Matt Gibbs
Maybe you’ve heard about our NADAC-based Single-Ledger Model™ for Retail, but that’s only half the story.
In September 2019, Capital Rx announced the launch of the Single-Ledger Model. In almost every interview, podcast, webinar, and presentation given by our leadership team since then, time is spent explaining how the traditional pharmacy benefit management (PBM) model “hides” profit by not allowing the parties involved in the transaction to see a drug’s price.
As I highlighted in a recent webinar focused on drug pricing options, it makes little sense for the price of a drug to “disappear” once it leaves the pharmacy. In this respect, the pharmaceutical supply chain is uniquely opaque and frustrating. Additionally, there are some nuances of mail order and specialty home delivery, which I’ll dive into below. And Pharma Revenue must also be discussed, but it deserves dedicated time and attention, so we’ll tackle that in a future article.
What is Drug Pricing Transparency?
To understand what “transparent”/pass-through pricing is, it’s helpful to understand what it isn’t.
The traditional PBM model, which we review in PharmacyBenefits: Traditional vs. Pass-Through Models in more detail, is based on a “dual ledger” system that has invoices and payments to clients (e.g., payers such as employers, labor unions, and other plan sponsors) on one side, and payments to retailers, cost to dispense (for mail and specialty), and pharma incentives received on the other. The result is a “hidden” profit for the PBM.
Employers and other payers get the short end of the stick because:
- Employees complain to the HR department about how the cost of medication changes from month to month, and everyone notices when drug discount cards offer more affordable pricing options compared to their insurance copays.
- Payers may think they have a pass-through arrangement, but retail pharmacies are not reimbursed at the payer level. PBMs may produce invoices that “look like” pass-through economics, but they use an annual “clawback” (see below) to regain the spread.
- When retail pharmacy pricing improves with a PBM, the PBM is not obligated to share that value with individual payer customers.
Independent pharmacies are frustrated because:
- Daily reimbursements can change drastically based on the pricing submitted and altered by the PBM, and price variability negatively impacts patient experience at the counter.
- Annual clawbacks come into play when the PBMs reconcile with retail pharmacies over their annual pricing guarantees.
- Constant authorizations and approvals are required to fill critical medications, and delays can take up to 14 days.
And finally, employees and members (i.e., healthcare consumers) are almost always paying more than is necessary for their prescription drugs, whether at the counter or through higher premiums.
The Single-Ledger Model Solves the Problem(s)
If the buy and sell sides of the transaction can see the price, it dramatically simplifies the equation and improves visibility and predictability. And when NADAC-based pricing is used, it creates equity (a patient in New York pays roughly the same as a patient in South Carolina or California for the same medication on any given day). But there’s more to it.
What Happens at Mail Order & Specialty Home Delivery Under the Single-Ledger Model?
Capital Rx “goes to market” regularly for mail service fulfillment from providers independent of self-owned PBM economics. We shop the entire supply chain for the best unit price for mail-order maintenance medications.
Additionally, Capital Rx requires any preferred mail order provider to employ a “lowest of” logic, which includes the mail order unit price for every drug dispensed, usual and customary (U&C) price, retail NADAC, and a safeguard floor of AWP-X%. Most claims hit the mail order unit price, meaning a patient will never pay more at mail than retail for the equivalent days' supply.
While 98% of drugs have a NADAC price, for Specialty Home Delivery, NADAC does not work well as a reference price. However, data are improving, and we are hopeful that NADAC will become a more reliable metric for home delivery specialty claims. Currently, 51% of medications are dispensed at retail, and most of these are non-specialty medications (only ~2% of claims are specialty drugs).
Like mail order, Capital Rx goes to market for specialty home delivery rates. We currently utilize two preferred providers for all non-limited distribution (LDD) drugs and employ a lowest of logic, which includes a pharmacy unit price for each specialty medication, U&C, and an AWP floor. Again, most claims adjudicate at the specialty pharmacy unit price.
What About Pharma Revenue?
Pharma revenue is derived mainly from rebates, but there are other sources. As noted above, we’ll address pharma revenue in more detail in our next article on the Single-Ledger Model.
The Single-Ledger Model Creates a Win/Win/Win and Visibility
The word transparency is often overused and has lost much of its meaning to stakeholders; however, true visibility into transaction economics is a great thing for plan sponsors (now fiduciaries due to the Consolidated Appropriation Act), pharmacies, and consumers. Capital Rx clients generally see significant savings in the first year after switching from a traditional PBM, ranging from 10% to 30% on a PMPM basis, net rebates and administrative fees. And with alignment and visibility comes control and predictability.
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