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Oct. 15, 2007: Congressional Report Reveals PBM Medicare Part D Failures, and the Importance of Drafting An “Airtight ” PBM Contract: The House Committee on Oversight and Government Reform, chaired by Congressman Henry Waxman, has just issued a new report concerning revealing the poor performance of PBMs servicing the Medicare Part D drug program. The report examined the administrative expenses, sales costs, profits and drug rebates, from the 12 leading insurers offering Medicare Prescription drug plans and Medicare Advantage drug plans.

The report contained five principal findings:

(i) Part D insurers have high administrative expenses. The administrative expenses, sales costs, and profits of the private insurers offering Medicare Part D coverage will cost taxpayers and beneficiaries $180 per beneficiary in 2007. Taking into account the costs to the government of monitoring the private insurers, total administrative expenses, sales costs, and profits will reach $4.6 billion in 2007, with the profits of the Part D insurers alone accounting for $1 billion. The administrative expenses, sales costs, and profits of the privatized Part D program are almost six times higher than the administrative expenses of traditional Medicare.

(ii) The Part D insurers have not negotiated significant drug manufacturer rebates. The rebates negotiated from drug manufacturers by the private Part D insurers will reduce Medicare drug spending by 8.1% in 2007. In contrast, the Medicaid program receives rebates from drug manufacturers that reduce drug spending by 26%, over three times as much. The small size of the Medicare rebates and the transfer of low-income dual-eligible beneficiaries from Medicaid drug coverage to Medicare drug coverage will provide a $2.8 billion windfall to pharmaceutical manufacturers in 2007.

(iii) Part D insurers receive rebates on drug purchases made by beneficiaries in coverage gaps. The Medicare Modernization Act requires that private insurers give Medicare beneficiaries “access to their negotiated prices,” including “all discounts, … rebates, [or] other price concessions.” When the Part D insurers obtain rebates, however, they do not pass them through to beneficiaries by reducing drug prices in coverage gaps like the “donut hole.” Instead, the dollars flow in the opposite direction: the private insurers receive rebates from the drug manufacturers on purchases paid out-of-pocket by beneficiaries. In 2007, the Part D insurers are expected to receive $1.0 billion in drug rebates from transactions in which beneficiaries in coverage gaps pay 100% of the drug costs.

(iv) Part D insurers have established drug pricing formulas that leave beneficiaries and taxpayers vulnerable to price increases. In almost all cases, the private insurers use pricing formulas that pay pharmacies the drug manufacturers’ full list prices minus a fixed percentage and a small dispensing fee. These formulas have resulted in drug prices that are generally no lower than those already available through discount pharmacies and on-line drugstores, while leaving beneficiaries and taxpayers vulnerable to repeated increases in list prices by the drug manufacturers.

(v) Part D insurers have a mixed record in promoting the use of generic drugs. In 2007, 59% of prescriptions filled by Medicare Part D will be filled with generic drugs. This level of use of generic drugs compares favorably with Medicaid, which fills 54% of prescriptions with generic drugs. It does not compare favorably with the experience of the Department of Veterans Affairs, which fills 68% of prescriptions with generic drugs.

The full report can be downloaded here: Congressional Report

The problems described in the Congressional Report can all be cured - through the drafting and execution of “airtight” PBM contracts. Contact Pharmacy Benefit Consultants, and have us examine your existing Medicare Part D contract, and we will identify all of the”loopholes” that are allowing your PBM to improve its profits at your expense.

Oct. 2, 2007: Walgreen’s “Generic Drug Pain” Provides Rare Insight Into Your Plan’s Likely Losses Related To Generic Drugs: As you may have heard, Walgreens’ shares tanked 15%, or $7.08, from their September 28th close, the biggest drop in 27 years.

Why, you may ask? Because, as Walgreens itself explained, Walgreens has been forced to reduce its huge generic drug profits to smaller (but nonetheless large) generic drug profits, as an increased number of generic drug manufacturers enter the marketplace. More specifically, Walgreens blamed its quarterly losses on decreased profits from generic Zocor.

When Zocor first went off patent in mid-2006, Walgreens made up to $60 in gross profits PER PRESCRIPTION of generic Zocor, according to an analyst with Barrington Research Associates. However, by the quarter ending August 31, 2007, Walgreens was making ONLY $20 PER PRESCRIPTION on each prescription of generic Zocor sold.

Note, that the above numbers reflect ONLY WALGREEN’s profts per prescription, not any additional profits that each PBM is making per prescription of generic Zocor!

What can you learn from the above facts?

PBMs are asleep at the switch — when brand drugs initially come off patent, and months thereafter as well. More specifically, PBMs are leaving enormous profits in the hands of retail pharmacies, and thereby precluding your plan from obtaining the obvious savings they would otherwise obtain, were PBMs only to wake up, and track generic drug prices downward, as prices decrease.

Thus, while your plan COULD and SHOULD be seeing huge savings from new generic drugs that have just entered the marketplace, your potential savings are being left in retail pharmacies’ (and probably PBMs’) wallets, as those entities enjoy extraordinary profits each time a generic version of a newly off patent drug is dispensed!

Even after generic drugs have lost their 180 day exclusivity periods, and multiple generic manufacturers are producing a generic drug, PBMs are failing to perform the task for which your plan has retained them. Stated otherwise, PBMs are NOT monitoring the decreasing prices of generic drugs, reimbursing pharmacies with payments that reflect those decreased prices, and thereafter passing through the reduced cost to your plan!

Our firm, Pharmacy Benefit Consultants, addresses the above described problem, and ensures that EVERY PBM servicing any of OUR clients does otherwise. We conduct our PBM RFPs - and draft our PBM contracts - so as to require the PBM to meet quarterly with our clients, throughout the life of the contract, to ensure that all generic prices are “tracked” as they decrease. We also write into our contracts a “maximum price per pill” dispensed, for each of 200+ commonly used drugs, and we require the PBM to meet quarterly to adjust said prices downward, as lower costs become available in the marketplace.

Thus, our clients obtain all the savings available from newly available generic drugs — from the day the drugs become available - and continuously thereafter, as generic prices plummet in the marketplace.

Given that numerous commonly used brand drugs have recently lost their patents - and more will be doing so in the immediate future - it is critically important that you amend your contract, or negotiate an entirely new contract, to obtain the benefit of generic drug savings. Contact Pharmacy Benefit Consultants, and we’ll help you take the steps to do so.

September 27, 2007: Notices for “AWP Litigation” Issued: Almost two years ago, class action litigation was filed, alleging that national reporting services were manipulating and artificially inflating the AWPs of numerous drugs. Since your plan’s PBM contract undoubtedly allows your PBM to invoice your plan based on drugs’ AWPs, the litigation allegations reflected one of the reasons why your plans’ rx costs have been continuously increasing.

Notices have just been issued to class members concerning the litigation settlements. The settlements do NOT provide for cash payments to class members. Instead, they require defendants First Databank and McKesson to roll back increases in the their published Average Whole Prices for hundreds of drugs. Moreover, assuming the settlements are approved, the defendants will be required to cease publication of AWP data within 2 years after the settlements are finalized.

Assuming your PBM was relying on those defendants’ AWP data to price drugs (as opposed to another national reporting service’s data, like Medispan), your plan will automatically be included in the settlement, unless your plan opts out, or objects, by certain specified deadlines (in December 2007). If your plan is extremely large, and may have been overcharged by millions of dollars, you may want to consider opting out, to preserve your right to litigate and collect monetary compensation.

A settlement “fairness hearing” is scheduled to take place on January 22, 2008, in a federal courthouse in Boston. It is very possible that third parties (like PBMs and retail pharmacies) may try to intervene - and object to - the settlement to overturn it. The intervening parties’ claims would likely be that the settlement has interfered with their contract rights, which were based on existing AWPs, meaning they have been adversely affected without consideration by the court. Whether such claims, if filed, will be successful remains to be seen.

Stay tuned, and we’ll keep you posted as to developments in these cases, and others!