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BY MARLENE PROST, a long-time newspaper reporter who lives in Audubon, Pa., and frequent contributor to Human Resource ExecutiveŽ, the sister publication of Risk & InsuranceŽ where this article first appeared

For years, drug pricing has been a sort of shell game, as pharmacy-benefits managers (PBMs) have been moving around manufacturer rebates and discounts, leaving employers to wonder how they're being passed on to consumers.

Experts are advising benefits managers to demand the highest level of transparency possible in their contracts with PBMs so they know exactly how manufacturer rebates and discounts are being applied to employees' drug costs.

"The PBM business is priced with a multitude of prices and rebates," said Peter Wickersham, senior vice president of cost of care for Prime Therapeutics, a PBM based in St. Paul, Minn. "The problem is you need a spreadsheet to insert all the discounts and rebates. It's confusing. ? To industry insiders, (it looks like) a shell game."

Prime Therapeutics, which is owned by 12 nonprofit Blue Cross/Blue Shields, is one of four PBMs that have agreed to provide clients with the most transparent drug pricing available, as part of the HR Policy Association's Transparency in Pharmaceutical Purchasing Solutions program. Prime Therapeutics, along with Humana Pharmacy Solutions, MedImpact Healthcare Systems Inc. and Restat, were recertified by the Washington-based association last October and agreed to make available the actual average inventory cost of mail-order drugs. This was the first time the association, which certifies PBMs annually, had asked for the AAIC.

"We're fully transparent," said Wickersham. "The value that we generate in negotiating better rebates ? to make our business as efficient as possible ? goes back to our member plans."

In addition, the HR Policy Association recertified five PBMs--CVS Caremark, Express Scripts, Prescription Solutions, UnitedHealth Pharmaceutical Solutions and Walgreens Health Initiatives Inc.--that agreed to provide the next level of transparency: the wholesale acquisition cost for mail-order drugs. The 2012 recertifications will be announced this fall.

Both costs--actual average inventory and wholesale acquisition--are considered more accurate measures than the commonly used average wholesale price, a nationally published index determined by pharmaceutical manufacturers before any discounts or rebates are applied. That latter price is comparable to the sticker price on a car in that it's almost always discounted.

The wholesale-acquisition cost also comes from the manufacturers, but it is generally lower than the average wholesale price and is therefore closer to the true cost of the drugs. The actual average inventory doesn't come from the manufacturer, but is the actual cost the individual PBM has paid for the drug.

The industry has moved away from using average wholesale costs, said Marisa Milton, executive director of the HR Policy Association Pharmaceutical Coalition, a group of nearly 60 large employers that purchase pharmacy benefits for more than 5 million Americans.

"The WAC pricing is superior to the status quo. We've taken it a notch above. ... The ability to look at the actual inventory costs (gives) a more accurate picture of the true cost of drugs," Milton said. "Some (coalition) members feel healthcare reform will increase costs, on top of inflation," so they will do anything they can to open the books on prices.

Lisa Zeitel, senior vice president and national pharmacy practice leader for Aon Hewitt based in Norwalk, Conn., works closely with the HR Policy Association and said, "They're continuing to raise the bar around transparency," she said. "They use the leverage of major employers in the United States to drive transparency."

Even with no enforcement power, HR Policy's TIPPS program has enormous influence in the industry because it certifies many of the some-30 top-tier PBMs in the country.

VARIED TRANSPARENCIES

This year, the HR Policy Association will put a greater focus on transparency in generic drug pricing, as well as multiple retail-pharmacy contracts, Zeitel said.

"It's not a given that transparency equals lower prices," said Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, a Washington-based group that represents PBMs. "That said, there's a lot of transparency that's good, as long as the pharmaceuticals don't see what we're negotiating with competitors. The kind of transparency that reveals trade secrets and negotiating strategies ends up hurting clients."

Because PBMs are competitive with one another, corporate clients can find the degree of transparency they want in the marketplace, Merritt said.

"The first thing is, there is no one version of transparency," he said. "Different businesses are interested in different things. Some businesses just want you to hit performance; they just want predictability. ? Others care a great deal (about transparency). ... It's incumbent on them, when bidding, to say what they want.

"Clients can have whatever they want. There's a lot of diversity," he added.

Drug-pricing transparency has become a hot topic because pharmaceuticals are the fastest-growing area of healthcare, even though they account for only 20 percent of all healthcare costs, said Nadina Rosier, North America pharmacy practice leader at Towers Watson in New York.

The Patient Protection and Affordable Care Act includes a section on drug-pricing transparency that requires PBMs to disclose the aggregate amount of rebates, discounts and price concessions passed through to the plan sponsors.

"The one great thing about healthcare reform is at least we're a little closer (to transparency)," said Rosier. "It changes the mindset of the HR benefits manager arranging the plan, (who is) going to demand greater transparency in the contract. And you can't do that if you don't know how much the PBM is paid (by the manufacturer).

"(The) traditional arrangement is structured in such a way that the PBM does not have to disclose any fees, contract arrangements or revenues it receives (from the manufacturer) on your behalf. So, as employers, you're somewhat kept in the dark," said Rosier, adding that some PBMs may offer discounts to client organizations.

Rosier advises employers to negotiate transparency requirements in their PBM contracts. She also suggests looking at group purchasing agreements that "leverage in volume to secure a more favorable arrangement."

There is also growing concern about transparency in the pricing of less-frequently-prescribed "specialty" drugs.

"Whereas before, employers only focused on traditional drugs, we're seeing more interest in how to apply transparency to expensive biotech drugs"--such as those used for conditions such as cancer, multiple sclerosis or rheumatoid arthritis, which are becoming a greater proportion of drug spending, Rosier said.

BEYOND PRICING

But it is also important to go beyond just drug pricing, Rosier said, to "push PBMs to deliver on positive patient outcomes."

For example, Rosier said, PBMs could ensure participants are adhering to their treatment plans and taking the most appropriate medication.

"It's not enough to say, 'Can a person take a generic?' he said. "Managing to the lowest cost is determining whether people (should be taking) a drug in the first place."

Zeitel advised benefits managers to follow the money. Always insist upon full disclosure in the contract. As important as transparency is, companies should also discuss how a PBM can help cut costs through drug management, such as optimizing the use of generics.

"Find a PBM partner that provides drug-cost management (and) is working with you to manage costs," Zeitel said. "At the end of the day, to help with the bottom line, you want to drive the most cost-effective utilization. That's added value."

For example, PBMs can monitor drug interactions and appropriate utilization, improve adherence and seek prior authorization to verify if medication is clinically appropriate.

"You can demand results," she said.

Ask the PBM for "performance guarantees" like turnaround of mail services, dispensing accuracy, medicine possession, generic dispensing and patient adherence, she said.

"PBMs should be paid for the good things they do, and the same level of transparency should apply to that," Wickersham said. "We need to be very clear as to what value-added services PBMs provide and show evidence of the value of value-added services."

This is especially true in the area of specialty drugs, he said. "We want to show the value of these services and show the pricing of what you're buying. Break it out for me." Is that asking too much of a PBM? "Not if you're charging an arm and a leg for the drug."

July 1, 2011

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