The #1 Way to Significantly Cut Employer Pharmacy Benefit Service Costs Without Impacting Employee...

Confidential and Proprietary

TransparentRx, LLC

By

Tyrone D. Squires, MBAManaging Director

“Uncovered: The #1 Way to Significantly Cut Employer Paid Prescription Drug Costs

Without Impacting Current Benefit Levels”


Payment for the PBM Servicen PBM service / claims processing

– Very valuable service– PBM deserves a reasonable return

– Key Issue» Hidden cash flows to traditional PBMs (Pharmacy Benefit Manager)

that make up for artificially low (10-50 cents/Rx) administration fees

– Purchasers generally DO NOT know the actual cost of their PBM service

» PBM cash flows go “under the radar” of purchasers» PBM industry claims transparency

n Does not appear to include disclosure of cash flows we will describe


How Do How Do TraditionalTraditional PBMs Make Money? PBMs Make Money?

% o f P r o f i t s

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

1 0 %

A d m i n . F e e s

2 1 %

R e t a i l M a r k u p

2 2 %

M a i l M a r k u p

4 7 %

M a n u f a c t u r e r R e v e n u e

P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e , L P


Cash Flows in the PBM Industry(Traditional vs. Transparent PBMs)

n Fully Transparent and 100% Pass-Through PBMs charge a realistic and fair administration fee for their service

– No other cash flows– Generally good value

n Traditional PBMs charge a very low administration fee, but augment the low fee with “additional revenues” from other sources. These are hidden cash flows:

» Differential Pricing» Spread Pricing – ingredient costs and dispensing fees» PBM owned mail order pharmacy – Excessive markups» Contract Language: discount guarantees, MAC lists and rebates » Repackaging

§ Plan sponsors are generally unaware of these hidden cash flows– Well over 90% of all plan sponsors are unaware

§ Most sponsors don’t know what they don’t know

Courtesy of Pembroke Consulting, Inc.

P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e , L P


How does the “Spread” arise??

n The drug pricing “standard” which forms the basis of the discounted prices… – Is not necessarily standard

» There is variation in the “standard” price– Is many times a grossly elevated price

» Particularly with generic drugs– Is known as Average Wholesale Price (AWP)

» We call AWP “ain’t what’s paid”!


Generic Drug Pricingn Generic drugs have two prices

1. The AWP price» This is grossly higher than the drug’s actual

acquisition cost in the supply chain

2. The “Maximum Allowable Cost” (MAC) price» Relatively close to the actual acquisition cost

An example will demonstrate the fluctuation in AWP for generic drugs…


AWP Fluctuation of Generic Prozac 20 mg

Manufacturer AWP Price / 100 CapsulesSource: AmerisourceBergen 10/21/10

Aurobindo $ 266.81

Mylan $ 266.55

Sandoz $ 266.52

Teva $ 266.81

Prozac Lilly (originator) $ 630.00

Maximum allowable cost (MAC)

$ 25.20


Differential PricingBilling terms AWP - 50% to plan sponsor:

AWP = $266.00 - 50% discount = $133.00 / 100 tab

Payment terms to pharmacy:

MAC price = $ 25.00 / 100 tab

Spread to PBM $108.00 ($133.00 billed - $25.00 paid)


Ongoing research on the “spread”n Ongoing research / consulting / auditing practice

n Nearly one million prescription claims

n It has been estimated that the average dollar amount of the spread nationally is approximately $22.00!

n More examples in the “Spread” in the following slides


Employer 1 Spread PricingDrug Name, Strength and (Quantity)

Transparent PBM Billed Sponsor

Traditional PBMBilled Sponsor

Employer Savings

Paid Pharmacy (Spread)

Atenolol 25mg (30) $.67 $3 $2.33 $2 ($1)

Fluoxetine 20mg (30) $1.28 $18 $16.72 $12 ($6)

Fosamax 70mg (4) $80.18 $92 $11.82 $92 ($0)

Lotrel 10-20mg (30) $104.70 $126 $21.30 $126 ($0)

Norvasc 5mg (30) $53.66 $68 $14.34 $68 ($0)

Pacerone 200mg (60) $25.00 $51 $26 $28 ($23)

Tamoxifen Citrate 20mg (30)

$6.26 $51 $44.74 $26 ($25)

Timolol Maleate 0.5% (10)

$1.76 $17 $15.24 $8 ($9)


Employer 2 Spread PricingDrug Name, Strength and (Quantity)

Transparent PBM Billed Sponsor

Traditional PBMBilled Sponsor

Employer Savings

Paid Pharmacy (Spread)

Allegra-D 12hr 120mg (60)

$121.80 $139 $17.20 $131 ($8)

Cyclobenzaprine 10mg (30)

$1.42 $11 $9.58 $10 ($1)

Flomax 0.4mg (30) $105.30 $116 $10.70 $116 ($0)Simvastatin 20mg (30) $2.86 $15 $12.14 $15 ($0)

Metformin 1000mg (60)

$2.88 $18 $15.12 $17 ($1)

Nystatin 100 MIL 15 UN/GM CRM

$1.36 $14 $12.64 $11 ($3)

Oxycodone 5mg (180) $20.88 $29 $8.12 $25 ($4)

Temazepam 15mg (60) $4.26 $11 $6.74 $8 ($3)

Terazosin 2mg (120) $8.38 $16 $7.62 $12 ($4)


Mail Order Pharmacy Excessive Mark-ups

n Mail-Order Pharmacy: any pharmacy that delivers via mail or courier excluding chain or independent pharmacies

n A chain or independent pharmacy in our cities and towns includes– Target– Walgreen's– CVS– Sally’s Apothecary– Jim’s Corner Pharmacy


Employer 1* Mail and Retail (Community) Pharmacy Prices Compared

Drug Name & Strength

DrugQty.

Mail $

Community $

Saving in Community $

Atenolol 50 mg 90 $38 $8 $30

Cyclobenzaprine 10 mg

90 $43 $8 $35

Fluoxetine 20 mg 90 $120 $54 $66

Gemfibrozil 600 mg

180 $112 $39 $73

Naproxen 500 mg 180 $117 $33 $84

Temazepam 30 mg 30 $13 $5 $8

Trazodone 50 mg 90 $19 $6 $13

Verapamil 240 mg 90 $73 $32 $41

Minocycline 100 mg

60 $102 $47 $55


Employer 2* Mail and Retail (Community) Pharmacy Prices Compared

Drug Name & Strength

DrugQty.

Mail $

Community $

Saving in Community $

Alprazolam 0.25mg 90 $31 $10 $21

Atenolol 100 mg 90 $56 $10 $46

Avandia 8 mg 90 $370 $318 $52

Captopril 50 mg 90 $52 $16 $36

Cyclobenzaprine 10 mg

90 $46 $17 $29

Doxycycline 100 mg

90 $63 $40 $23

Evista 60 mg 90 $177 $159 $18

Fluoxetine 20 mg Cap

90 $120 $56 $64

Fluoxetine 20 mg Tab

90 $126 $86 $40


Mail Order Studies Go to College

n Creighton University Researchers– Research presented in June 2005 at Academy Health– Nearly 10,000 pairs of PBM mail order and community retail

prescriptions for exact drugs and dates of service– Five employer groups (plan sponsors)– Conclusion

» When the member co-payment is lowered to encourage members to go with mail order service…

The mail order option costs the sponsor more than retail pharmacy.


Misleading Contract Language:Sponsor and PBM

n Nuances of the pharmacy benefit vocabulary n Seemingly favorable terms may not be a bargainn Three examples follow:

1. Generic Discount Guarantees2. Multiple MAC lists 3. Rebates by many names


DRUG Quantity AWP- 60% TransparentMACPrices

SavingWith MAC

Atenolol 50mg 100 $33.33 $10.50 $22.83

Alprazolam 0.5mg

100 $36.28 $11.95 $24.33

Captopril 25mg 100 $29.33 $19.00 $10.33

Cephalexin 500mg

28 $17.04 $11.50 $5.54

Fluoxetine 20mg

100 $106.40 $25.00 $81.40

Lorazepam 2mg 100 $50.28 $25.50 $24.78

Ranitidine 150 100 $61.78 $49.89 $11.89

Glyburide 5mg 60 $17.44 $16.95 $0.49

Generic Discount Guarantees


Multiple MAC lists

n Contract language leads the reasonable person to believe there is only one MAC list...

– There are multiple MAC lists– The employers’ MAC lists will be less comprehensive and

aggressive than the pharmacy MAC list. For instance...

» Fewer generics with MAC pricing» Employers prices are higher than the MAC prices paid to the pharmacy» Pharmacy is paid with the lowest priced MAC list

“Most sponsors don’t know what they don’t know.”


Rebates by Many Names

n Contract language will give the sponsor the impression that there is one rebate…

– There are multiple rebates» Access rebate» Administration rebate» Market share rebate» Other names as well (not classified as rebates but

instead reimbursements for SG & A expenses)

n Sponsors may get 90% “of the rebate”– Which rebate???– Mike Winkleman

» Medco rebate retention of 12%» From 10-Q for 1st Quarter 2010


Repackaging Scenario #1

● Patient goes to a community pharmacy

● The pharmacist orders Lipitor 20mg #30 from their wholesaler, which comes with an AWP of $147.04

● The pharmacy is paid AWP – 14% plus a dispensing fee, which is calculated as...

$147.04 - $20.59 + $2 = $128.45

*Most people outside the industry are unaware of this

practice.

Scenario #2

● Patient sent to a PBM mail order pharmacy

● The pharmacist dispenses Lipitor 20mg #30, which comes with an AWP of $147.04

● The PBM's pharmacy repackages drugs, in doing so they create a new package size with a higher AWP. For example, a new package might be #60 with an AWP of $408.60.

● The pharmacy mails the patient Lipitor 20mg #30 with an AWP of $204.30. At AWP - 22% the PBM pays itself:

$204.30 - $44.95 = $159.35


What's the Bottom Line?

'Transparency' Defined by Robert Garis, PhD, Professor Creighton University School of Pharmacy

Level 1. The PBM discloses in the sponsor's contract cash flows. (Traditional)

Level 2. The PBM passes through all rebates and network prices to the sponsor [there is no spread pricing]. (Transparent)

Level 3. The PBM passes through all rebates, more competitive prices than industry norms and provides full accounting (auditing provisions) to the sponsor. (Transparent + Pass-Through)


The #1 Way to Significantly Cut Prescription Drug Costs Without Impacting Current

Benefit Levels is _____________?


#1 - PBM must sign as a Fiduciar y!

fi·du·ci·ar·y explained by Wikipedia...

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the entity

to whom it owes the duty: it must not put its own interests before the duty, and must not

profit from its position as fiduciary unless the principal consents. It is illegal for a fiduciary to misappropriate money for personal gain.

“SHAMELESS” Self-Promotion SlideAccess: Mail, specialty & retail pharmacy network 64,000+

Pricing: No spreads and No mark-up (mail-order)

Rebates: Guaranteed 100% pass-through to plan sponsors

Value-Added: – Fiduciary arrangement– Web-based access to audit and pricing detail– Disease Management Program (focus on adherence)– Extensive DUR Program– Discount OTC and Personal Care– Voluntary Benefits: Lifelock, roadside service and gym

***TransparentRx, LLC*** ***TransparentRx, LLC*** Drug Pricing = TRUE ACQUISITION COST + FLAT TRANSACTION FEEDrug Pricing = TRUE ACQUISITION COST + FLAT TRANSACTION FEE


Thank You!

TransparentRx, LLC2850 W. Horizon Ridge Pkwy, Ste. 200

Henderson, Nevada 89052

Web site: www.transparentrx.com

Email: [email protected]

Phone: 1-866-499-1940 ext. 201

The #1 Way to Significantly Cut Employer Pharmacy Benefit Service Costs Without Impacting Employee...

Healthcare

Transcript of The #1 Way to Significantly Cut Employer Pharmacy Benefit Service Costs Without Impacting Employee...