Health+Benefits

Runaway Freight Train

Transparency alone isn’t enough to lower drug costs, but it’s a critical step.
By Katie Oberkircher Posted on November 13, 2020

The pharmacy supply chain is known to be difficult to navigate, with attempts to trace the flow of money and services often ending in a complicated web of confusion. Fortunately, Dr. Ken Perrin, the director of clinical pharmacy services at Integrated Prescription Management (IPM), and Ryan T. Opichka, IPM’s regional vice president of sales, have a different approach to pharmacy benefit management (PBM). Here’s one PBM perspective of the role of transparency in balancing cost with access to care.

Q
Part of IPM’s mission is to act as a catalyst for healthy outcomes and invest in progressive healthcare solutions. Pharmacy benefit managers (PBMs) are typically involved in the price negotiation and cost management piece of the supply chain. How do you drive actionable outcomes, and what kind of solutions are you investing in?
A
Opichka: I’d say the key to healthy outcomes is the member. We drive actionable results by taking a personalized approach to everything we do. We have a wide variety of tools, incentives, and resources we provide to our members so they can invest in their own health. We work hard with the consultant and employer to engage with our members. You can have the best program and plan in place, but if the member isn’t invested then the chances of meaningful change are limited.

Perrin: We drive actionable results by taking a personalized approach to everything we do. A good tool to improve outcomes is a medication adherence program. IPM sends a notice to prescribers for members who are failing to adhere to their medication therapy (less than 80% adherence). When patients stay on their medications, they are less likely to have an adverse health event and more likely to be healthier. This has a positive impact for patients and employers in many ways (health, cost savings, etc.).

Targeting medication adherence for the treatment of diabetes is a good example. You can provide members an incentive to adhere to their medication by eliminating the member copay for medications that treat diabetes. The cost of treating diabetes is typically in the top five therapeutic classes of total drug cost for employer groups. IPM has a big focus on utilizing data for analytical reporting. This allows us to provide true insight into the utilization, trends, and forecasting to develop actionable plans. We support Third-Party Administrators (TPAs) in case management and wellness programs by providing prescription data which is then combined with medical data to understand a patient’s complete medical picture. IPM provides guidance to employer groups on which therapeutic classes of medications provide value and which ones may be excluded based on their lack of value or lack of medical necessity. Our analytics give our clients projections of their drug spend over the next three years, which gives them the ability to provide financial planning.

Q
In many cases, rebates – rather than efficacy – drive product formulary placement as well as the number of competing products on the market. How do you approach the topic of transparency with clients, and how is it central to your business model?
A
Perrin: While rebates do impact formulary placement, there are a number of drug utilization tools which can be used to lower drug spend. IPM offers several formularies which give clients the ability to select their approach to providing a pharmacy benefit. One formulary, for example, is more restrictive and offers fewer brand medications, which increases rebate yield. IPM layers several drug utilization tools on top of the formulary to manage drug costs. The goal is to steer utilization to generic medications, which generally are significantly lower in the average cost per claim – often by a factor of five or ten.

Opichka: Everyone is focused on rebates: “transparency” and rebates. I’m not sure why everyone thinks because their contract says they get 100% of their rebates passed on it means their PBM is being transparent. Rebates are a small piece of a big puzzle. The real focus should be having a PBM partner focused on helping lower your total drug spend and achieving the lowest net cost. If you are getting a rebate, it means your employees are probably using an expensive drug in which there probably is a lower cost, clinically appropriate drug available. If I were an employer, my ideal plan year would be one where I didn’t get a single rebate dollar, because that means my employees were using clinically appropriate generic or lower cost medications. The contract (spread vs. pass-through) doesn’t really matter – transparency is when you [the member] understand what is driving your drug cost and why, the options to change that, and what the result is projected to be if changes are made or not.

Q
Since the onset of COVID-19, what kind of alternative funding solutions have you used with clients, and what aspects of their spend have concerned them the most?
A
Perrin: The major trend IPM has seen is a decrease in prescription volume, which may be attributable to the decrease in patient office visits due to COVID-19. Virtual patient visits have increased significantly since early spring, but the prescription volume has remained depressed. We have not seen a big difference in funding solutions since the inception of COVID-19. IPM’s clients have been fairly resilient and have been able to maintain their businesses for the most part.

Opichka: A small percentage of groups that were considering self-funding might have decided to hold off for another year or two. However, we have seen more focus being placed on controlling cost. These groups understand that self-funding gives them more control and flexibility. The focus continues to be ways to control cost. We’ve come up with many different solutions to reduce drug spend through drug savings programs, copay assistance programs, specialty drug carve-outs, etc. President Trump’s recent executive order has also increased interest around international wholesaling. We are seeing an increase in alternative funding solutions that provide funding through entities like pharma, foundations, and non-profits. Employers are interested in evaluating those. IPM is uniquely positioned to provide guidance to employers and brokers on the nuances of these programs. That is one of our biggest advantages – our flexibility. We have all the capabilities of the big PBMs, but we are nimble in creating and implementing nontraditional solutions that work.

Q
Can you give an example of a time when you worked within a reference-based pricing model? Did that experience align with your approach to and use of data?
A
Opichka: Many solutions exist. Part of the IPM value to employers and consultants is to evaluate solutions and choose best of breed, and then partner with them to provide value. The reference-based pricing model (RBP) is a fast-growing solution in the self-funded space, and we’ve seen it grow significantly over the last few years. IPM currently works with three RBP solutions for medical and it is highly successful. IPM’s focus on utilizing clinical solutions to reduce total drug spend aligns very well with RBP models. We have many different tools we can offer to lower costs, improve outcomes, and transform the member experience. However, if at the end of the day you haven’t educated the group and the members on how these programs work, how they can be engaged, and how to be good consumers, then the chances of success are going to be low. In a similar fashion in RBP, if members don’t understand the goal, the process, and how it works – well then, it’s probably not going to succeed.

Perrin: Reference-based pricing is generally used in medical, not the pharmacy benefit industry. Drug prices are generally based on discount rates from Average Wholesale Price (AWP) negotiated with pharmacy chains and independent pharmacies. The AWP-% discount rates apply throughout the country and are not regional in nature. Brand drug costs are set by the manufacturer, who in turn negotiates rebates with PBMs in order to give favorable placement on the PBM’s formulary.

Q
Some plan sponsors may be hesitant to implement prior authorization programs, which require clinical professionals to oversee that members are being prescribed and receiving medicine that is right for them and their budgets. That process is happening in a fragmented healthcare system with misaligned incentives. Where can data play a role in improving this process?
A
Perrin: The cost of the pharmacy benefit can be described as the proverbial “runaway freight train” that, if left to run without any controls, will price the medication out of reach for most self-funded employer groups and place significant strain on fully insured programs.

Pharmaceutical medications are approaching almost 20% of healthcare costs. A prior authorization (PA) requirement is considered a drug utilization management tool which is used to manage, reduce, or maintain the cost of drugs for the payor, and in many cases decrease the member share of cost as well. While, ideally, it would be best if all of the stakeholders would collaborate on managing cost to continue providing the best therapeutic options for consumers, the alignment and incentive to do so is lacking.

IPM recognizes that PA can be one of the most disruptive and abrasive elements in pharmacy. In its most base form, PA inserts an administrative process between the patient and their provider. IPM’s approach to PA is very different in that we provide a community pharmacist and a community primary care physician to provide greater and clearer information to the provider and patient.

The use of evidence-based literature and data which provides objective evaluation of medications and their therapeutic outcomes is necessary to design a pharmacy benefit and employ drug utilization tools which are effective in supporting the intent of payors who pay for the benefit and the members who use the medication. Educating consumers, prescribers, benefit departments, and payors is necessary to improve the understanding of drug utilization tools and the goal of providing a cost-effective pharmacy benefit.

The Institute for Clinical and Economic Review (ICER) is making waves in its quest of evaluating the value of medications in terms of clinical effectiveness. ICER has developed a metric of quality-adjusted life year (QALY) to assist clinicians’ methodologies to assess the value of medications. For example, in evaluating a class of biologic medications for the treatment of ulcerative colitis, which range in annual cost between $13,500 and $91,600 based on Wholesale Acquisition Cost (WAC), ICER estimates the cost of these medications would have to be reduced between 40% and 92% in order to provide meaningful therapeutic value.

IPM incorporates a lot of independent, evidence-based resources in our clinical process. The challenge for payors is how to meaningfully incorporate ICER assessments into the typical contractual relationships between manufacturers and PBMs, and between PBMs and pharmacies which procure and dispense medications.

Q
What are steps the specialty drug industry could take to simplify the drug distribution chain?
A
Opichka: There are many ways the entire healthcare system in general could be simplified, but where do you start? The distribution chain is extremely robust and complex. You have drug manufacturers, wholesalers, pharmacies, health systems, insurance companies, PBMs, state and federal government, etc. I won’t speak to simplifying the distribution model, but I think the industry needs to work to improve the member experience and deliver more personalized care.

We’re excited about personalized medicine because it aligns with our belief that all healthcare is personal. The biggest simplification would be helping patients get access to medicines that match their unique biological make-up. This would save a lot of time, money, and improve health outcomes. We have recently partnered with Myriad Genetics, Inc., to launch a ground-breaking personalized multi-biomarker program for people with rheumatoid arthritis. This innovative program is an example of how we are focusing on personalizing care to improve patient outcomes at the lowest net cost.

Katie Oberkircher Director, Market Intelligence & Insights Read More

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