Thursday, May 26, 2011

Is Caremark really better at managing drug trend?

The big three Pharmacy Benefit Managers (PBMs)—CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS)—have all now published their annual drug trend reports for 2010. I reviewed two of them in Insights from the 2011 Medco Drug Trend Report and Insights from the new Express Scripts Drug Trend Report.

The numbers appear to show a clear advantage for CVS Caremark in managing drug trend—the change in prescription drug expenditures of plan sponsors. The gap is biggest for specialty drugs, which is the fastest growing part of spending.

However, a deeper look shows that the trend figures are effectively non-comparable. The uncomfortable reality is that we can’t tell which PBM is actually the best at managing trend for plan sponsors.

Read on for the data and wonky explanation.

Here is a summary of 2010 trend as reported by each of the big 3 PBMs.

Golly, sure looks like CVS Caremark is awesome, right?

Not so fast. Each PBM computes trend in a different way using different samples. For instance:
  • CVS Caremark computes trend on a per-member, per-month basis using a sample of 23 million members representing employers, Health Plan and Medicaid segments, but excluding Medicare Part D.
  • Express Scripts computes trend based on per-member, per-year basis using a random sample of four million members who had prescription-drug coverage in both 2009 and 2010. The calculations exclude Medicaid and Medicare Part D plans, Managed Medicare Prescription Drug Plans (PDPs), and Medicare Advantage Prescription Drug Plans (MAPDs).
  • Medco computes trend on a per-household, per-month basis using a sample of 248 clients representing approximately 56% of consolidated drug spending. A household could include multiple members who are covered under the same plan. Clients with enrollment changes greater than 50% were excluded from the analysis. (?) There is no disclosure of how many plan members or households are included in the sample.
The definition of cost appears to be slightly different, too.
  • CVS Caremark: “gross cost per day,” which they define to be “the sum of member cost and client cost (after discounts to AWP).”
  • Express Scripts: "Cost includes ingredient costs, taxes and administrative fees minus rebates."
  • Medco: "Plan spending comprises the net cost to plan sponsors less discounts, rebates, subsidies, and member cost share."
How do all of these differences affect the final numbers? No one really knows. I can’t even tell you if all three companies use the same definition of “specialty” and “traditional” when computing the numbers.

Caveat lector.

8 comments:

  1. AnonymousMay 26, 2011

    While trend is very important, the more important number from a plan sponsor's perspective is the actual cost of the benefit. While the big 3 have had low trend numbers the past few years the actual cost of providing a pharmacy benefit is not disclosed. It is easy to have a very low trend when you have lots of low hanging fruit left to pick. The smaller PBMs and self-managed MCOs have plucked this fruit many years ago, and are experiencing higher trend numbers but much lower overall costs. I would love to see the big 3 post their PMPM net cost of providing a pharmacy benefit.

    ReplyDelete
  2. Actually, two of the three PBMs provide dollar spend data, albeit with varying levels of detail.

    Express Scripts provides extensive detail throughout their report. For example, Exhibit 11 (page 27) of their report shows total PMPY spend to be $822.74 for traditional drugs and Figure 12 (page 28) shows PMPY for specialty drugs to be $129.98.

    Medco reports net plan costs by age cohort on page 31 of their report. For example, PMPM costs were $621 for ages 35-49 but $1820 for the 65+ age cohort.

    I can't find any data in the CVS Caremark report.

    Adam

    ReplyDelete
  3. They don't manage trend.

    ReplyDelete
  4. AnonymousMay 26, 2011

    Thanks for the response about posting dollar spend data - I don't remember seeing this in past year's reports - it will provide a nice context for the trend data

    ReplyDelete
  5. Adam,

    Thanks for an outstanding analysis on what has moved from science to pure marketing in terms of the Drug Trend.

    Steve Blumenfield
    Sr. VP and Chief Marketing Officer
    Prime Therapeutics

    ReplyDelete
  6. AnonymousMay 26, 2011

    Are annual price increases by Specialty Drug Manufacturers factored in anywhere?

    ReplyDelete
  7. Yes, all reports discuss the role of price vs. utilization in spending by plan sponsors. Personally, I think Medco's explanation is the most straightforward, which is why I highlighted it in Insights from the 2011 Medco Drug Trend Report.

    The Medco report goes farther by showing AWP increases by brand-name product in all of the major therapeutic categories.

    Adam

    ReplyDelete
  8. Yes, all reports discuss the role of price vs. utilization in spending by plan sponsors. Personally, I think Medco's explanation is the most straightforward, which is why I highlighted it in Insights from the 2011 Medco Drug Trend Report.

    The Medco report goes farther by showing AWP increases by brand-name product in all of the major therapeutic categories.

    Adam

    ReplyDelete

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