A System Without Rebates: The Drug Channels Negotiated Discounts Model (rerun)

This week, I’m rerunning some popular posts before the holidays. Click here to see the original post and comments from August 2018.

This has been the most impactful article that I have ever published on Drug Channels. Review it and get ready for 2019.

P.S. You can also find this material at www.WorldWithoutRebates.com. (Yes, we bought that domain!)

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Are you ready for a world without rebates?

In June, Alex Azar, Secretary of the U.S. Department of Health & Human Services (HHS), summarized his long-range vision for a new drug channel system:

“[W]e may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts. Such a system’s incentives, detached from artificial list prices, would likely serve patients far better.” (emphasis added)

No one has yet explained what a system without rebates would look like.

To facilitate the discussion, I have sketched out a possible new drug channel system that would:

• Respond to the HHS vision for a “system without rebates”

• Remove/decrease the reliance on list price as a component of intermediary compensation

• Use negotiated discounts as an alternative to the current system of retrospective rebates

• Require manufacturers to negotiate for desirable market access

You can download The Drug Channels Negotiated Discounts Model below.

Please note that I am not advocating for this approach. I am merely exploring one way that a system without rebates could be implemented. I hope you find it helpful for your strategic planning.

As always, I welcome feedback on how to improve and refine this model. Either leave comments below or email me. Enjoy!

New Disclosures Show CVS and Express Scripts Can Survive in a World Without Rebates. Are Plan Sponsors Now the Real Barrier to Disruption? (rerun)

This week, I’m rerunning some popular posts before the holidays. Click here to see the original post and comments from August 2018.

This rerun explains how and why PBMs are shifting responsibility and blame toward third-party payers. In 2019, we'll hear much more about how payers' use of rebates affect patients' out-of-pocket costs and distort the drug channel. Addressing the problems will require a major rethink of commercial and Medicare Part D pharmacy benefit designs. For my related $0.02 on the politics of "drug prices," see also Drug Prices After the Midterms: Five Crucial Implications of Pharmacy Benefit Design.

P.S. Drug Channels was sad to hear about the passing of Stephen Hillenburg, creator of SpongeBob Squarepants.

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Last week, the two largest pharmacy benefit managers (PBMs)—CVS Health and Express Scripts—both stated that rebates now account for a small part of their profits. The companies therefore strongly implied that they could survive in a world in which PBMs did not participate in the flow of funds from a brand-name manufacturer to a plan sponsor. Below, I unpack the new disclosures, which move us materially closer to a new model.

Hmm. The two biggest PBMs and at least one major manufacturer (Pfizer) have now implied a willingness to change. So what’s to stop massive drug channel disruption?

CVS Health perhaps inadvertently identified the real barrier to a system without rebates: employers and health plans. As you will see below, CVS Health disclosed for the first time the massive gross-to-net bubble within its commercial book of business. The new information confirms that plan sponsors are hoarding rebates rather than sharing the savings with the employees whose prescriptions generated the rebate funds.

If we really do migrate to a system without rebates, PBMs’ reportedly minimal profits from rebates mean they could escape drug channel disruption unscathed. The focus will now turn to the plan sponsors that are absorbing rebate dollars. Whether plan sponsors realize it or not, they are the next target.

Building a New Drug Wholesaler Compensation Model: What Happens as Brand Inflation Slows? (rerun)

This week, I’m rerunning some popular posts before the holidays. Click here to see the original post and comments from July 2018.

The challenges facing wholesalers have intensified since this article was originally published, in July. Brand-name drug inflation will likely reach historical lows in 2019, and the prospects for a gross-to-net bubble reset are greater than ever. Have executives at the Big Three companies fully grasped the changes coming to the drug wholesaling business model?

For more on the industry, see our 2018–19 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

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Today, drug wholesalers make money from distribution in a straightforward manner: Buy low, sell high, collect early, and pay late. They also profit as brand-name list prices increase. Like other drug channel intermediaries, wholesalers have warped incentives to prefer ever-higher list prices.

But what happens to their business model if list prices don’t rise—or even if they decrease?

This question is no longer theoretical. Many drug makers—Pfizer, Roche, Novartis, Novo Nordisk, Sanofi, and others—have announced an intention not to raise list prices for 2018 or have rescinded planned increases. Merck has gone further and become the first major manufacturer to reduce the list price of a brand-name, patent protected product, albeit for a product with minimal sales. And for the first time, there is a serious attempt to pop the gross-to-net bubble and build a system without rebates.

Below, I analyze what this could mean for the Big Three drug wholesalers—AmerisourceBergen, Cardinal Health, and McKesson. I explain some of the problems that arise when wholesalers are compensated based on a brand-name drug’s list price. I then suggest an alternative approach that would reshape wholesalers’ economics. It appears that even the wholesalers’ trade association supports some sort of new model.

Given what’s happening, it’s clearly time for some ch-ch-ch-ch-changes.

GAO Confirms It: 340B Hospitals and Contract Pharmacies Profit from Low-Income, Uninsured Patients (rerun)

This week, I’m rerunning some popular posts before the holidays. Click here to see the original post and comments from July 2018.

Expect 340B to stay in the news during 2019. Unfortunately, a sensible, bipartisan legislative fix still seems unlikely.

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The United States Government Accountability Office (GAO) has just issued a must-read report on the 340B Drug Pricing Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement.

Some of the report’s most startling revelations confirm our worst fears about how hospitals and pharmacies are abusing the 340B program.

Here are two especially dispiriting findings from the GAO’s analysis:

• 16 out of 28 hospitals (57%!) did not provide discounted drug prices to low-income, uninsured patients who filled prescriptions at the hospital’s 340B contract pharmacy. Seriously?!?

• Many 340B contract pharmacies can earn excessive profit margins of 15% to 20% from brand-name 340B prescriptions. As I have long suspected, large, publicly-traded pharmacies are sharing in the 340B discounts generated for covered entities.

Bottom line: Hospitals and pharmacies are making money from poor people. Are you kidding me?!? For shame!

The 340B program’s apologists will have a hard time rebutting the uncomfortable facts from this GAO report. Calling something a “drug discount program” apparently doesn’t mean that the neediest patients get access to those discounts. Read on, and prepare to be outraged.

P.S. In two upcoming articles about 340B, I’ll review the pharmacies participating in the program and then examine the role of specialty pharmacies and pharmacy benefit managers.

Copay Accumulator Update: Widespread Adoption As Manufacturers and Maximizers Limit Patient Impact (rerun)

This week, I’m rerunning some popular posts before the holidays. Click here to see the original post and comments from September 2018.

BTW, my personal Independence Blue Cross “platinum” health plan just added copay accumulator adjustment! Click here to see the evidence.

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In January, I alerted you to an important new benefit design trend in Copay Accumulators: Costly Consequences of a New Cost-Shifting Pharmacy Benefit. It is by far the most widely read article ever published on Drug Channels.

New data from Zitter Health insights (ZHI) suggest that these programs are widely used. Nearly one-third of commercially-insured lives are enrolled in plans that have implemented copay accumulator adjustment or closely-related copay maximizers. (We explain the benefit design math behind maximizers below.)

ZHI also found that a surprising number of plans are already set up to use these programs, but have not done so yet. And many more are planning implementation for 2019 and beyond. Check out the full data below.

Manufacturers have stepped up with more financial support to shield patients from the worst aspects of these benefit designs. This support further inflates the gross-to-net bubble. Plan sponsors’ use of maximizers instead of accumulators has also blunted the impact on patients.

Accumulators, maximizers, and large copay support programs are inefficient solutions to flaws in the U.S. drug channel system. Alas, it looks like they are all now a common—but possibly not even fully utilized—feature of the benefit design landscape.

Three Reasons to Join the Industry-Wide Effort to Speed Time-to-Therapy for Specialty Pharmacy

Today’s guest post comes from Lee Ann Stember, President and CEO of the National Council for Prescription Drug Programs (NCPDP).

Lee Ann discusses the crucial importance of getting patients timely access to specialty therapies. She invites Drug Channels readers to participate in NCPDP’s specialty pharmacy work group and its four task groups. Your participation will help establish and refine standards that will benefit patients and all industry participants.

It's simple. Create an account at www.dms.ncpdp.org and then select your preferred task groups. You can also click here to register for upcoming NCPDP meetings.

Read on for Lee Ann’s insights and to get more information about NCPDP’s specialty pharmacy task groups.

Drug Channels Outlook: What to Watch in 2019

Whew. I can’t recall a year with as much drug channel tumult as we experienced in 2018.

Hot topics included the ever-inflating gross-to-net bubble, the prospect for a world without rebates, the boom in copay accumulators, the specialty pharmacy industry’s slowdown, the completion of vertical integration mega deals, an aggressive federal government attempt to reform the entire industry, the still-looming challenge from Amazon, and much more.

I’m exhausted just thinking about it all!

I’m happy to say that Drug Channels was there to help you figure it out. Our site had another record year of readership. Drug Channels now has more than 24,000 subscribers, including more than 6,600 @DrugChannels Twitter followers. (Follow me there for daily updates.)

Thank you, dear readers, for welcoming me into your inboxes and browsers each week. I’ve had a blast writing Drug Channels and hope that you had fun reading it. I’m grateful to our many sponsors and guest writers. Special thanks to the brave souls who posted comments and joined in the spirited discussions below the articles.

Below, you'll find our annual bonus stocking stuffer: The Drug Channels Outlook: Things to Watch in 2019. These slides capture ideas I shared in my recent keynote presentation at CBI's Trade and Channel Strategies conference. It’s a sneak peek at some of next year's likely hot topics.

You'll also find our annual holiday tradition—a video greeting below from me and Paula, my wife and business partner in Drug Channels Institute.

Wishing you and your family health and happiness,
Adam

CMS Confirms It (Again): Minimal Drug Spending Growth, While Hospital and Physician Spending Keep Going

Last week, the econowonks at the Centers for Medicare & Medicaid Services (CMS) released the 2017 National Health Expenditure (NHE) data. Links below.

For 2017, drug spending grew by a mere 0.4%—significantly below the growth of spending on hospitals, physician services, and overall national healthcare costs. These latest CMS data confirm the drug spending slowdown that I have highlighted in previous Drug Channels articles.

Too many people—including politicians, journalists, and a certain billionaire—have committed to a false narrative of “skyrocketing” drug spending. Hmm, I don’t recall any of them ranting about “hospital prices” or “physician salaries”—two categories that together account for six times as much healthcare spending as outpatient drugs. Perhaps that's because despite the aggregate spending disparity, consumers (voters) spend a lot more out-of-pocket on pharmaceuticals than what they spend out-of-pocket on hospital care.

Alas, I must again note that demonizing pharmaceuticals as the prime driver of U.S. healthcare spending is simply false. See what you think.

sPCMA Business Forum

sPCMA Business Forum
March 11 & 12, 2019
Hilton Bonnet Creek | Orlando, FL
Register Today!

The sPCMA Business Forum will return to the Hilton Bonnet Creek in Orlando, FL on March 11 & 12.

Senior executives and decision makers from PBMs, health plans and their affiliate specialty pharmacies will come together at the 2019 Business Forum to collaborate with drug makers and their other important business partners. The event offers invaluable networking and education for individuals and companies involved in the specialty drug supply chain. Registration for the conference is now open online.

Contact PCMA

Please contact Jenny Bradham (jbradham@pcmanet.org) with questions or to request further information.

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The content of Sponsored Posts does not necessarily reflect the views of Pembroke Consulting, Inc., Drug Channels, or any of its employees.

Delivering Care Beyond Prescriptions: A Marketplace Opportunity for Independent Pharmacies

Today’s guest post comes from Brian Nightengale, President, Good Neighbor Pharmacy at AmerisourceBergen.

Brian discusses the challenges facing independent pharmacies. He outlines an intriguing growth vision for pharmacies that provide medication therapy management and other patient care services.

For more on how pharmacies can enhance care and lower medical expenses, see Delivering Care Beyond Prescriptions: A Marketplace Opportunity for Independent Pharmacies.

Read on for Brian’s insights.

Five Industry Trends for U.S. Drug Wholesalers in 2019

Modern Distribution Management recently published my article 2018 MDM Market Leaders | Top Pharmaceuticals Distributors. It is an excerpt from our 2018–19 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

Below, I republish the section of the article highlighting five significant industry trends affecting the U.S. drug wholesaling industry. I think Drug Channels readers will enjoy this summary as we look toward 2019. Click here to download a free overview of the full 2018-19 report.

P.S. I’ll be discussing these and other topics next week in my keynote address at CBI's 14th Life Sciences Trade and Channel Strategies. Hope to see you there!

CMS Considers Point-of-Sale Pharmacy DIR: Another Prelude to a World Without Rebates?

Last week, the Centers for Medicare & Medicaid Services (CMS) released a new rule for Medicare Parts B and D. It proposes changes to protected classes, e-prescribing, and other issues. Links and background below.

Notably for the Drug Channels audience, CMS also announced that it is considering—but not yet formally proposing—changes to how pharmacy price concessions are handled within Medicare Part D. These payments currently function like pharmacy rebates to Part D plans. They are therefore considered to be direct and indirect remuneration (DIR) and often called “DIR fees.”

Thanks to new CMS disclosures, we can now see why pharmacy owners hate these payments. Pharmacy DIR was $4 billion in 2017—about 1.5% of the retail pharmacy industry’s prescription revenues.

As I explain below, pharmacy DIR negatively affects the Medicare program and its beneficiaries in a manner similar to the impact of the rebates that manufacturers pay to plans. CMS wants the pharmacy DIR passed through to beneficiaries at the point of sale, i.e., when a prescription is dispensed.

Below, I explain this proposal, provide DCI's new analysis of DIR, and review the financial impact on drug channel participants. Keep in mind that the CMS proposal would *not* eliminate DIR fees or alter the financial impact of these payments on pharmacy profits. However, it’s clear that CMS wants plans and PBMs to change how these fees are computed and levied.

Pharmacy DIR is an important issue, because CMS is sharing some its views for a world without Part D rebates. The tough political question: Should taxpayers spend more to fix this problem?

PBMI 2019 Annual National Conference

PBMI 2019 Annual National Conference
March 4-6, 2019 │Palm Springs, CA

PBMI invites you to join more than 400 healthcare stakeholders in sunny Palm Springs, California at The Westin Mission Hills Golf Resort & Spa Hotel, March 4-6, 2019 for its 24th Annual Conference.

As a special offer to Drug Channels readers, PBMI is offering a $200 savings discount on conference registration fees. Enter discount code PEM19 when you register online – code expires February 15, 2019.

The conference will open with a keynote presentation from Thomas E. Price, MD, an orthopedic surgeon. Dr. Price most recently served as the 23rd Secretary of Health and Human Services (HHS). During his presentation, Dr. Price will talk about the ever-evolving and transforming role innovation has on healthcare and how Artificial Intelligence (AI) will change our system.

Attendees will also hear from thought leaders at the forefront of what's happening in the industry and the patient perspective. See a list of confirmed speakers here.

As a special offer to Drug Channel subscribers, PBMI is offering a $200 savings discount on conference registration fees. Enter discount code PEM19 when you register online – code expires February 15, 2019.

For more conference information, visit the conference website.

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The content of Sponsored Posts does not necessarily reflect the views of Pembroke Consulting, Inc., Drug Channels, or any of its employees.