Monday, December 16, 2013

Benchmarking Manufacturers' PBM Rebates

The Pharmacy Benefit Management Institute (PBMI) has just released its 2013-2014 Prescription Drug Benefit Cost and Plan Design Report. (Free download.) This report provides invaluable insight into employer-sponsored pharmacy benefits. Drug Channels again salutes Takeda Pharmaceuticals North America for having sponsored the research.

As far as I know, the PBMI report offers the only public benchmarking data on manufacturer rebates to pharmacy benefit managers (PBMs). A few highlights:
  • Employers use a wide variety of rebate structures, including per-prescription guarantees and percentage shares. Nearly one-third of smaller employers get no rebates.
  • Rebates average $17 per 30-day brand-name retail prescriptions. Surprisingly, rebates were comparable for both large and small employers.
  • On average, PBMs pass more than 80% of rebates back to employers.
Read on for details from the report. And don’t forget to join me at the PBMI’s Annual Drug Benefit Conference in February.

HOBBITS AND GIANTS

The PBMI survey collects data from employers, not PBMs. The 2013-14 edition includes responses from 478 employers, accounting for 22.5 million lives. The sample population of the PBMI survey is similar (but smaller) to that of the Kaiser/HRET survey that I discuss in How the Fourth Tier Coinsurance Boom Drives Copay Offset Programs.

PBMI presents the results by employer size. It defines smaller employers (56% of respondents) as having up to 5,000 lives (employees plus dependents), and it defines larger employers (44%) as having more than 5,000 lives. Methodology wonks can see the Profile of Respondents (on page 5of the report) for more details.

Just so you know, I was on the report’s Advisory Board, which meant that I was paid a small fee to review a pre-publication version of the completed research.

THE DESOLATION OF REBATES

PBMs can use the formulary to extract price concessions from manufacturers of brand-name drugs. PBMs force manufacturers of therapeutically comparable brand-name drugs to compete for placement on the plan sponsor’s formulary, or even avoid being cut from the formulary. A PBM will recommend preferred status on the formulary for those products that offer the most competitive pricing and rebates, along with evidence-based efficacy and safety. The rebates that PBMs share with employers reduce the plan sponsor’s total net cost per prescription.

Nearly half of large employers—those with 5,000 or more covered lives—receive flat guaranteed rebate amounts per script. (See chart below.) Smaller employers are less likely to negotiate these guaranteed rebates. Many employers negotiate a percentage share of actual rebates, either with or without a guaranteed minimum. However, large employers are three times as likely as smaller employers to negotiate a guaranteed minimum.

[Click to Enlarge]

Some payers receive no rebates, perhaps choosing to negotiate lower per-prescription reimbursement amounts. Smaller employers are much more likely than larger employers to receive no rebates. As the chart above shows, only 7% of large employers receive no rebates, compared with 29% of smaller employers.

SMAUG’S TREASURE

Rebates average: (1) about $17 per 30-day brand-name retail script, (2) about $36 per 90-day retail brand-name script, and (3) about $56 per 90-day mail script. The chart below shows these average rebate amounts converted to 30-day equivalent prescriptions. There was no significant difference between the amounts received by large vs. small employers. The PBMI averages amount to slightly less than a 10% discount off the manufacturer’s price.

[Click to Enlarge]

Rebates reduce a third-party payer’s net prescription costs as funds flow through the channel. For retail prescriptions, PBMs pass back to employers more than 80% of rebates, regardless of form, received from brand-name pharmaceutical manufacturers. (See page 38 of the PBMI report.) Of employers receiving a percentage share without a guarantee, more than one-third receive 100% of the rebates. The rebate share for mail prescriptions is lower.

For more on PBM-manufacturer relationships and benefit design, stay tuned for the forthcoming 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies, available in late January.

And keep reading Drug Channels—it’s hobbit forming. (Sorry about that…)

5 comments:

  1. With reports like this out in the public, I always wonder how consultants still create fear mongering by talking about all the hidden rebates that PBMs keep and the PBM black box. While I believe that existed long ago, I think the PBM model has been well exposed in terms of where profits exist and critical path items.

    1. Get your rebates and perhaps other manufacturer revenue passed to you.
    2. Make sure you have a MAC list in place at mail.
    3. Set your copays up right and have the right plan design in place.
    4. Push for aggressive pricing on generics and specialty.

    The other thing that this gets me thinking about is how long rebates will continue. I have to believe at some point that pharma sees greater value in putting money into copay cards, DTC, value-based contracting, detailing, or whatever the next new thing is in terms of driving share rather than paying PBMs.

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  2. I find this report lacking from a credibility perspective. The survey questioned employers ?? How does the employer know what is being rebated and if they are evening close to receiving their fair share !!
    The PBM's continue to make inordinate profit. We as employers need to dig into the numbers and ask questions!!
    Blind faith will lead us down the road to ruin!!!

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  3. First I am not aware of any major PBM divulging actual rebate agreements between themselves and the pharmaceutical manufacturer and the portion of rebates they as PBMs retains, to their clients. On the contrary the PBMs have aggressively (through the legal system) deemed these agreements as proprietary in nature. So how do the employers get these rebate agreement numbers to report back to PBMI? As you’re aware employers do not get these proprietary contract numbers, they as employers are just reporting what they are “told” by their PBM.

    Second: Rebate vs. Administrative fee

    PBMs negotiate administrative fees into their contracts with drug manufacturers in lieu of the word rebates. Such fees can take many shapes and forms and are routinely disguised as incentive fees, data management fees, data-sharing fees, performance fees, rebate
    management/ administration fees, access fees, formulary management fees, professional services fees, health management fees, educational grants/fees, and drug promotional/advertising fees. By reclassifying rebates and collecting greater administrative fees from manufacturers, a PBM can then tout the fact that they are passing through a large portion (up to 100%) of the rebate dollars to its clients, but in reality is still retaining major rebated revenues for itself by shifting such dollars out of the rebate bucket and into the administrative fee bucket, of which it retains 100%.

    We and others would report that major PBMs retain 38% to 40% of rebate dollars collected from employers based on actual aggregations and passed lawsuits against the PBMs.

    Third: Evidence based efficacy to determine rebate products

    Advair………..enough said.

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  4. I applaud you for posting Jim's comment. Jim, with having audited contracts, and owner of his own PBM, understands the terminology better than the average viewer like myself. From your Reader's Digest synopsis above, I can take away the following information: If the PBM tells you it is black, even though it is white, these employers are reporting it as black, and creating a report. I believe your reader's would love to read a report about some of Jim's findings in his audits. It is individuals like Jim Fields and Dave Marley that lead me to think that tomorrow will be a brighter day for independent Pharmacy. It always amuses me when I read of George Paz equating pharmacy to fast food restaurants stating that there are more pharmacies than all fast food chains combined...but I have never read of any lawsuits when a Big Mac was "dispensed" instead of a Quarter Pounder.

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  5. As with other aspects of PBM pricing discussion, the focus of this does not address the effective method to secure the best deal for a plan sponsor or its members. If the formulary rebate yield is bid on an objective metric..$/brand retail, $/brand mail as an objective assessable metric, then the yields can be compared. What % of the rebate pool a client receives is completely irrelevant…How much $/brand are you willing to guarantee? Is the question to ask in an RFP. Obviously, modifications to a current formulary to meet that guarantee also need to be stipulated before.

    If a variable element of the PBM fiscal picture is pinned down to an objective metric, than it can be compared and assessed. This holds true for the very significant element of PBM contracting, generic pricing method. As long as clients sign contracts with generic pricing based on AWP-X% pricing, spread will be generated and kept by PBMs. When generic drugs are established on a fixed, unit cost, price schedule, drugs costs become objectively assessable and fiscal value compared.

    As long as the established elements of PBM contracting persist (subjective rebate yield terms, AWP-based generic pricing), client will incur higher costs than would be achieved in a competitive, objective market.

    Merry Christmas

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