Category Archives: Pharma

Vetting PBM contract provisions may lower pharmacy plan costs

Prescription drug plan sponsors must consistently evaluate and update their pharmacy benefit manager (PBM) contracts to control costs. In their article “Medicare Part D PBM contracting strategy,” Milliman actuaries Michael Polakowski, Nicholas Johnson, and Todd Wanta highlight numerous contract provisions that plan sponsors should examine and renegotiate to reduce pharmacy expenses.

Here’s an excerpt:

As contracting has become more complex, the following contract provisions are becoming more common as plan sponsors look to reduce their pharmacy expenses.

Price protection. In the current environment of high-cost trends for brand-name drugs, price protection can offer more inflation protection than discount guarantees. Any price increases above a predefined threshold are paid back to the PBM by the manufacturer and considered rebates by the Centers for Medicare and Medicaid Services (CMS). Plan sponsors should carefully consider how price protection can affect Medicare bids and end-of-year settlements.
Membership. More favorable dispensing fees, discounts, and/or rebates may be achieved for plan sponsors with higher membership counts. Improved contracting levels are specified directly in the PBM contract.
Discount/rebate guarantees. Discount and rebate guarantees may be presented in many different forms, e.g., rebates per brand-name script or on a per member per month (PMPM) basis, or discounts off AWP or the maximum allowable cost (MAC) list. Rebate guarantees may exclude certain drugs. At a minimum, plan sponsors should ensure the targets are clearly understood and auditable. Plan sponsors should be wary of proprietary definitions when industry definitions are available for reference. Plan sponsors should also ensure that reimbursement mechanisms are in place if targets are not achieved.
Rebate maximization. Because of the structure of the Part D benefit, rebates can be a more effective way to reduce Medicare bids than discounts. Over the last few years (and with the increasing cost of specialty drugs), plan sponsors have increasingly negotiated with PBMs to maximize rebates rather than discounts. The financial incentives for this approach are discussed by Milliman consultants Adam Barnhart and Jason Gomberg in a recent article for the AIDS Institute, “Financial Incentives in Medicare Part D.”1
Multi-year agreements. Some PBMs have been willing to provide discount or rebate improvements over time if plan sponsors commit to multi-year contracts. Plan sponsors should be sure to verify that the improvements are contractually guaranteed and meet or beat market-wide improvements. Even multi-year discounts should have market check provisions to allow plan sponsors the ability to receive better terms when the market changes.

To carve in, or to carve out, that is the question

Employers and other plan sponsors have the option of carving in or carving out their pharmacy benefit program from their medical benefits. In this paper, Milliman’s Brian Anderson and Angela Reed highlight the advantages and disadvantages of both options and raise important questions to consider when contemplating a move to carve out.

State laws limit the interchangeability of biosimilars

sarah-burnettBiosimilars have been on our radar for a while. With Europe leading the way, this fall marks 11 years of the European Medicines Agency’s biosimilars guidelines with 20 biosimilars approved corresponding to seven different reference drugs. As part of the Patient Protection and Affordable Care Act (ACA) in 2010, President Obama amended the Public Health Service Act (PHS Act) to create an abbreviated Biologic License Application (BLA) regulatory process for biosimilars, which has yet to catch on for a variety of reasons.

Key challenges in the U.S. regulatory environment remain for establishing interchangeability for biosimilars. Drug interchangeability allows for substitution for the less expensive biosimilar version of the brand-name biologic (reference drug). The U.S. Food and Drug Administration (FDA) can classify biosimilars as interchangeable. However, state legislatures can regulate the substitutability by requiring a biosimilar in question to be first approved as interchangeable by the FDA. These regulatory hurdles thus create limits at the prescriber level to prevent substitution. So far, only two products have gained full FDA approval yet are not considered interchangeable; it is estimated that many more biosimilars are currently in development.

Before biosimilars flood the market en masse, states were taking measures to assure their regulation. In the United States, 23 states and Puerto Rico have passed legislation in the past three years to regulate the substitutability of biosimilars. The National Conference of State Legislators outlines the substitution laws for each state with an enacted law here. The common threads to the legislation are summarized below:

FDA approval. All biosimilar products seeking substitutability status must be approved by the FDA. The FDA has yet to approve a biosimilar as an interchangeable drug.

Prescriber decides. Substitution of a biosimilar for another product can be prohibited by the prescriber. In such cases, “dispense as written” or “brand medically necessary” must be noted on the prescription.

“Notification” versus “communication.” Previous legislation in 2013 and 2014 required that prescribers be notified of legally permitted substitutions made at a pharmacy. In 2015, language regarding “notification” was adjusted to allow certain “communications” to be sufficient for drug substitutions. These “communications” included notation in an electronic medical record, pharmacy benefit management (PBM) files, or pharmacy records shared with prescribers. The purpose of this language change was to allow prescribers to monitor their patients without causing unnecessary access barriers.

Patient notification. Certain states require that patients be notified of a drug substitution. Stricter versions of these regulations require explicit patient consent before any substitution is made. Documentation of notification and consent are possible barriers to adoption of approved biosimilars.

Records. Any biologic product substitution must be accompanied by records in the prescriber’s medical practice and at the pharmacy.

Immunity. In certain states, laws provide protection to pharmacists who substitute a biologic product in compliance with the state’s laws.

Web lists. States must keep an up-to-date list of permissible interchangeable products that is publicly available.

Cost or pricing. Legislation exists requiring pharmacists to explain the cost or price of a biologic and its interchangeable biosimilar. Five states require that a substitution must have the lowest cost.

Understanding the extent of the state and federal laws regarding substitutability can help employer groups and pharmacy programs estimate the potential cost impact for their organizations. Milliman has done previous research on cost savings for employer groups that take up biosimilars. As more biosimilars are approved, there will be more competition for high-priced biologics and additional drug choices will be available at more affordable prices.

To learn more about Milliman’s pharmacy benefits consulting services, click here.

Assessing PBM contracts with a basic ABC strategy

Plan sponsors can garner greater value from their pharmacy benefit manager (PBM) by routinely assessing their contractual terms and the PBM’s performance. The ABCs—auditing, benchmarking, and competitive bidding—of PBM contract assessment are key to delivering competitive pharmacy benefits on a cost-effective basis. In this article, Milliman’s Andrea Sheldon and Michelle Angeloni describe each of the three functions encompassing an ABC pharmacy benefit strategy.

Structuring a PBM vendor process to reduce costs

Plan sponsors who routinely review the selection and contracting process they use to hire a pharmacy benefits manager (PBM) can cut costs. An experienced consultant can help by customizing the process to meet the plan sponsor’s needs and provide critical assistance throughout the process. Milliman’s Brian Anderson and Alex Johnson offer some perspective in the article “Staying competitive in the pharmacy benefits manager selection process.” The authors also provide an overview of PBM contract negotiations and market checks.

Here’s an excerpt:

When selecting a PBM, a plan sponsor should follow a well-structured RFP process. It is imperative that the process involves individuals with extensive experience and knowledge in reviewing, implementing, managing, and auditing PBM arrangements. Their experience will play an important role in achieving the best available PBM arrangement for the plan sponsor, including optimal financial terms and concise contractual language.

Most plan sponsors partner with a pharmacy benefits consultant to guide them through the process and help them achieve the best results. It is vital to develop a proven, objective, and tailored grading process to evaluate the PBM vendor responses and make valid financial and administrative comparisons across vendors. An experienced consultant or advisor can help in this regard.

The steps required in the PBM vendor selection process include:

• Preparing the RFP
• Distributing the RFP to prospective PBMs
• Conducting a bidders’ conference call
• Analyzing financial bids and grading responses
• Summarizing analysis and choosing finalists
• Finalizing PBM selection
• Drafting the contract

Virtual conference for pharmacy benefit management professionals

Milliman consultant Brian Anderson will copresent at the AIS Health Virtual Conference, “Proven pharmacy benefit strategies for a rapidly changing marketplace,” on September 16. His presentation, “Exclusions and other emerging formulary management strategies,” examines tactics employed within the prescription drug marketplace and provides perspective on strategies that can be effective under particular circumstances. Anderson will be presenting alongside Joshua Freddell, senior director of Enterprise Product Innovation at CVS Health.

The conference will focus on pharmaceutical drug spending and highlight steps the nation’s leading pharmacy benefit managers are taking to control it. For more information on the virtual conference, click here.