage your pharmacy benefit, it is only reasonable to draft a contract that reflects their claims to exceptionalism.  If the PBM agrees to RFP terms, it only follows that the contract should memorialize those terms in a contract.

RFPs do not bind a PBM to their guarantees, contracts do.  You must make sure what was promised in the RFP process or vendor interview process goes into a contract.  A contract is not a legal agreement until it is signed by both parties.

Many times financial guarantees are not guarantees unless the client has a signed contract.  Also, rebates may not be paid unless the contract is signed.

Performance Guarantees generally will not be honored unless you have a signed contract and a RFP is not a contract.  However, a signed agreement in a well drafted contract that honors the best that a PBM can offer through the RFP process is worth celebrating with concrete savings.