Wednesday, June 24, 2020

Drug Channels News Roundup, June 2020: CVS’s New GPO, CMS on Copay Accumulators, GoodRx Fees, Supermarket Pharmacies, and Merck’s Ken Frazier

Happy 244th birthday, America! Before you declare your (socially-distanced) independence, get up close and personal with these Drug Channels fireworks:
  • CVS launches a new GPO for its PBM
  • CMS rethinks copay accumulators
  • Here’s how GoodRx makes money
  • Supermarkets face pharmacy challenges
Plus, powerful and important comments from Ken Frazier, CEO of Merck.

P.S. Join the more than 9,500 followers of my curated links to neat stuff at @DrugChannels on Twitter. My recent tweets have highlighted: Amazon’s activities, PillPack’s bad reviews, 340B outrages, rebate reform redux, biosimilar pricing, managed Medicaid market shares, drug pricing, blockchain hype, and the warp speed vs. hyperspace debate.

CVS Health Launches ‘Zinc’ Contracting Entity, Nephron Research

Here’s another major scoop from Eric Percher at Nephron Research: CVS Health is launching Zinc, a new GPO contracting entity for its PBM business.

Eric argues that CVS is motivated by “rebate profit protection.” An especially telling observation from Eric’s report:
“The key questions here are to what extent the purchasing entities are truly creating incremental value for manufacturers and customers (fees beyond the admin fee should be bona fide reflecting the fair market value of the service performed) and to what extent contracting entities are shifting discounts from the rebate profit pool 99% of which flows to clients to fee pools that may be retained by the PBM.”
Great question, Eric! I’m also fuzzy on how much transparency the plan sponsor clients of CVS will have into Zinc’s operations and economics. Inserting another intermediary into the drug channel always adds transparency, right?

Zinc echoes Ascent Health Services, the secretive Switzerland-based GPO that Express Scripts launched in 2019. Ascent handles rebate negotiations for Express Scripts’ PBM business and Kroger Prescription Plans, the small PBM owned by Kroger. As of 2020, Prime Therapeutics has also relied on Ascent. See Express Scripts + Prime Therapeutics: Our Four Takeaways From This Market Changing Deal.

Sorry, the full report is available only from Nephron. Please contact for more information.

Exclusion of Certain Manufacturer Sponsored Patient Assistance Programs (“PBM Accumulator Programs”) From Determination of Best Price (§ 447.505) and Average Manufacturer Price (AMP) (§ 447.504), Federal Register

This new proposed rule from Centers for Medicare and Medicaid Services (CMS) sharply criticizes copay accumulator programs that divert patient assistance funds from patients to plan sponsors.

CMS writes:
“We have learned that some health plans (which meet the definition of provider when determining best price) are being instructed or encouraged by their pharmacy benefit managers (PBMs) to apply manufacturer sponsored patient assistance programs, such as patient copay assistance programs, to the benefit of the plan, instead of entirely to the patient.”
You don’t say!

Of course, CMS really wants all patient support funds included in the computation of Medicaid best price, though these items are statutorily excluded. That would increase Medicaid rebates and lower the 340B ceiling price. Click here to read my explanation of how to compute the Medicaid best price and 340B ceiling price. CMS suggests that manufacturers “establish coverage criteria around their manufacturer assistance programs to ensure the benefit goes exclusively to the consumer or patient.”

Unfortunately, that’s an extraordinarily difficult and perhaps impossible task. PBMs rely on such secretive third-party companies as SaveonSP and PrudentRx to operate accumulator programs. I describe these shenanigans in Why Do CVS And Express Scripts Rely on Secretive Private Companies to Run Their Copay Maximizer Programs?

This proposed rule is especially ironic, because CMS recently confirmed that insurers have the option to use copay accumulator adjustment for their pharmacy benefit programs.

Two wrongs don’t make a right. But I guess three lefts do?

How GoodRx built a $2.8 billion business by helping consumers find drug discounts, CNBC

I recommend this excellent and insightful profile of GoodRx, by Chrissy Farr at CNBC. The article explains how GoodRx makes money with PBMs and also highlights the retail pharmacies' fictional "soak the poor" usual and customary (U&C) cash prices.

My explanation: Consumers who do not use a third-party payer for prescriptions can access discount programs such as GoodRx. These programs pass some portion of rebates and PBM network discounts directly to patients at the point of sale. Uninsured patients therefore avoid paying a retail pharmacy’s U&C retail price for their prescriptions. Whenever a consumer uses GoodRx, the BIN number identifies the PBM network rates. The PBM collects a fee, which it shares with GoodRx.

About three-quarters of the people who use GoodRx have insurance. I presume many of them have high-deductible plans and are trying to avoid uninsured cash prices—and the associated health plan profiteering on highly-rebated drugs. (See How Health Plans Profit—and Patients Lose—From Highly-Rebated Brand-Name Drugs.)

Consider Optum Health’s OptumPerks, a retail pharmacy discount card that competes with GoodRx. Perks is actually a rebranded version of SearchRx. The card can presumably be used by people without insurance as well as by those with a pharmacy benefit plan operated by … OptumRx? Weird.

For more on cash-pay prescriptions and discount card programs, see Section 4.3. of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

Sales Drivers Revealed, Progressive Grocer

This interesting survey of supermarket executives found that pharmacy ranks last at generating sales and falls below almost every other category at driving traffic. Key chart:

[Click to Enlarge]

This story generated nearly 50 comments on my LinkedIn account.

One notable observation came from a pharmacist who complained about the role of PBMs, which (as he wrote) “negotiate the price of the product and mandate where consumers can use their benefits.” Many pharmacists reflexively agreed with this sentiment.

However, this perspective demonstrates a profound misunderstanding of the U.S. healthcare system.

If you pay for your own food, then feel free to shop anywhere and get the best deal. This is first-party payment. For most healthcare services, however, someone else (a third party) pays. If you have third-party payment, then you have no incentive to shop for the best deal. Why are people surprised that the third-party payer wants to influence the transaction: what you buy, how much is paid, where you shop, etc.?

Merck CEO Kenneth Frazier: George Floyd ‘could be me’, CNBC

Pharmaceutical CEOs generally don’t weigh in on social issues. But Merck CEO Ken Frazier provides invaluable perspective on the unrest in our country. I highly recommend this interview.

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