Standing at the counter of your favorite neighborhood pharmacy, whipping out a pharmacy card and forking over your co-pay is just one more step in completing the transaction that will hopefully make you a healthier human being.
While the average customer probably won’t see any changes in their part of this exchange, the way prescription drugs are priced will undergo a radical makeover in two years that will impact the way employers and health plans negotiate with pharmacy benefit managers on behalf of the employees they represent.
The change will start Sept. 26 with a pricing decrease of up to 5% on 400 prescription drugs. This drop is the result of a class-action suit filed against California-based First DataBank, a company that publishes the average wholesale price, a benchmark for pricing prescription drugs that comes from averaging costs from manufacturers and wholesalers.
Lawsuits filed by AFSCME District Council 37 Health and Security Plan and New England Carpenters Benefits Fund against FirstData Bank and California-based drug manufacturer McKesson in 2005 and 2006 alleged the companies arbitrarily inflated the prices of more than 400 drugs by 5% from 2002-05.
A final settlement filed in March with the U.S. District Court in Massachusetts reversed the change, lowering the prices to an AWP ranging from a 120% to 125% markup.
So what does this mean for Baton Rouge employers? It depends on the company, and the contract they have with their health plan or pharmacy benefit manager.
Companies deal directly or contract with health plans to negotiate with PBMs for prescription drug prices, and those contracts typically contain a percentage discount off the AWP. To offset the decrease, health plans or PBMs have worked out mathematical equations that decrease the discount so employers are getting only the discount for which they originally contracted.
For example, if an AWP is $80 and is marked up by 125%, then the retail price of the drug is $100. Subtract a 16% benefit discount, and the customer pays $84 for the prescription. If the markup on that same $80 drug is reduced to 120%, then the retail price is $96. If PBMs apply that same 16% discount, they lose money because they are technically paying more than what was originally contracted.
“That wouldn’t be fair,” says Gil Dupre, CEO of the Louisiana Association of Health Plans. “That’s why the health plans and PBMs are renegotiating contracts with new discounts that will hopefully make the net effect zero.”
Employers potentially could see some lower costs depending on the structure of their benefits and whether or not their employees use the drugs being marked down. Turner Industries, which has more than 16,000 employees, would like to see lower costs, but does not yet know what impact the decrease will have, Benefits Manager Dan Burke says.
“We work closely with consultants with whom we meet with quarterly to track cost trends and expenses,” he says. “I don’t think that there will be an exponential decrease, but it’s hard to say.”
Turner Industries recently renegotiated its 2010 contract with Pennsylvania-based pharmacy benefits manager Highmark Blue Cross Blue Shield. Burke says their costs are in line with the national average for the construction industry, which is $47.97 per member per month.
For the Office of Group Benefits, the price decrease did not impact a 2010 contract with PBM Catalyst Rx, which contracts with a broad network of chain and independent drug stores. The organization, which administers health and life benefits for state employees and some school boards, plans to conduct an audit to ensure their members are receiving the correct discount, says Malcolm Veazie, OGB’s deputy assistant secretary.
“Language in that contract means that our members receive a transaction price that is lower than the AWP, the usual and customer price, or the price submitted by the pharmacy, whichever is lower,” Veazie says. “That language acts as a safeguard so our members get the lowest price, especially as prices roll down.”
The biggest risk that an employer faces is that the mathematical equations the PBMs use to determine the new discounts won’t fulfill the terms of their original contract, says Ginger Campbell, a pharmacy benefit consultant at Wright & Percy Insurance.
If employers audit before or after the pricing change, Campbell says, they can significantly reduce the risk of PBMs not delivering on the terms of the contract because of miscalculations in that equation.
“The deal isn’t to win or lose by it, it’s to get that discount you are contracted for,” she says. “It’s to make sure that this temporary adjustment was done correctly and I didn’t lose. I might not have gained, but I didn’t lose. I got what I paid for and what my contract says.”
The settlement with First DataBank and McKesson also requires drug manufacturers, wholesalers and PBMs to come up with a completely new pricing methodology for prescription drugs by Sept. 26, 2011. Currently, there are several pricing methodologies under discussion, Campbell says, but there is no guarantee every PBM will agree to use the same one.
“That would be horrible,” Campbell says. “You’d have some bids at a discount minus, some at a discount plus. There’s no way an employer is going to be able to evaluate the pricing because it’s going to look totally different, especially if they don’t pick the same methodology.”
While the possibility exists that different PBMs will choose different pricing structures, Dupre says it’s unlikely because their goal is to preserve the stability of the system.
“The system will work better and be more efficient if the PBMs adopt the same pricing methodology,” he says. “We just don’t know what that will be. These are very important changes that have attracted a lot of attention, but in the final analysis, it should have very little or no impact on employers.”
Burke says Turner Industries is more concerned with the current health care reform that is under debate in Congress than with prescription drug pricing.
“We’re more concerned about how that’s going to impact our benefits plans overall,” Burke says. “Even though it’s [prescription plan] an important part of a benefit plan, we’re more concerned about health care reform.”
LITIGATION TIMELINE
June 2005: AFSCME District Council 37 Health and Security Plan and New England Carpenters Benefits Fund file a class-action lawsuit against California-based First Databank Inc. and California-based McKesson Corporation, alleging the companies conspired in 2002 to add an arbitrary 5% to Average Wholesale Prices of more than 400 brand-name drugs published in First Databank’s drug pricing guides
October 2006: A settlement is announced, which includes First DataBank agreeing to rollback the AWP from 25% to 20% and agreeing to cease publishing AWP data within two years of the court’s approval of the settlement
May 2007: Another benchmark publishing company, Medispan, joins the settlement
June 2007: Preliminary approval on the settlement was granted
January 2008: The judge refuses to grant final approval to the settlement, citing particular concerns about the proposed rollback applying to drugs that are not part of the original complaint and an unwillingness to approve ordering First DataBank and Medispan to cease publication of AWPs within two years of the settlement becoming final
March 2008: The judge refuses to approve the revised settlement or schedule a final fairness hearing; the third-party payor damages class is certified for the period of Aug. 1, 2001-Dec. 31, 2003
November 2008: A proposed settlement is reached between McKesson and the plaintiffs
December 2008: A final fairness hearing takes place, and a number of parties and organizations that are not class members object to the settlement; final approval from the judge is pending
March 2009: The judge issues the final order and judgment giving final approval to the settlement; First DataBank pays $2.1 million, agrees to decrease the price of inflated drugs and to stop publishing the AWP within two years
SOURCES: The Burchfield Group, Prescription Access Litigation
