Pharmacy Benefit Management Terminology and Concepts

Flashcards covering key terminology and concepts related to Pharmacy Benefit Management.

Pharmacy Benefit Manager (PBM)

A third-party administrator of prescription drug programs that manages the prescribing and dispensing of medications.

Plan Sponsor

An entity, such as an employer or insurance company, that offers a specific health plan or benefit package to its members.

Copay

A fixed amount paid by a patient for a covered healthcare service, typically at the time of service.

Coinsurance

A percentage of the cost of a covered healthcare service that a patient is responsible for after deductibles are met.

Dispensing Fee

A charge by a pharmacy for the cost of filling a prescription.

Administrative Fee

A fee charged for the management and administration of a health plan.

Rebate

A discount or return of part of a payment to the manufacturer offered to PBMs or insurers.

Formulary

A list of medications that are approved and covered by a health insurance plan.

AWP (Average Wholesale Price)

A benchmark for drug pricing that represents the average price wholesalers charge retailers for prescription drug products.

WAC (Wholesale Acquisition Cost)

The manufacturer's price for a drug sold to a wholesaler, before any discounts or rebates.

GPO (Group Purchasing Organization)

An organization that helps healthcare providers, like pharmacies, obtain discounts from vendors based on collective buying power.

NADAC (National Average Drug Acquisition Cost)

The average price pharmacies pay for drugs, calculated through monthly surveys.

AMP (Average Manufacturer Price)

The average price paid to manufacturers for drugs by wholesalers, used to determine federal pricing limits.

PBM MAC (Maximum Allowable Cost)

The price set by a payer or PBM that establishes the maximum reimbursement for a specific drug, commonly used for generics.

Pharmacy Services Administrative Organization (PSAO)

A group that negotiates reimbursement rates for pharmacies with PBMs on their behalf.

Step Therapy

A cost-saving measure where patients are required to first try less expensive drugs before moving to more costly options.

Prior Authorization

A requirement that healthcare providers obtain approval from a payer before a specific medication is prescribed to a patient.

Drug Utilization Review

A process to ensure that prescribed medications are appropriate, medically necessary, and not likely to result in adverse outcomes.

Reimbursement

Payment made to health care providers for services rendered, including drug dispensation.

Spread Pricing

A pricing strategy where PBMs charge health plans a higher reimbursement than what they pass on to pharmacies.

Pharmaceutical Manufacturers Rebate Program

A program where drug manufacturers provide rebates to PBMs or insurers for including their drugs on formularies.

Why can pharmacy service functions be completed by an outside vendor?

• Easily defined benefit

• Defined patient population

  • High or rising costs

What are the key activities of a PBM?

• Consultation

• Creates and maintains retail networks

  • Manages reimbursement for prescription drugs for plan sponsors/adjudicates drug claims

What are examples of what PBM does?

• Maintains a P&T committee and develops formulary

• Enhanced clinical programs

• Reporting capabilities

  • Plan Administration

What are examples of PBMs?

• CVS caremark

• OptumRx

  • Express Scripts

What does supply chain do?

Consider the many parties involved before a prescription drug is reimbursed and finally reaches the patient

T/F Payers can negotiate different pricing with different pharmacies

True

What is the AWP (Average Wholesale price)?

a benchmark price used to determine drug reimbursement rates

What is the Wholsale Acquisition Cost (WAC)?

benchmark in pharmacy purchasing of drugs that reflects the manufacturer's list price for a drug to wholesalers or direct purchasers, excluding discounts or rebates.

How do many pharmacies by their drugs?

Wholesaler

What are the three largest drug wholesalers

• AmeriSource Bergen

• Cardinal Health

  • McKesson

T/F WAC pricing exist for all drugs

False, drug manufacturers who only sell drugs directly to pharmacies may not publish a WAC

What is the GPO (Group Purchasing organization)?

an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members

What is NADAC (National Average Drug Acquisition Cost)?

• Average wholesale price calculated by what is paid by retail pharmacies for prescription and over the counter drugs

How is data generated for NADAC?

Monthly surveys, and is updated daily

Who utilizes NADAC?

CMS

What is AMP (Average manufacturer price)?

the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade.” excluding “customary prompt pay discounts extended to wholesalers.

What helps to determine the federal upper limit?

AMP

What is the definition of best price?

• lowest price available from the manufacturer during the rebate period to any entity in the US in any pricing structure

Why is best price listed?

Ensure Medicaid has the best available price for any given brand drug while complying with federal regulations and maximizing cost savings for the program.

T/F Private payer cannot pay less than what Medicaid pays for a drug

True

How is AWP calculated?

• 1.20 * WAC for brand drugs

What were the two consequences of AWP roll-back>

• Roll-back of AWP price as explained previously

  • Claims of discontinuing AWP by FDB and Medi- Span

What does PSAO (Pharmacy Services Administration Organization) do?

• Help negotiate highest reimbursement for the individual pharmacies

• Negotiate and enter into contracts with third party payers (PBMs) on behalf of pharmacies

  • Negotiate reimbursing rates, payment, and audit terms

What is the MAC (Maximum Allowable Cost)?

Payer or PBM determined price

• Allows payers to pay same price for a drug no matter the manufacturerIt is the maximum price that a payer will reimburse for specific generic drugs, aiming to control costs and standardize payments across different manufacturers.

What does the MAC apply to?

Many multi-source generic drugs

What are cost savings tools?

• Formulary

• Generic substitution

• DUR

• Step therapy

• Quantity limits

  • Prior authorization option

How do PBMs make money?

• Administrative fees

• Spread pricing

• MAC list

  • Rebates

What are administrative fees?

Fee charge for every processed claim

What is spread pricing?

• What PBM charges plan sponsor is different than what pharmacy is reimbursed

What is MAC list?

• Proprietary list of medications and max reimbursement price that PBM uses

What are rebates?

• Portion or all can be passed to plan sponsor or PBM can keep percentage

What is drug pricing variable based on?

• type of transaction

  • Wholesaler to pharmacy

  • Pharmacy to third-party payer

    • Pharmacy to Medicaid

What do PBMs do for plan sponsors/health plans/payers?

• Formulary management

• Administer the pharmacy benefit and plan design

• Pharma rebate contracting

  • Pharmacy network contracting (retail, mail, LTC, specialty, HI)

What type of company enters into a contract with a PBM for clinical and operational support  such as formulary management, pharmacy network contracting, rebate contracting, and benefits administration?

Health plan/plan sponser

What is the traditional pricing?

• Lock in or spread

What happens in the traditional pricing?

•PBM pays the pharmacy for a submitted brand or generic drug claim and that is different, often lower than the price paid by the plan spo

What happens in the pass-through pricing?

•What the PBM pays the pharmacy is passed through as the price paid by the plan sponsor to the PBM

•Said to be “transparent pricing”

How do you shop for a PBM?

• Consultant

• RFP

  • Pick winning bid

What’s in a RFP?

• Introduction and client overview

• delegation of scope of services

• Terms and definitions

• RFP questions

• Pricing conditions

  • Performance guarantees

What is financial negotiation about in managed care?

Leverage

A health plan/plan sponsor loses its contract with a state Medicaid agency resulting in significantly decreased plan membership.  What is true regarding its contract with a PBM?

Health plan has less leverage

What are the components of Part D plan?

• Tier model

• UM tools (formulary vs non-formulary)

  • Benefits (Copays, coinsurance, ds, phase)

What is a rebate?

• Retrospective discount off the cost of brand drugs

  • Based on rebate amount per brand drug claim metric

Which of the following is TRUE?
a. Rebates may be retained by PBM
b. PBMs always pass rebates through
to health plan/plan sponsor
c. Same answer as the difference
between ignorance and apathy
d. PBM Agreements commonly
guarantee a rebate amount per brand
claim
e. The PBM contract governs what's
paid, when, and the conditions for
payment to the health plan/plan
sponsor

a. Rebates may be retained by PBM
d. PBM Agreements commonly guarantee a rebate amount per brand claim
e. The PBM contract governs what's paid, when, and the conditions for payment to the health plan/plan sponsor

What is tiering?

• A pharmacy benefit design that financially rewards patients for using generic and preferred drugs

When are tier structures not applicable?

To plans there zero cost share to members for medications (medicaid)

What tier is the ACA preventative medications found under?

Tier 0

What is considered specialty medication?

Medications prescribed for complex or ongoing medical conditions (MS, hemophilia, hepatitis, RA)

What are characteristics of Specialty medications?

• Injected or infused

• Unique storage, or shipment requirements

• Additional education and support (REMS)

• Not stocked at retail pharmacies

  • High cost

What is member cost share (Coinsurance)?

Amount of the prescription the member pays

% of total ingredient cost.

What is copayment?

Member plays a flat fee for each prescription filled, typically determined by the plan's formulary tier.

Do deductibles need to be met before copays?

No

What happens for benefits associated with High Deductible Health Plan?

• Formular determines what drugs will apply to deductible and will not apply

What is mandatory mail?

Members can receive an initial dose (and acute drugs) at a retail pharmacy, but the member will be penalized if they do not switch to mail after the first few fills

What are preferred pharmacy networks?

PBMs will contract specific pharmacies as preferred in their network allowing lower copays or a separate copay structure if the member uses a particular pharmacy

T/F All specialty drugs go through specific specialty pharmacy provider

True

What are common excluded drug classes?

• OTCs

• Fertility drugs

• Erectile dysfunction drugs

• Weight loss drugs

• Growth hormone

What is an Open formulary?

All drugs are covered but some have restrictions. Exclusions of drug classes may still occur but based on employer preference

What is a closed formulary?

A smaller list of drugs. New drugs not added until reviewed and approved by P&T

Why are Cost Containment Strategies implemented?

• To promote appropriate utilization of medications

  • Prior authorization

  • Step therapy

  • Quantity Limits

What factors influence formulary status?

• Efficacy

• Safety and costEffectiveness, safety, and overall cost considerations.

What is value based care?

• Improve the quality of health care

  • Overall cost savings

What is found in the current healthcare system?

• Fragmented care

• Provider Centric

• Payment for volume

• Individual facility focused

  • Disease oriented/acute illness

What is found in the healthcare system shift?

• Coordinated care

• patient centric

• payment for value/outcomes

• care system focused

  • Wellness/chronic conditions

Who dictates value based care?

• NCQA

• CMS

• AHRQ

  • IHI

What does the national committee for quality assurance do?

Develops performance measures known as the healthcare effectiveness data and information set