THE UNINTENDED COST AND QUALITY CONSEQUENCES OF MANY PBM … 2015/ANC 2015... · PBM retains...

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:

Confidential and Proprietary Property, Copyright 2012. All Rights Reserved. Confidential and Proprietary Property, Copyright 2012. All Rights Reserved.

The Unintended Cost & Quality Consequences

of Many PBM Arrangements

May 7, 2015

Confidential and Proprietary Property, Copyright 2012. All Rights Reserved.

Introduction to The Panel

Subject Matter Experts

Goar Alvarez

Nova Southeastern University

Mike Sammons

Quest Analytics Group

James Daniel

Womble, Carlyle, Sandridge & Rice

2


Climate Setter…

A Review of How Pharmacies

Are Paid by PBMs


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


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


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.


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


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


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

9


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.

10


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

11


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

12

Source: Pharmacy Provider Services Corporation


How Are Florida Consumers Impacted?

13

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


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

14


Climate Setter…

Consumer Cost Sharing Logic

Confidential and Proprietary Property, Copyright 2012. All Rights Reserved. 16

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


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


Anecdotal Findings on Retail Zero

Balance Claims


Employees Receive Half The Discount on

Generics…


Employees Charged More than AWP on Brands…


Anecdotal Findings on Mail

Zero Balance Claims


Employees Receive Half The Discount on

Generics…


Employee Discounts Are Volatile but Often Exceed

Plan Discounts on Brands…

23


The Effect of MAC Pricing…


Climate Setter:

Legal Analysis on Employee

Cost Sharing


Presentation Overview

ERISA Provisions

Overview of Case Law Involving

Copayments

Analysis of Litigation Risks to The Plan

and How to Reduce Those Risks

26


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.

27


Vignette:

Copay Charge Exceeds Rx Cost


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.

29



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.

30



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.

31


Vignette:

Lesser of Copay or Drug ‘Cost’


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).

33



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.

34



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.

35


Vignette:

Copay Based on Reasonable and

Customary Charge


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).

37


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).

38


Vignette:

Copay Based Upon Billed Charges


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.

40


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.

41


Vignette:

Copay Based on Price Index


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.

43


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.

44


What Should We Do?


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.

46


Strategic Due Diligence via FLHCC…

Driven Via

Claims Data

Dual MAC Analysis

ZBC Impact Analysis

PBM Contract Reconstruction

Cadillac Tax Solution

47


QUESTIONS & ANSWERS

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:

THE UNINTENDED COST AND QUALITY CONSEQUENCES OF MANY PBM … 2015/ANC 2015... · PBM retains...

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