Even CVS Caremark has realized that constant, consistent oversight is the only way to address hyperinflated drug prices.
For years, drug rebates were a big selling point for PBMs.
A small, self-funded payer could expect to see some percentage of their pharmacy spend returned to them each year. As the story goes, your PBM would use its vast purchasing power to negotiate bulk discounts with drug makers. The PBM would then pass the savings along.
Critics, consultants, auditors, and others who study the numbers knew that these middlemen were keeping an ever-increasing portion of the savings — often disguising that profit-taking as “fees.” But many payers, especially municipalities and small companies, became addicted to their PBM rebates.
Indeed, benefits managers would run screaming when told they should request formulary changes, even when it was pointed out that the % savings realized through PBM management would dwarf their cherished rebates.
Turn the page…
It’s 2019 and guess what? The PBMs themselves are now using their own, closely-held formularies to address soaring drug prices.
CVS CAREMARK KICKS 5 DRUGS OFF ITS FORMULARY
In a recent briefing, CVS Caremark, which managed 30% of all prescription claims in the US in 2018, proudly boasted of a new program designed to remove “hyperinflated” drugs from their formularies.
The program is designed to exclude drugs that:
(1) see very high price inflation (2) have big price tags compared to clinically equivalent alternatives (3) don’t have quality metrics to justify those high prices
Apparently, the program also offers ongoing monitoring of data for suspected fraud, waste and abuse, and utilization and specialty guideline management. Welcome to the party, CVS Caremark!
According to Derica Rice, CVS Health EVP and President of Caremark, “This flexible approach of ongoing reviews and removals —rather than annual — helps ensure that clients can stay ahead of rapidly changing market trends, rather than simply reacting to market changes.”
The result: CVS has dropped a grand whopping total of FIVE drugs, though they promise more to come.
RELENTLESS PBM MANAGEMENT SAVES MONEY
As Co-Founder of Scripta Insights, Mindy Bradley has been working with self-funded companies for years.
Mindy will tell benefits advisers, benefits managers, HR directors, anyone who will listen, that the savings are right there in the data. (And it is your data.) It is not necessary to change PBMs in order to realize those savings, but you must be willing to confront the provider and to demand formulary changes in order to maximize your savings opportunity.
We have seen it before: Scripta was able to save one sample client 16.5% through steerage and employee engagement, but the client left an additional 21% in savings on the table because they were afraid to risk their rebates.
For the willing, Scripta’s proprietary technology platform delivers constant, consistent vigilance, enabling us to identify unnecessary over-spending and stop it — before it hits your bottom line.
Among the five drugs Caremark has already dropped you’ll find Zydus Pharmaceuticals’ 1000-mg Metformin ER (extended release). The cost of that particular drug averages $617 for a 30-day supply. Regular Metformin, which helps diabetics control their sugar levels, costs just $3.80 for a 30-day supply.
Caremark is well-pleased with itself since, as you might imagine, removing that one drug alone could drive considerable savings, given their client base (at $7,350 per year, per patient).
Mindy Bradly’s not buying it: “It should never have been on the formulary to begin with.”
REBATES ARE SOMEHOW STILL A THING
We know that the pharmaceutical market changes every day. New drugs come to market, brand names lose patent protection, new generics arrive to compete with old generics… and sometimes drug makers just decide they want to charge more.
The formulary is the list of drugs your PBM is willing to pay for, at least partially, for any given disease state or indication. It MUST be a living document. Annual or quarterly updates simply can’t keep up with this market… And yet the fascination with rebates persists, even as PBM profits continue to soar.
According to one executive at Express Scripts, PBMs keep roughly 10% of rebates. CVS Caremark says it passes 98% of those rebates back to the insurance plan. But since negotiations with drug makers are “trade secrets,” there is no way to check their math!
Meanwhile, according to Investor’s Business Daily, the three biggest PBMs reported better second-quarter earnings growth than the top three pharmaceutical companies. On an adjusted earnings per share basis, for instance, CVS reported 12% growth just in the second quarter of this year.
Notes:
2. “Here’s What We Know About How Drugs Are Priced — And What We Don’t,” Allison Gatlin, Investor’s Business Daily, September 13, 2019
3. “A bipartisan effort: States pass record number of laws to reel in drug prices” Steven Findlay, Kaiser Health News (via USA Today) Sept. 5, 2019
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