Perry Cohen

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The COVID-19 pandemic has had a deep and profound impact on American businesses both large and small. As the country inches back to a “new normal,” business leaders have to deal with the cost of healthcare as a significant issue to their bottom line. Managing pharmaceutical costs will continue to be a major priority for employers.

During the last few years, employers, patients, pharmacies, pharmaceutical companies and the government have become “fed up” with the PBM cartel that exists in the marketplace. The “old guard” PBMshave been reinventing themselves through mergers and acquisitions. Promises of lowering drug costs have not materialized. New PBM entrants have emerged to bring new technology, a simpler business model, and more transparency. I propose to lay out a road map of where we are today and a guide to the market dynamics in the making.

The PBM industry began in the 1990s to meet the needs of the employer-based health benefit market. Today they are at the center of the pharmaceutical supply chain, acting as intermediaries between payers, pharmaceutical companies and pharmacies.

PBMs are responsible for processing the majorityof the six billion prescriptions written in the United States by prescribers annually. As part of that, PBMs:

Negotiate rebates from pharmaceutical companies

Develop drug lists for formulary management

To be reimbursed for their services, PBMs collect a variety of service fees. These fees can be administrated through traditional pricing or transparent pricing.

Traditional pricing benefits the PBM because it charges for each activity separately and allows for the PBM to have “spread pricing” on the pharmacy claims payment.

Transparent pricing is a newer model where the PBM passes through 100% of the discounts it receives from pharmacies and pharmaceutical companies.The PBM charges a fixed, per-patient per-month fee for all services (administrative and clinical).

Transparent pricing is not necessarily a new phenomenon. PBMs such as Navitus promoted this model in the early 2000s. As PBMs face increasing scrutiny from traditional spread pricing models and the margins afforded to rebates from pharmaceutical companies, many traditional PBMs are implementing different contracting strategies.

Rebates have also served as a source of revenue for PBMs whereby the rebate is shared with the plan sponsor. Over time this has become somewhat ofa controversial revenue stream.

Two of the large PBMs have created group purchasing organizations to presumeably/potentially “hide” the fees they make from pharmaceutical companies.

Constituents across the value chain of delivery and financing of healthcare are using both traditional and innovative approaches to redefine their position in the market. Traditional industry approaches such as obtaining scale advantage have been happening over the past several years. Several large mega-mergers have consolidated market share. The three largest PBMs — UnitedHealthcare’s Optum Rx, CVS Caremark/Aetna, and Cigna/Express Scripts — now account for more than three-quarters of the PBM market in the United States.

Consolidation has also occurred in the retail pharmacy sector where most of the stand-alone specialty pharmacies have been taken over by PBMs, payers or larger retail chains — all hoping to gain bargaining leverage in negotiating drug prices with pharmaceutical companies. In 2018, CVS acquired five specialty pharmacies: Apothecary By Design, Central Drugs, EncompassRx, EntrustRx, and SimplicyRx).

Industry consolidation is always a “make or buy” decision. In an effort to thwart some of this consolidation some payers are eliminating the PBM as an intermediary and developing their own internal capability. In October of 2017, Anthem announced that it would not renew its contract with Express Scripts and subsequently launched its own PBM, IngenioRx.

This concentration of market position has garnered “unwanted” attention of policy makers (at both the state and federal level) as well as employers and consumers. Both of these groups are concerned that drug prices continue to rise faster than inflation.

Employer-sponsored health insurance covers over 50% of the nonelderly population, which works out to about 153 million people in total. The average annual premiums for employer-sponsored health insurance in 2019 were $7,188 for single coverage and $20,576 for family coverage. At the same time wages rose 3.4% and inflation increased at 2%.

Over a 10-year period the increases have been substantial:

As a result of these dramatic increase in premiums, there has been a focus by PBMs on addressing employer issues.

Embedded within these healthcare cost increases are the cost of medictions. The table below indicates by drug type the gross margin or net revenue attributed to each entity in the distribution of medication to the member (employee). Across the board, the logistical enterprises that manage the distribution of drugs receive a consistent share of the per member cost. In the case of brand drugs, manufacturers retain a substantial percentage largely due to the proprietary and patent protections attributed to these drugs. PBMs gain a portion largely due to rebates that are not always remitted to the plan administrator. In the case of generic drugs where there is greater competition among manufactures the revenues are much less, but PBMs continue to retain a substantial amount. Overall, it is estimated that this results in an extra cost to the system in excess of $100 billion.

[2] Based on 2016 and 2017 claims data for >200,000 employees and published information from major PBMs and industry reports.

Below is a list of some of new entrants to the PBM world over the last few years that through various stratigies are changing the way the pharmacy benefit is managed.

Because of the high-cost of new drug therapies, especially specialty drugs, an alternative is value-based contracting also referred to as outcomes-based contracting. Pricing is based upon predetermined patient measures or patient outcomes rather than a set cost. This places a level of risk on the drug manufacturer. Drugs utilized to treat hematological disorders and cancer are currently the primary therapeutic areas where value-based contracts are in place.

Staggered-payment plans and pay-for-performance contracts are two other strategies used between pharmaceutical companies and the PBM. These will be especially important as more cell and gene therapies come to market due to the high cost of these therapies.

In order to be successful, these alternative pricing strategies require stakeholder collaboration on data access and analytics to measure effectiveness.

Compliance with medication regimens has long been recognized as being important to the overall health of patients with acute and chronic diseases. Adherence to chronic medications has been estimated to only be about 50%, while it is reported to be even less for acute medications. A relatively new company that was founded to improve compliance is PillPack. Since PillPack was founded in 2013 several other companies have entered this specific marketplace. Pillpack was acquired by Amazon in 2018 and is now the cornerstone of “Amazon pharmacy”.

Digital health solutions such as mobile apps, patient portals, and care team dashboards are proliferating rapidly. By one estimate, the U.S. investment in such electronic products will reach $410 billion by the end of 2020. Pragmatic digital health solutions improve patient care, make clinical teams more efficient, and reduce costs. PBMs are implementing a number of innovative solutions. CVS Health has rolled out vendor benefit management (VBM) as a new service that enables payors to easily onboard and manage third-party vendors that provide both digital and non-digital solutions. The PBM has included Big Health’s Sleepio application is this program. Express Scripts released a digital formulary with the goal of providing 15 digital health programs to its members, starting in January 2020.

The world of pharmacy benefit management will change dramatically over the next five years.

 The latest information technology will allow the consumer to access information about drug pricing, benefits, and pharmacy selection in real time which will enable them to save time and money when buying prescription drugs.

Fixed “all-inclusive” administrative fees will ensure that employers realize 100% of the savings from their PBM.

 Transparent pricing will help employers know where the drug dollars are being spent and saved.

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As 2019 turned into 2020, we saw the first cases of COVID-19 come into the global spotlight. Many people had never heard of a place called Wuhan, but it wouldn’t be long until the entire world was looking toward this town in Eastern China.

China quickly learned of the severity of this disease, ultimately building two hospitals to specifically combat this illness in about a week. The world watched on as they eventually quarantined people in their homes to stop the spread of this virus.

Italy was the next country to really feel the effects of COVID-19, beginning with a few cases and little alarm from the locals. But as the virus spread, so did the strain on the health system and it wasn’t long before Italy was in a full-blown crisis. Doctors stayed in hospitals to treat the infirm for over three weeks before returning home. Many healthcare workers (over 400 in mid-March) were seriously ill with the virus, requiring treatment and resources themselves, in addition to the public that was crying out for care.

Cotiviti Launches COVID-19 Outbreak Tracker to Forecast Potential “Hot Spots” in US

The World Health Organization officially called COVID-19 a pandemic as it swept across the globe and into the U.S., especially New York City. With little information available and no vaccine or treatment ready to be administered, we were forced into a trial by fire. The incubation period of the disease tends to be between two and six days, but some outlier cases took up to 27 days. How does a community, or an entire country, combat a virus like this? Cue social distancing, self-quarantine, moratoriums on social gatherings, and all the efforts to “flatten the curve.”

Hospitals in hotspots have been overwhelmed by people with COVID-19 and hospitals nearly everywhere prepared for a huge wave of patients. According to the Johns Hopkins Center for Health Security, by the end of April there were 2.54 million confirmed cases around the world and almost 176,000 deaths. The Johns Hopkins tally for the United States was 890,000 cases and 50,114 deaths.

The pandemic is far from over. There are more questions than answers about testing, treatments, and, what we need most, an effective vaccine.

But this much is certain; we’re the most connected we have ever been as a global society. We have all the power in the world to talk to each other-distance, language, geography offer no barriers-and yet we don’t take advantage of it. This has to change.

There are many websites and organizations tracking the COVID-19 cases 

, hospitalizations and deaths, including, of course, the CDC.

It’s clear there is no better time than now to start really looking at healthcare with a global eye. We need to study what other countries are doing, how they've combated COVID-19, where they are successful, and where they could have done better. This type of analysis will help every country, not just the U.S., tackle COVID-19 more effectively. We must not only come together within our communities to support local businesses and protect each other from contamination, but we must learn from our international counterparts so we can avoid their pitfalls and follow their formulas for success.

Perry Cohen is co-founder and CEO of The Pharmacy Group, a pharmaceutical  industry consulting company, and a member of the Managed Healthcare Executive editorial advisory board. Cohen is also the head of TPG International Health Academy, which hold educational summits for healthcare executives around the world. The academy is currently reviewing its plans for 2020 in light of the COVID-19 pandemic.

The Managed Healthcare Executive Editorial Board Member explains the fight for the cure or to "flatten the curve" is far from over until we all look at healthcare with a global eye.

COVID-19 Shows the Need for Global Perspective on Healthcare

It’s like “dÃ©jÃ  vu” all over again! This phrase summarizes the world of pharmacy in 2019.

As the cost and use of pharmaceuticals is now on the front page of newspapers and a top priority for employers, government, and individuals, some people think that this is a new phenomenon. However, drug costs have been discussed and analyzed for decades. As you plan for 2020 and beyond, here are some key questions to consider:

1. Who is the customer for pharmaceuticals and pharmacy services?

The customer is changing from a physician-centric to a patient-centric world. 

2. What are appropriate pharmaceutical pricing strategies?

Employers are questioning the value of new drug treatments and their price. As patients pay more of the cost of these expensive therapies, drug companies are trying to develop value-based contracting ties to outcomes to address the cost problem.

Drug companies are also launching more “specialty drugs” that are covered under the medical benefit, so these drugs cannot be managed.

The current conversation around the future of rebates is interesting, but drug companies will always discount their products or purchases that can drive market share.

As prescription dispensing is increasingly handled by automation and pharmacy technicians, pharmacists will need to manage a patient’s drug therapy and be connected to others on the healthcare team (e.g., physicians and homecare providers). Using information technology can enable timely communication.

Yes. As companies like Amazon impact the drug distribution model for pharmacy and reshape the consumer experience in buying prescription drugs, pharmacy needs to invent care models to remain relevant.

5. What is the value of pharmacy benefit management (PBM) companies? 

Created in the 1990s to consolidate purchasing power for employers and health plans, PBMs have done a nice job getting discounts from pharmacies and drug companies to lower the cost of the pharmacy benefit. Serving as the middle man between drug companies and pharmacies, PBMs have also amassed large databases of pharmacy claims data to analyze drug utilization and track financial performance. They used this role to “manage” the cost of the pharmacy benefit while simultaneously creating new ways to create profits for themselves.

PBMs are currently selling commodity services (e.g., pharmacy claims processing, pharmacy network contracting,  and drug rebates) to employers and health plans.

As the focus for drug cost management moves to the drugs covered under the medical benefit, PBMs will try to position themselves to manage these medications.

6. What technology enabled services will impact pharmacy?

As pharmacies strive for greater efficiency, two technologies are emerging that ensure every patient is receiving the right medication in the prescribed dosages: (1) using digital imaging makes it much easier and faster for the tech and pharmacist to verify the prescription and (2) improvements in machines specifically engineered to count dosages ensures that the pill count is correct.

Technology such as telemedicine extends pharmacy services to the internet. Individuals in remote locations can fill prescriptions that can then be mailed to their location.

How to Successfully Transition to Value-Based Care

Pharmacies will increasingly use analytics such as EHR (Electronic Health Records) systems to gain a better picture of the overall health of the patient and in turn provide better services to its customers. In addition, pharmacies will use business analytics to identify customer choices and take action to improve its brand.

Pharmacies will be impacted as consumers embrace technologies (devices and applications) that give them greater access to relevant information. For example, technologies that provide consumer awareness of drug pricing disparities between retail pharmacies will impact their decision on where to get the prescription filled.

7.  What is a managed healthcare executive to do?

A forward-thinking healthcare executive should have a process to scan the industry for innovative applications for consumer-centered healthcare and be willing to make incremental strategic investments that can benefit their members.

For example, you need to focus on lowering drug costs by having a “state of the art” fraud, waste, and abuse program.

Redefine the role of the PBM in your organization and focus on total cost care benefits when approving new drug coverage.

Perry Cohen is an editorial advisor for 

 and is Chief Executive Officer, The Pharmacy Group.

How to manage drug cost in a value-based world.

Seven Pharmacy Questions to Consider for 2020 and Beyond

U.S. healthcare had quite a year in 2018. Employers, the federal government, and patients are not happy with the way healthcare is delivered and financed. Hospitals, physicians, and pharmacies try to remain relevant as new technologies are developed to commoditize healthcare services and enable patients to become true consumers.

Pharmaceutical companies continue to improve healthcare with new therapeutic agents. The value of these new drugs can benefit society, but even more so, their impact on healthcare economics is staggering. Specialty drugs to treat certain patients present new challenges for health plans and pharmacy benefit managers (PBMS).

As pharmaceuticals grow to consume 30% of the healthcare dollar, traditional care models need to change in order to deliver the best healthcare outcomes and real value or they will become obsolete.

Currently, drugs covered under the pharmacy benefit are distributed through community pharmacies, mail service pharmacies, and specialty pharmacies. PBMS utilize proven systems (e.g., online drug claims processing, pharmacy network contracting, and drug rebates) to manage unit drug cost.

In the future, drugs covered under the medical benefit, many of which are specialty drugs, will need new systems and processes to manage these drugs administered through the physician office, home infusion, and hospitals.

Mail order (e.g., CVS and Express Scripts)

These models are: facility driven by site of care, healthcare-professional driven, expensive, and inefficient.

The key shortcomings of the current care models are that they:

Do not use a population health approach to identify the patients to treat

Make the patient come to the site of care (e.g., hospital, pharmacy, or physician office) to receive care

Dispense pharmaceuticals with a “one-size-fits-all” approach and creates excessive waste

Make minimal use of information technology

Require each facility work in its own silo with no integration of overall patient care activities

New care models are being created that are patient driven, leverage technology, and improve accessibility.

Multi-dose strip packaging (e.g., PillPack, Pack4U)

Patient-centered home (e.g., ExactCare Pharmacy and MedAppropriate)

The key benefits of the new care models are that they do one or more of the following:

Use data analytics to identify the patients that would benefit the most from these new services

Deploy pharmacists into the patient’s home to provide “high-touch” care

Dispense pharmaceuticals in the most effective way to minimize waste

Leverage information technology (e.g., Bluetooth, wireless communications, and smartphones)

Integrate pharmacy with the overall patient care activities

Additionally, online retailer Amazon, is disrupting the current business model in the retail and grocery industries and will do the same in the community pharmacy industry. 

This will give employers and the federal government new choices in how healthcare is delivered. However, they will need a digital health strategy to leverage these new services to make sure the sickest patients can be treated in the patient care setting that can deliver measurable health outcomes improvement.

As a result, there will be new benefit designs and ways to finance care.

Perry Cohen, is an editorial advisor for 

, and is chief executive officer, The Pharmacy Group.

As pharmaceuticals grow to consume more and more of the healthcare dollar, traditional care models need to change in order to deliver the best healthcare outcomes and real value. Here are five new models on the rise.

Author | Perry Cohen

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