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THE UNINTENDED COST AND QUALITY CONSEQUENCES OF MANY PBM ARRANGEMENTS
Moderator:Karen van Caulil, Ph.D., President & CEO, FLHCC
Panelists:Michael Sammons, CEO, Quest Analytics Group
Goar Alvarez, Pharm.D., C. Ph.James E. Daniel, J.D., MBA, Womble Carlyle Sandridge & Rice, LLP
Sponsored by:
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The Unintended Cost & Quality Consequences
of Many PBM Arrangements
May 7, 2015
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Introduction to The Panel
Subject Matter Experts
Goar Alvarez
Nova Southeastern University
Mike Sammons
Quest Analytics Group
James Daniel
Womble, Carlyle, Sandridge & Rice
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Climate Setter…
A Review of How Pharmacies
Are Paid by PBMs
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What Is Maximum Allowable Cost (MAC)?
4
Payer/PBM generated list of GENERIC drug products
Includes upper limit/maximum $$ amount that a Plan will pay
Different for each PBM
MAC lists are dynamic… PBM chooses products and prices…
can change daily/weekly/monthly
No standardization for drug inclusion
No standardized methodology used to determine MAC
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MAC Benefits
5
Initially the MAC list was developed to alert the pharmacist that:
A more cost effective generic alternative is/may be available
A better priced generic product may be available
A number of generic alternatives are available for a brand
name product
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How Is The Pharmacy Paid?
6
Average Wholesale Price (AWP) - %
Wholesale Acquisition Cost (WAC) + %
Transparent databases exist for both – First Data Bank, Medispan,
and others
EXAMPLE: (AWP – 20%) – copay
Drug AWP is $10.00
Copay is $5.00
($10.00 - $2.00) - $5.00 = $3.00
The patient’s copay is not added to the pharmacy reimbursement. It is
deducted from the overall pharmacy payment.
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What Is The Problem with MAC Pricing?
7
MAC list should be based on:
Three or more A/AB therapeutically equivalent, multi-source
drugs rated by the FDA Orange Book
Obsolete drugs should be eliminated from the list
Drugs with interrupted supply issues should be excluded
Generics that are readily purchasable in Florida from
regional/national wholesalers
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What Is The Problem with MAC Pricing?
(Continued)
8
PBMs
Don’t disclose specific sources, products, NDC codes or prices
of the generics used to determine MAC pricing
Don’t follow the same criteria for creating MAC lists (previous
slide)
Don’t provide easy/any access to their MAC price lists.
Pharmacies have no idea of the payment until claim is adjudicated
by the PBM
Don’t update MAC prices weekly to be consistent with industry
wide price changes and drug availability
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PBM Use of MAC
Pharmacies and plan sponsors are not informed of when or how products
are added or removed from a MAC list or how reimbursement is calculated
Use of aggressive low MAC price to reimburse pharmacies
Use of a different, higher MAC list to reimburse plan sponsors
Reimburse low and charge high
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PBM Use of MAC (Continued)
PBM retains “spread”…
Express Scripts was charging Meridian Health $92.53 for
Amoxicillin Rx filled at outside pharmacy and paying $26.91 for the
same prescription at Meridian Health outpatient pharmacy1
Conflict of interest may exist with PBM-owned mail order
pharmacies
Do PBM-owned mail order pharmacies apply MAC to themselves?
1. Barla, S. “Employers and Drugstores Press for PBM Transparency:
A Labor Department Advisory Committee has Recommended
Changes” P&T, March 2015, Vol.40, No. 3.
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The Price Increase Problem
Manufacturer prices can increase dramatically (upwardsof 100%, 1,000% or more) and occurs frequently
Price increases are not reflected in the PBM’s MACpricing list for weeks or months, if changed at all
When prices increase and PBM’s MAC reimbursementrates don’t change, the pharmacy suffers a loss for thedifference
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Below Cost MAC Reimbursement Examples
Drug Quantity
Pharmacy
Cost
PBM
Reimbursement PBM
Divalproex ER
500mg 120 $358.52 $51.90
Prime
Therapeutics/BCBSFL
Cholestyramine
4gm. Powder 1 x 60 $117.52 $93.34 Aetna
Enalapril 20mg. 180 $ 45.25 $13.02 CVS/SilverScript
Methenamine
Hipporate 1gm 100 $313.63 $250.49 AvMed
Hydrocortisone
10mg 270 $123.93 $106.31
CVS/Caremark Fed
Employees
Nitrofurantoin
Monohydrate
100mg 60 $132.79 $114.15 Aetna
LOSS $1,091.64 $629.21
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Source: Pharmacy Provider Services Corporation
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How Are Florida Consumers Impacted?
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MAC prices are not adjusted when dramatic drug price increases occur
Pharmacies less likely to purchase/stock/dispense medications at a loss (no
other business has this model)
Patient goes without medication or must locate another pharmacy willing to
accept the loss
PBM provider networks may eliminate pharmacies unwilling to dispense
medications at a loss due to PBM network contractual requirements
Result – pharmacy may be forced to close/drop out of the PBM network
Result – negatively impacts patient access to essential medications
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Summary of Florida MAC Transparency Bills
HB555 and SB860 (2015 Session)
MAC list must be made available to plan sponsor and contracted
pharmacies
Update MAC pricing list at least every 7 business days
Eliminate products in a timely manner for which pricing cannot be obtained
in the marketplace
Only drugs that are generally available for purchase by pharmacies in this
state from national or regional wholesalers may be placed on a MAC list
An appeal process must exist regarding disputes over MAC pricing
Resolution within 7 business days
PBM must include telephone number
PBM must provide reason for denial of an appeal
If an appeal is upheld, the PBM shall make price adjustments
applicable to all similarly situated contracted pharmacies
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Climate Setter…
Consumer Cost Sharing Logic
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Typical Lesser of Logic… ‘Charges to The Plan’
Logic Variables Subject to Contract Rates
Discounted Average Wholesale
Price (AWP)
Yes
Pharmacy Usual & Customary
(U&C)
NA
Maximum Allowable Cost
(MAC)
Unknown
Contract Rates Generally Do Not Operate on A Claim Level
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Typical Lesser of Logic… ‘Charges to Consumers’
Logic Variables Subject to Contract Rates
Discounted Average Wholesale
Price (AWP)
No
Pharmacy Usual & Customary
(U&C)
NA
Plan Co-pay Indirectly
The Term Discounted AWP Is Generally Undefined
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Anecdotal Findings on Retail Zero
Balance Claims
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Employees Receive Half The Discount on
Generics…
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Employees Charged More than AWP on Brands…
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Anecdotal Findings on Mail
Zero Balance Claims
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Employees Receive Half The Discount on
Generics…
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Employee Discounts Are Volatile but Often Exceed
Plan Discounts on Brands…
23
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The Effect of MAC Pricing…
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Climate Setter:
Legal Analysis on Employee
Cost Sharing
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Presentation Overview
ERISA Provisions
Overview of Case Law Involving
Copayments
Analysis of Litigation Risks to The Plan
and How to Reduce Those Risks
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ERISA Civil Enforcement Mechanisms
ERISA § 502 (a)(1)(B): Allows a participant orbeneficiary to bring an action (1) to recover benefits due under the plan, (2) to enforce rights under the terms of the plan, or (3) to clarify rights to future benefits under the terms of the plan.
ERISA § 502(a)(3): Allows a participant, beneficiary, orfiduciary (1) to enjoin any act or practice which violates ERISA, or (2) to obtain other appropriate equitable relief to redress violations.
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Vignette:
Copay Charge Exceeds Rx Cost
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Alves v. Harvard Pilgrim Health Care, Inc.
204 F.Supp. 2d 198 (D. Mass. 2002), aff’d 316 F.3d 290 (1st
Cir. 2003)
Summary
Former beneficiaries of ERISA health plans sued over plan
sponsor’s decision to charge copayments in excess of
prescription drug costs.
Plaintiffs class action alleged a breach of the terms of the
contract with members in violation of ERISA, and a breach of
fiduciary duty by (i) collecting copayments in excess of actual
cost, and in the failure to disclose that practice, (ii) by making
affirmative representations to plan beneficiaries about
copayments, (iii) by failing to disclose the actual costs of
medication, (iv) and by breaching the duty of loyalty prohibiting
fiduciaries from dealing with plan assets in their own interests
or for their own account.
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Alves v. Harvard Pilgrim Health Care, Inc.
204 F.Supp. 2d 198 (D. Mass. 2002), aff’d 316 F.3d 290
(1st Cir. 2003)
Plan “Copayment” was $5 or $10 per prescription filled depending on formulary.
The ingredient cost for a single prescription ranged from $0.01 to $15,000. The average ingredient cost of a prescription ranged from $20.90 in 1995 to $$38.56 in 2000.
In total, plaintiff paid $70 in copayments for 13 prescriptions for which the plan paid $572.14 to the pharmacy.
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Alves v. Harvard Pilgrim Health Care, Inc.
204 F.Supp. 2d 198 (D. Mass. 2002), aff’d 316 F.3d 290
(1st Cir. 2003)
Summary
All claims were rejected by the court. Summary Judgment for
the defendant.
The court did not agree with plaintiffs’ readings of contractual
provisions, and thus there was no breach of contract.
The court did not agree with plaintiffs that defendants’ failure
to implement the plan in a way that gives plan members the
benefit of negotiated discounts on prescription drugs
constituted a breach of fiduciary duty.
The court found no evidence that any defendant sought
personal gain or advantage even indirectly from the
copayment provisions.
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Vignette:
Lesser of Copay or Drug ‘Cost’
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Smith v. UnitedHealthcare Services, Inc.
2003 WL 22047861 (D. Minn. 2003) ++
Plaintiffs sought reimbursement for prescription drugovercharges, where copayment paid to pharmacy wasgreater than the amount the pharmacy was entitled to bepaid by UHC, resulting in a “zero balance due” claim.
Plaintiffs claimed the terms of the plan and relateddocuments required that participants only pay the lesserof the plan copayment or the “prescription drug cost”.
Plaintiffs sought restitution for the overcharges underERISA §502(a)(1)(B).
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Smith v. UnitedHealthcare Services, Inc.
2003 WL 22047861 (D. Minn. 2003)
The plan described the copayment as the lesser of (i) $5 for
generic and $10 for brand name drugs, or (ii) the “prescription
drug cost” defined as the plan’s contracted reimbursement rate.
The pricing agreement between the PBM and network pharmacy
prescribed a pharmacy payment equal to the lesser of (A) usual
and customary (“U&C”) charge, or (B) the sum of the
professional dispensing fee plus the “drug acquisition cost”.
The “drug acquisition cost” was defined as the lesser of (i) 85%
of average wholesale price, (ii) the maximum allowable cost
(“MAC”), or (iii) the ingredient cost.
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Smith v. UnitedHealthcare Services, Inc.
2003 WL 22047861 (D. Minn. 2003)
Evidence showed that in cases of “zero balance due”
claims, plaintiffs paid the lesser of dollar copayment
amount or the U&C charge. This denied plaintiffs the
benefit of the discounted payment rate in the
pharmacy pricing agreement.
Court ordered plan to reimburse plaintiffs for
amounts paid in excess of the “drug acquisition
cost” during the prior three year period.
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Vignette:
Copay Based on Reasonable and
Customary Charge
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Lefler v. United Healthcare of Utah, Inc.
72 Fed. Appx. 818 (10th Cir. 2003)
Insured employees brought class action againstHMO alleging that calculating copayments as apercentage of provider’s unreduced charges withoutadjustment for negotiated discount violated ERISA.
At times, copayments were equal to or greater thanthe provider’s discounted fee.
Plaintiffs claimed the failure to pass on savingssecured through negotiated discounts violated theterms of the plan and they were entitled to reliefunder ERISA § 502(a)(1)(B).
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Lefler v. United Healthcare of Utah, Inc.
72 Fed. Appx. 818 (10th Cir. 2003)
Plan defined copayment as a percentage of the “reasonable and customary charges” for the covered services.
Court held that it was not unreasonable for UHC to interpret “reasonable and customary charges” to mean the amount billed by provider before negotiated discount, since Medicare was administered in a similar fashion.
Court determined that plaintiffs had no claim for other “appropriate equitable relief” under ERISA § 502(a)(3).
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Vignette:
Copay Based Upon Billed Charges
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Corsini v. United Healthcare Services, Inc.
145 F. Supp.2d 184 (D. Rhode Island 2001)
Summary
Same issues as in Lefler discussed above, in that UHC
calculated copayments without adjustment for the negotiated
discount rate.
UHC never informed its subscribers that the copayments were
based on provider’s unreduced charges without adjustment
for negotiated discount.
In order for a charge to be “reasonable and customary”, UHC
had to determine that the charge:
Reflected the “average and prevailing” charges for the
service rendered; and did not exceed the amount that the
provider charged others for the services.
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Corsini v. United Healthcare Services, Inc.
145 F. Supp.2d 184 (D. Rhode Island 2001)
Summary
The court found that UHC did not make either of the required
determinations, and UHC’s determination was not consistent with the
terms of the Plan.
UHC’s justification that the charged amounts were “reasonable and
customary” because they were below the 95th percentile of fees generally
charged for similar services was not persuasive in UHC’s favor.
The court found that UHC’s interpretation of the manner in which
copayments should be calculated was contrary to the meaning conveyed
by reading the Plan as a whole. Plaintiffs recovered the difference
between their actual copayments and the discounted amount that would
have been paid during the prior three years.
The court rejected the Plaintiffs’ breach of fiduciary duty claims under
ERISA § 502(a)(3) citing no proof that UHC induced or allowed providers
to inflate their bills for the purpose of reducing UHC’s share of the
contract fees.
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Vignette:
Copay Based on Price Index
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Volitis v. Independence Blue Cross
2007 WL 3071623 (E.D. P.A.)
Plaintiffs claimed IBC calculated copayments on the amount of
an “Allowance” that bore no relationship to the actual amount
that IBC paid to the service provider.
Court found that IBC clearly disclosed the method for
determining copayments in the plan documents and reasonably
applied the terms of the plan language in determining those
payments.
Court distinguished this case from others, including Corsini
discussed above, noting that in those cases, the plan
documents did not inform beneficiaries of the plan’s method of
calculating copayments or did not reach the issue. The Court
granted IBC’s motion to dismiss.
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Observations
In these types of cases, courts have focused on the language in plan
documents and other related documents, and whether the
interpretation of that language is reasonable.
If the language is clear, courts have accepted that copayments may
exceed the cost of the prescription drug or service paid by the plan.
Courts have been reluctant find a breach of fiduciary duty in these
cases without evidence of an ERISA fiduciary seeking personal profit
or self dealing.
While there is generally no duty to disclose amounts paid by the plan
for prescription drugs, the trend toward more disclosure may require
this in the future.
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What Should We Do?
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Legal Due Diligence…
Plan sponsors should review all plan documents andparticipant disclosures to ensure that the calculation ofcopayments is clearly defined, explained, and consistentacross all documents and disclosures.
Plans should consider the risks of having a structurewhere copayments may exceed costs, and balancethose against any benefits, such as the simplicity ofsuch a structure, and any offset the copayments mayprovide against other costs.
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Strategic Due Diligence via FLHCC…
Driven Via
Claims Data
Dual MAC Analysis
ZBC Impact Analysis
PBM Contract Reconstruction
Cadillac Tax Solution
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QUESTIONS & ANSWERS
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THE UNINTENDED COST AND QUALITY CONSEQUENCES OF MANY PBM ARRANGEMENTS
Moderator:Karen van Caulil, Ph.D., President & CEO, FLHCC
Panelists:Michael Sammons, CEO, Quest Analytics Group
Goar Alvarez, Pharm.D., C. Ph.James E. Daniel, J.D., MBA, Womble Carlyle Sandridge & Rice, LLP
Sponsored by: