8/18 Business of Medications

Outline the state of prescription drug spending in the US and provide reasons for the high cost.

Top drugs for dispensing are mostly generic. Spending on drugs is mostly for brand names.

• General trend of increase in Rx spending over the years.

• Prescription drug spending per capita is much higher in the US compared to other countries.

Types of specialty pharmacy drugs

1. High cost

2. High complexity

3. High touch

High cost drugs

Typically priced more than $1,000 per 30-day supply, or $670 for Medicare/Medicaid

• Includes self-administered injectables, professionally-administered injectables/ infusions, and oral medications

• Approximately 400 specialty medications are available

• Fastest growing component of pharmacy benefit

High complexity drugs

Biotechnology products, or biopharmaceuticals: Any biology-based therapeutic medication that structurally mimics compounds found in the body - from blood delivered factors to customized gene-based therapies.

• Orphan or Ultra-Orphan drugs

• Medications that are included in a specialty pharmacy drug class strategy

High touch drugs

Medications that require:

• Temperature control or other special handling/shipping

• Ongoing drug management by a pharmacist and/or drug physician specializing in treating the member’s condition

• In-depth member education, compliance monitoring, side effect management, and, often, injection technique education

• Periodic lab testing for continued treatment analysis

Biologics

Much more complex than small molecule drugs and cannot be replicated

Biosimilars

Highly similar, lower-cost versions of original biologic drugs; not the same structure as biologic.

• No clinically meaningful differences in safety, purity, or potency.

• Generally lower cost due to an abbreviated approval pathway.

Describe the key players involved in the process of supplying prescription drugs to consumers

1. Pharmaceutical manufacturers - produce medications

2. Wholesale distributors - provide medications to pharmacies

3. Pharmacies: sell and dispense medications

4. PBMs: manage prescription drug benefits and related services

Describe the financial relationship between each of the players (how money flows between them)

1. Pharmaceutical manufacturers - produce medications for sale.

2. Wholesale distributors - buy medications from manufacturers and sell them to pharmacies.

3. Pharmacies: buy meds from distributors, then sell and dispense meds to patients

4. PBMs: manage prescription drug benefits and related services for patients

Examples of top pharmaceutical manufacturers

• Pfizer

• Novartis

• Roche

Examples of top wholesale distributors

• AmerisourceBergen

• McKesson

• Cardinal Health

What is the role of drug wholesalers in GPOs and PSAOs?

• GPO: group purchasing organization / buying group

• PSAO: pharmacy services administrative orgs

Coordinate group purchasing/contracting

• GPOs: Purchasing medications

• PSAOs: third-party contracting

Examples of top pharmacy chains

• CVS Health

• Walgreens Boots Alliance

• Cigna

What is a Pharmacy Benefit Manager (PBM)?

An organization that manages prescription drug benefits and related services

Goals of PBMs

Maximize quality of care

Minimize and control drug costs

Appropriately influence medication use at the

• prescriber level

• pharmacy level

• and patient level

Core PBM functions; what are PBMs primarily responsible for?

1. Processing and paying prescription drug claims

2. Contracting with a network of pharmacies

3. Developing and managing:

   • Drug formularies

   • Clinical quality programs

   • Utilization management programs

4. Negotiating discounts and rebates with drug manufacturers

A PBM may provide these services on behalf of health insurance companies, employers, unions, or any other organization offering prescriptions benefits.

How do PBMs navigate Rx cost containment?

1. Formulary management

   • P&T committee

   • Tiered structures

   • Rebates

2. Utilization Management

   • Drug Restrictions: Prior Auth, Quantity Limits, Step Therapy

3. Medication Use Evaluation (MUE), Drug Utilization Review (DUR)

4. Establishing Pharmacy Networks

   • Preferred, Limited (in-network), Out of network

Negotiating reimbursement: AWP, WAC, MAC

Examples of top PBMs

• CVS Health (Caremark) / Aetna

• Express Scripts

• OptumRx (UnitedHealth)

Describe where Rxs are being dispensed

1. Drug manufacturer produces drug

2. Wholesaler buys drugs from manufacturer and sells to pharmacies

3. Pharmacy buys the drug from wholesaler and stores it

4. Pharmacy dispenses the drug to patient

Describe where Rx payments are coming from

2 general paths

1. Patient pays copay at the pharmacy

   • patient —> copay —> pharmacy

2. Insurance plan pays PBM, which then reimburses the pharmacy

   • Insurance —> PBM —> pharmacy

Explain the different pricing terms used to determine reimbursement

340B: special pricing mechanism for public health service agencies (i.e., FQHCs, Children’s hospitals, Indian Health Services)

• Eligible providers can purchase drugs at discounted prices (average of 51% of AWP): insulin at $5/vial)

Usual & Customary (U&C): Cash price

• Price submitted to insurance cannot be higher than this, otherwise fraud

National Drug Code NDC: 3-segment, 10-digit number (barcode)

• Universal product identifier (bill medications using this)

Define formularies and the types of formularies

Formulary: what medications are able to be covered by insurance

• E.g., Kalydeco for cystic fibrosis (in-class example)

Closed vs open formulary

• Closed: meds in the formulary are not covered

• Open: non-formulary meds are covered, but at a higher copay tier