How to Price and
Evaluate PBM Contracts
Meaningful Evaluation and Selection Process
July 31, 2012
Learning Objectives
•
Understand the difference between discounts
and pricing
•
Why words are more important than numbers
•
Contractual clarity and plan control
©2009 Envision Pharmaceutical Services Inc.
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Fiduciary Responsibilities
An ERISA fiduciary, under Title 29 CFR 2510.3-21, is a person or
entity that has discretionary authority, discretionary control, or
discretionary responsibility over the property of an employee
benefit plan. Such person or entity is a fiduciary to the extent it
has the power to exercise a controlling influence over the
property of the plan. A fiduciary’s liability is limited to those
matters for which it has exercised its discretion in the carrying
out of the plan.
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Choice, Control and Cost
•
Drug Mix: Which Drugs
• Formulary and Non-Formulary
• Member Cost Share
• Plan Design and Coverage
•
Utilization: Number of Claims and Quantity
•
Price: Pharmacy Distribution Channel
©2009 Envision Pharmaceutical Services Inc.
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www.EnvisionRx.com
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AWP Discounts
Pricing based on discounts off AWP provide
a false proxy for true costs and can be
misleading.
Manipulation of multivariable factors can
inflate the reported discounts and ultimately
lead to higher costs and larger PBM profits.
DISCOUNTS DO NOT EQUAL DOLLARS
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Why Worry About the Contract?
•
•
•
•
Determines what price you pay
Determines what drugs you use
Determines where you get your drugs
Defines “wiggle room”
“It depends on what the
meaning of the word “is” is…”
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Standard Selection Process
1
RFP Questions
2
Pricing
3
Finalist
4
5
6
Winner
Implementation
Contract
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
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Concurrent Selection Process
RFP
• Questions
• Pricing
• Finalist
Meeting
2
Winner
1
Contract
• Definitions
• Signed
Agreement
Implementation
3
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Manufacturer Rebates
•
•
•
•
•
•
Restricted Formulary
High Cost Drugs
Rebate Aggregation
Excluded, Non-Formulary
Switching Programs
Off-Sets from Generic Spreads
Big Rebates Do Not Equal Lower Costs
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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General Contract Questions
What is the general tone and philosophy of the
contract?
•
Are the goals and incentives of the PBM aligned with
the client?
•
Where is the control of the plan regarding networks,
distribution channels, coverage rules, switching
programs?
•
•
What is the real PBM administrative cost?
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Terms and Definitions
•
•
•
•
•
•
•
AWP?
Claim?
Brand Drug?
Generic Drug?
Specialty Drug?
MAC?
Rebate?
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Key Provisions
•
•
•
•
•
•
Use of Data
Quantity size
Audit Rights
Termination penalty
Fees for other services
“As determined by the PBM”
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Key Provisions
•
•
•
•
Caveats
Off Sets and Cross Subsidizations
Reclassifications
Inclusions and Exclusions
Compounds
• U&C Claims
• Specialty
•
•
•
•
•
Implementation Allowances
Termination Penalties
Switching Programs
Mandatory Anything
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Administrative Expense
“…a difference between the amount the PBM
pays the pharmacy and the amount it collects
from Plans is effectively a risk premium paid to
shield the sponsor from price variabilities, and
is therefore an administrative expense rather
than a drug cost..…”
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Generic Reclassification
Question. Which Pricing is better?
Scenario #1: Brands: AWP - 18.94% and Generics: AWP -75.00%
or
Scenario #2: Brands: AWP - 16.50% and Generics: AWP - 73.27%
Example: Generics with 3 or more manufacturers
AWP
Pharmacy Discount
Ingredient Cost
Retail Brand
$718,562.87
16.50%
$600,000
Retail Generic
$1,600,000.00
75.00%
$400,000
Generic Subject to Reclassification
$83,333.33
40.00%
$50,000
?
EnvisionRxOptions
Traditional PBM
AWP
Retail
Brand
Retail
Generic
$801,896.21
$1,600,000.00
Pharmacy
Ingredien
Discount Actual t Cost
18.94%
75.00%
AWP
Pharmacy
Discount Actual
Ingredient
Cost
$718,562.87
16.50%
$600,000
Retail $1,683,333.3
Generic
3
73.27%
$450,000
Retail
Brand
$650,000
$400,000
Answer: They are the Same
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©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
The Hazards of Spreadsheet Analysis
Which Pricing is Better?
Scenario #1: Brands: AWP - 18% Generics: AWP: -68%
Or
Scenario #2: Brands: AWP - 16.60%, Generics: AWP: -65%
The below represents a repricing analysis of a current client in 2011
Actual Pricing
Inflated Discounts
AWP
Pharmacy
Ingredient
Discount Actual
Cost
AWP
Pharmacy
Discount Actual
Ingredient
Cost
Retail
Brand
$377,497
-18.00%
$309,954
Retail
Brand
$373,773
-16.60%
$311,618
Retail
Generic
$439,000
-68.00%
$140,835
Retail
Generic
$314,999
-65.00%
$110,250
Total
$816,497
$450,789
Total
$688,772
Monthly savings of $28,921
Annual Savings of $347,054
©2012 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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$421,868
Managed Pharmacy Benefits Options
•
Low Net Cost Formulary
•
High Value Pharmacy Network
•
Behavioral Based Member Cost Sharing
•
Administrative and Clinical Plan Controls
•
Performance Plan Design
•
Managed Specialty Pharmacy Benefits
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Guarantees Based on Dollars
•
Total Plan Cost
•
Total Member Cost
•
PMPM Cost and Trend
•
Average Cost per Claim
•
Generic Utilization
•
Performance Based Pricing (Shared Savings)
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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Contact Information
Please contact with any additional questions
or for more information
Chuck Gamsu R.Ph., MBA
203-647-7139
[email protected]
©2009 Envision Pharmaceutical Services Inc.
This material is protected by non-disclosure/confidentiality agreements
www.EnvisionRx.com
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