The Pharmacy Benefits Puzzle

1
The Pharmacy Benefits Puzzle
Reimportation the Missing Pieces in the
Pharmacy Benefits Plan
Presented by Cynthia E. Norwood, Pharm.D. CEO,
PHCO Robb Higdon Missing Piece Consulting
2
Pharmacy Cost Trends Facts

• National drug spending reached 179 Billion in
  2003
• Average drug trend was 18 in 2003
• Average retail brand drug price is 90
• Average retail generic drug price is 26
• Drug-related morbidity/mortality costs more than
  177 Billion per year
• This represents an increase of 131.7 since 1995

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Drug Trend Drivers
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Projected Increases in AWP

• 2002..15.9
• 2003..14.5
• 2004..13.6
• 2005..13.5
• 2006..13.5
• Source Drug Trend Report 2003
• Values are expressed as increases to PMPY costs

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What do PBMs actually do?
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How PBMs Make Money

• Administrative Charges
• Ingredient Cost Differential - Brand
• Ingredient Cost Differential - Generic
• MAC Manipulation
• Dispensing Fee Differential
• Ancillary Charges
• Manufacturer Rebates

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Pricing Terms AWP

• Average Wholesale Price (AWP)
• AWP pricing is defined by a survey done by First
  National Databank which queries prescription
  wholesalers for their price on each drug or NDC
• Currently equated to the re-packaging firms
  asking price and is often the suggested retail
  price
• Multiple AWP prices for each brand and generic
  medication available

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Pick your AWP
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Pricing Terms UC

• UC / Usual Customary Price
• UC was created and defined by NCPDP
• UC is usually calculated by pharmacy software
  and it includes the ingredient cost, a dispensing
  fee and tax
• May also be referred to as Submitted Price from
  the pharmacy
• PBMs can remit the UC price to the pharmacy if
  it is less than the contracted AWP discount or
  MAC price

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Pricing Terms MAC

• The Health Care Financing Administration, (HCFA)
  now known as Center for Medicare and Medicaid
  Services (CMS) created a pricing model called the
  Maximum Allowable Cost (MAC) to regulate the
  costs of commonly prescribed generic medications
• The federal government usually determines the MAC
  price by reducing AWP by a certain percentage
• MAC pricing is usually updated biannually by the
  federal government and then supplied to First
  National Databank

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Which MAC is Yours?

• The CMS MAC list includes 300 to 350 drugs
• PBMs have access to CMS MAC pricing
• PBMs may also develop their own MAC list

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How to Pay 27 for a 5 Drug
Rx 3354218 Carrier 3442 Group 9135 Rx
Date 02/18/2002 Process Date 02/18/2002 NABP
88899 Platters Pharmacy Patient Name
Belinda Drake ID 555-21-9876 DOB 04/26/196
7 Group 44665 Patient Code
001 NDC 01172-338659 HCFA 5.11 Drug
Name Cephalexin AWP 32.78 Strength 250mg
UC 27.52 Days Supply 14 Ingred
Cost 27.52 Quantity 14 DAW 0 DEA WA772144
Prior Auth 000000000
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Contract Language or Circular Logic?

• Discount Price (DP) Program Select
  manufacturers reimbursed at the lesser of the AWP
  discount indicated above or manufacturers direct
  price plus 5. In addition select and
  manufacturers products and product classes that
  do not have a direct price will be reimbursed at
  3 less than the discount indicated above.
  Discounted product classes include all oral
  contraceptives, insulins, Zantac Prozac
• Maximum Allowable Cost programs vary between
  administrators. Most programs apply MAC prices
  to about 450 drug products. PBMs comprehensive
  PBMs MAC program applies to approximately 483
  additional drug products

• In those cases in which PBMs intervention with
  the prescribing physician or dispending pharmacy
  results in a switch to a preferred drug, Sponsor
  will pay PBM the fees specified below applicable
  to the PBMs program selected. PBMs bills to
  Sponsor will reflect the applicable program
  management fee for the applicable billing period,
  and if applicable, the savings used in the
  calculation of PBMs management fee. If a
  Sponsor or any Client elects not to participate,
  or discontinues its participation in the PBMs
  program, Sponsor or such Client will not be
  eligible to receive Formulary Savings
• Management Fee 3.00 for each Member
  communication when a non-preferred product is
  dispensed.

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Missing Pieces

• Retail brand differentials
• Retail generic differentials
• Mail brand differentials
• Mail generic differentials
• MAC scaling
• MAC list magic
• AWP equivalents
• Actual vs. Effective Discounts

• Excessive discounts
• Full vs. partial NDC billing
• Pass-through pricing
• Keep the co-pay
• Rebate program manipulation
• Membership fees
• Net cost formulary management
• UC yes or no
• Zero cost claims

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What is Reimportation?

• Reimportation is actually a misnomer inferring
  that a product has been imported into the United
  States
• Reimportation is industry slang that refers to
  pharmaceuticals that may be manufactured in the
  United States and then exported to some other
  country that has approved the drug for
  distribution to consumers. These drugs are then
  returned to the United States for sale.
• This practice takes advantage of lower bulk
  pricing negotiated by another countrys health
  insurance program (usually government-controlled)

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Reimportation History Part I

• The Prescription Drug Marketing Act of 1988
• Allows only pharmaceutical manufacturers to
  reimport prescription drugs
• Medicine Equity and Drug Safety Act
• An amendment to the FY agricultural
  appropriations bill passed in October 2000
• It opened up the possibility of drug
  reimportation by private importers
• The language in the act required manufacturers or
  importers to certify to the FDA that they tested
  reimported drugs for authenticity and degradation

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Reimportation History Part II

• Medicine Equity and Drug Safety Act
• The law limited the source of reimported drugs
  (including EU countries, Canada, Australia,
  Israel, Japan and Switzerland)
• Provision of 23 million in funding for FDA
  oversight which would include batch testing to
  ensure authenticity and purity
• President Clinton signed the Act into law on
  October 28, 2000 but criticized it for containing
  several loopholes
• Former Health Human Services Secretary Donna
  Shalala refused to put the provision into effect
  by making the required determination that the law
  
• 1. Posed no additional risk to public health and
  safety and
• 2. That it significantly lowered the cost of
  prescription drugs

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Proposals on Reimportation

• Pharmaceutical Market Access Act of 2005 (HR
  328/S 109)
• Multiple forms of high-tech, high-security
  anti-counterfeit labels must be used to allow
  authentication.
• Shipping containers must follow similar labeling
  requirements and conform to chain-of-custody
  procedures.
• Internet pharmacies and exporters must register
  with the Dept. of Health and Human Services.
• HHS can suspend/terminate noncompliant exporters'
  registration
• This Act would allow drugs produced in the U.S.
  and 26 other countries including Canada Europe
  to be reimported and sold for much less than
  drugs sold here

• Safe Importation of Medical Products and Other Rx
  Therapies Act of 2005 (S 184)
• A paper trail must show the chain of
  distributors.
• HHS must require importers to use electronic
  track-and-trace technology at the case and pallet
  level.
• The agency must establish a "Counterfeit Alert
  Network" and other online materials to warn
  health professionals and the public.
• The Food and Drug Administration must immediately
  suspend importation of drugs or drug dosages that
  pose a public health risk.