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The Call for Transparency: Moving Past Pricing and on to Performance

Current Conditions

We have known for a while that the drug pricing system in the U.S. is broken.

While prescriptions in the U.S. have nearly always been more expensive than other countries, the emergence of live-saving, curative, and costly specialty medications have placed a financial burden on Health Plans, plan sponsors, and patients alike. New drug research is expensive (at least intuitively we know that) and the manufacturers build the R&D cost into the product. Yet, where do the R&D costs end and gross profit margins begin?

We know that government, drug manufacturers, and pharmacy benefit managers (PBMs) have all played a role in making the drug pricing system what it is today. A key reason we have seen such slow progress towards a solution is because the organizations involved are too busy finger-pointing and working to obfuscate the pricing process to gain financially. To be clear, ALL of the above organizations have contributed to skyrocketing drug prices. Members also play a role by seeking the best treatment no matter the cost with little regard for total drug cost and only focusing on their own share of the bill. Without member cost incentives (three tiered copays, front end deductibles, Dispense as Written Penalties) members will continue to use the most expensive treatments. Some because they don’t know, others because they feel they deserve it. Add in Direct to Consumer advertising and we have a partially-informed and fully-entitled group of consumers.

The lack of a national health care system (reduced buying power for negotiating prices) and short-sighted government legislation (2003 Medicare Part D program is barred from directly negotiating with drug manufacturers) resulted in near-zero regulation on manufacturers in regard to price. In addition, the ability of Pharma (manufacturer alliance) to contribute to Political Action Committees (PAC) keeps politicians from attempting to change the law.

"It is unacceptable that Americans pay vastly more than people in other countries for the exact same drugs, often made in the exact same place," President Trump said. "This is wrong, unfair, and together we will stop it."

As you look across congress during these remarks, most sat on their hands. Seemingly, no one wants to take on a huge lobbying group like Pharma. If they did, there is a constant reminder that they would find themselves opposed in the next election and quickly removed from office by the Pharma Lobby.

Unsurprisingly, drug manufacturers have taken advantage of the lack of regulations by developing strategies to secure their huge profit margins in the U.S.

The PBM’s role in this system is to negotiate directly with manufacturers to secure lower pricing for health plans. They filled the role that essentially the government barred themselves from playing. By using their book of business, PBM’s are able to provide aggressive discounts to plans that have little to no buying power. At the end of the day a PBM is a business. Should we really act surprised when they strike a profitable deal for themselves during negotiations with the manufacturers?

The most recent subjects of the finger pointing cycle are PBMs. For example, 2018 was full of new legislation (pricing gag clause), statements from the White House, and even an infamous 60 minutes episode highlighting a PBM’s role in bankrupting a small town. PBMs are in the hot seat and while they deserve to be there, they are not the only ones.

That being said, at the end of the day we are all in this mess together. So, what do we do? One of the stakeholders sitting at the table is the PBM consultant, an independent voice expertly trained in the full PBM spectrum. Our role as PBM consultants is to sift through contract language and clinical programs to get to the real strategies that help mitigate costs. This is all we can do until the true players quit playing the blame game and work towards a solution.

Moving Past Pricing and on to Performance

We all know pricing plays a huge role in cost containment. The first step to lowering costs for a health plan and their members is to have a clean contract with competitive rates in place. However, a clean contract with competitive rates means nothing if there is no one monitoring performance versus the contract.

PBM’s are only obligated to reconcile financial guarantees at the end of a contract year. Additionally, while a contract may state that the PBM will provide a reconciliation report at the end of a contract year, many only do so upon request. Reimbursement for underperformance cannot be collected until the close of a contract year, but on-going monitoring of pricing can present cost containment opportunities. For plans with traditional (spread) pricing offers and member co-shares, it ensures no “claw backs” at the end of the year. Meaning members won’t experience a drastic increase in the price for their medication when the PBM dials back discounts to ensure no money is left on the table. Catching overpayment issues early minimizes disruption to the Health Plan and plan sponsors.

Performance monitoring includes more than financial guarantees. Monitoring utilization also provides cost containment opportunities. Identifying brands with generics available gives plans the ability to target and educate members on lower cost alternatives. In addition to educating members, tracking their adherence to medications results in better health outcomes and reduces costs associated with repeat treatments or worsening conditions.

For plans that do not have a consultant for guidance, PBMs will offer clinical programs based on high level utilization and assumptions based on the demographics of the group. This is a one size fits all approach to cost containment. The issue with this is that many health plans and plan sponsors end up paying for a clinical program that they do not need.

Some of the best strategies we have found as consultants have come directly from clients. Often, once equipped with utilization information, our clients can identify the best cost containment strategies for their plan and even monitor performance in near real-time. Health Plans know their membership better than anyone else. Providing the necessary tools to monitor performance and make informed decisions is the best strategy for navigating this broken system.

In summary, it is time to focus on the things we can control, and the pricing system is not one of them. Educating members, aligning incentives, and identifying opportunities are what plans should be focusing on. Performance transparency will be a primary key to controlling the chaos.

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