Justin Venneri
On September 19, 2022, Capital Rx’s Chief Growth Officer, Kristin Begley, participated in a dynamic panel discussion at Health Benefits Nation (Validation Institute) covering topics ranging from the basics of NADAC-based drug pricing to more advanced pharmacy benefit management (PBM) topics, including formulary-related and reporting issues that plan sponsors must be aware of.
It was a highly engaging, “college-level” discussion moderated by Accountable Health’s Fred Goldstein. Kristin, Brittney Bello, President of SolV Independent Insurance Associates, and Erik Davis, SVP at USI Insurance Services, laid complicated topics out in practical, understandable terms that the audience thoroughly enjoyed.
Read on for highlights from the conference and Kristin's comments.
It is possible to kill pharmacy program cost inflation and control spend.
During a separate session earlier in the conference, Capital Rx's first client, Altoona Area School District (AASD), revealed that they have seen substantial overall savings (40%) since switching to Capital Rx’s PBM solution thanks to PeopleOne Health back in 2019, and they’ve been able to control pharmacy program costs. We are thankful to Dr. Charles Prijatelj, Superintendent, for trusting us to manage AASD’s pharmacy benefit program over the past few years; and to Patrick Reilly, co-founder of PeopleOne Health, for casting the vision of value-based healthcare to Altoona and explaining why a next-generation PBM was the best-aligned solution for his client.
Not all drug price indexes are equal; does everyone know what NADAC is?
NADAC is the national average drug acquisition cost, a price index derived from a survey of pharmacies across the country of what’s actually paid for drugs. Kristin explained that it’s “cost-plus” – a unit cost basis – and that no commodity in the United States is priced like a prescription drug is. We all know what a reasonable price is for a bottle of water, and it doesn’t significantly vary by store. Whereas the price of a prescription drug varies by PBM, how recently the payer contract was negotiated, for large vs. small payers, and even how much a PBM may pay a consultant for the business. Unfortunately, these factors all impact how much members pay for prescription drugs at the point of sale.
NADAC creates rational prices for drugs, comparable to knowing what a bottle of water should cost, so everyone knows what Lipitor costs in every state, regardless of whether the employee at the counter works for a big or small employer, for example. The only price that may vary is the cost to dispense by retail chain, which consumers can shop and is typically a couple of dollars at most.
She continued, “People don’t realize that drug prices don’t fluctuate very often because pharmacies aren’t negotiating every month. I’d love to see other PBMs use [NADAC] because it’s a unit price metric, period.” This led to a great back-and-forth on unit cost and formulary management (utilization).
For more detail on NADAC vs. AWP, check out Why Use NADAC-Based Pricing Over AWP.
“Spreadsheeting” 101
Kristin explained that the typical pharmacy RFP results in an HR or Benefits Director hearing that savings of some double-digit percentage savings can be achieved based on the spreadsheet analysis. Yet, every year, year after year, payers experience trend increases. She continued, “This is why actuaries, when projecting premium increases, generally forecast a 6% - 7% trend; then the stop-loss vendor puts a 110% attachment on it because they have true accountability to total costs as the payer does.”
The issue here is clear in that the promised savings rarely, if ever, materialize, and employers need to understand that while unit costs are important to look at, spreadsheet analysis needs to incorporate the value of the PBMs influence over drug mix, which includes formulary comparisons and the rigor of clinical programs. Kristin said, “Unit cost is easy to measure, but utilization involves prior authorization approval rates, refills (PBMs end up with 550 days of therapy), etc.; and only two percent of claims drive ~50% of spend,” and that’s the science that is most often missed when people are trying to understand what costs will be.
The RFP process must involve a deep dive into the differences between the formulary and clinical programs employers are willing to include. She added, “That level of analysis should be added to the spreadsheet and explained, as a difference of 10% on prior authorizations between PBMs will yield drastically different results than what's projected in a spreadsheet that only focused on unit costs.”
The house is on fire, but an aligned PBM model can help put out the flames.
Employers hear the word transparency a lot, but it’s essential to work with partners that will make employees’/members’ well-being a primary focus. Kristin and the other panel members agreed that following the money can help identify good partners when asked what employers should look for. She said that a critical question to ask is: If I, the plan sponsor, spend more money, does my PBM make more money? A “Yes” answer is obviously a caution flag.
Alignment is needed to ensure members can access and receive the medication they need. Kristin said it “takes the financial gain out of the equation.” Decisions become purely clinical. Then, it’s whether the formulary is “pure” – i.e., efficacy and cost are considered for the drugs on the formulary. The last things an employer needs are more units going out the door or more expensive drugs than are necessary going out the door.
It's the plan sponsors’ [pharmacy] data, and it must be submitted by December 27, 2022.
Plan sponsors need their data, and they also need to know what to do with their data. We covered the Consolidated Appropriations Act (CAA) and new fiduciary responsibilities for plan sponsors in a previous article, but Kristin called out a more recent development: PBMs are charging clients different rates for self-submission of data vs. PBM-controlled book of business submission. “If the PBM will charge you less for filing the data for you, and it’s multiples more if you want to do it yourself, that’s a signal,” she stated.
Kristin’s biggest fear is that the government receives aggregate book of business data and is paralyzed, unable to see how PBMs influence total drug costs. Small groups may never truly understand the value extracted by PBMs.
What do we do about specialty drugs, rebates, and that cost trend?
Kristin sees personalized medicine as a significant risk to the legacy rebate-driven PBM model. She explained, “Formularies are primarily built to maximize financial value over effectiveness by patient. They are akin to ‘shotgun medicine,’ and PBMs profit from these formularies. When we move to a model where drugs are given based on what’s expected to work best for the patient, the rebate model and how PBMs subsidize their operational costs will implode.”
In summary…
There’s a lot on employers’ plates heading into year’s end, and the window is closing for early 2023 pharmacy program implementation. However, it’s never too late to engage in more nuanced, helpful discussions about pharmacy program costs, clinical programs, and what an aligned model with clearer, predictable pricing should look like.
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