Medical or Pharmacy Benefit

Another signifcant mechanism for cost management by PBMs is pharmacy benefit Rebates. While this paper won’t go into detail on rebates, it is important as we look to understand the basics of medical vs pharmacy benefit coverage of medications. The concept of rebates can be boiled down more simplistically to the following: Manufacturers want and will pay for marketshare. If PBMs and payers create marketshare through limitations by use of competitive products, the manufacturer will pay a rebate. Therefore, PBMs deploy FIRST clinical reviews in the form of P&T committees (Pharmacy and Therapeutics Committee) that evaluate drugs and determine clinical categorization as to ensure priority is made to confirming restricted drug lists maintain the drug’s appropriateness to treat the diseases and conditions effectively. SECOND, the PBMs create formulary designs and negotiate with manufacturers to create rebate models that will allow for the manufacturer to get additional marketshare, the price for which is a rebate.

Another area which has increasingly been a big part of cost management for the pharmacy benefit is Manufacturer Funding in the form of copay maximizers and patient assistance programs. We will take a deeper focus on these in other white papers, however, to understand the big picture is important. While copay maximizer and patient assitance programs first and foremost reduce patient cost share, pbms and payers are tapping into available funds to offset plan costs.

So the next step is to understand how the Medical Benefit manages drug costs submitted to that benefit.

Medical Pharmacy Management

The medical benefit has also been managing medication costs for decades, yet a big difference is that their area of focus of the past has been medical treatment cost management. The tools in the toolbox for management of drug costs on the medical benefit are vastly different than the pharmacy benefit. In an effort to showcase differences, we will stick to the same three major categories of cost savings: Network Reimbursement, Rebates and Manufacturer Funding.

Medical Network reimbursement rates is a very different world than the pharmacy benefit. Providers are not organized in the hierarchy of networks with a single base agreement and normalcy to pricing, which is often the case in the pharmacy benefit. Some providers, typically related to the health systems, are paid off a percentage of billed charges. Other providers are paid off a percentage of ASP (Average Sales Price) when it comes to medication claim reimbursement based on a J-code submitted. Many payers also expect there to be an NDC within the claim transaction, however, there is not a one-to-one relationship of J-codes to NDCs, and the quantities submitted are not uniform as they are in the pharmacy benefit where that information is all defined based on unit of use (tab, cap, oz, ml, etc.) within national data registries such as Medispan and FirstDatabank. ASP is very different as a marker for payment from the AWP we noted in the pharmacy benefit. ASP is a value that is self-reported by manufacturer to CMS (Centers for Medicare and Medicaid Services). It is only reported quarterly and includes any discounts provided to include rebates. It creates the price basis for government funded benefits with a designated discount off ASP to be paid (e.g. ASP + 6%). For the commercial payers, many still use ASP for their non-government business as a basis for payment, however, there is a big range in price points. In medical claims data, medication reimbursement can be vastly different from provider to provider. In many cases, a 3-5X difference can be seen for the same quantity and medication. The big variance in provider payments can typically be tied to class of trade. For example, outpatient facility infusions being at the high end of the difference and prescriber in-office infusions or home infusion being at the low end.

Another mechanism for cost management on the medical benefit is Rebates. Medical rebates and pharmacy rebates are two very different things. On the pharmacy side, there is an expectation of rebates, formularies, and PBM involvement, which means the price point for purchase of medications by pharmacies is already based on manufacturers knowing they will pay a rebate, however, on the medical benefit, there is a whole different dynamic. Providers on the medical benefit typically purchase at a lower price point than pharmacies. This is a result of the expectation for rebates when billed to the pharmacy benefit. When providers buy at that lower rate, manufacturers are much less inclined to provide a rebate. Also, it goes back to the provider payment model and that manufactuers provide their ASP back to CMS, which sets rates. One way to break it down is to think “follow the count of dollar signs” – See Table 1. If a provider is buying the medication at one rate $$ (which is based on current reported ASP) and being reimbursed by the payer at another $$$$ (making $$ profit), then a manufacturer pays a new rebate or increases rebates by $, they then report that as part of their ASP and the current sales rate as sold – rebate $$$. This process in the next quarter means the reported ASP would be set higher and the provider would be buying at a higher cost $$$, making payment to the provider less or having no profit margin for the provider. The ASP pricing model, therefore, is a direct challenge to having a

meaningful medical rebate strategy. Another challenge to a meaningful medical rebate strategy is the ability to create and effectuate a medical formulary. With the lack of real-time claims seen in the pharmacy benefit dispensing model, the medical benefit adminsitration of medication model has lacked the real-time prior authorization and payment systems to manage a formulary with precision.

The third component we are to dive into as a part of cost management for the medical benefit is Manufacturer Funding, which takes on a very different form from the copay maximizers and patient assistance plans (PAP) when applied on the pharmacy benefit. First, let’s talk about connectivity. Pharmacy benefits’ real-time connectivity between pharmacies and PBMs allows for copay alterations to maximize manufacturer assistance that can be communicated in the benefit and to or from pharmacies; no such real-time world exists in medical. In the pharmacy benefit, the value of known manufacturer funding assistance is reported to the PBM system as value not paid by the patient. It is then removed from accumulators to keep the ‘patient out of pocket’ as truly only funds paid by the patient and not the manufacturer assistance. For the medical benefit, this is not the case. In the medical benefit the use of manufacturer funding typically does not impact the patients’ accumulators leaving more cost on the payer. Since manufacturer assistance is not reported into the benefit and the patient accumulators are not adjusted, the ‘patient out of pocket’ isn’t always coming from the patient and would include manufacturer assistance funding. Providers will even use this argument to show value to the patient who does not have to pay anything out of pocket when manufacturer funding pays it for them.

Outside of the connectivity and accumulators, the decisioning on changing benefits can also be a big decision. There are typically different decision makers and willingness to remove coverage on the medical plan, regardless of how it is being handled on the pharmacy benefit. Additionally, when you have engagement with alternative funding and medication being supplied by a pharmacy to the medical providers, you can have increase in provider dissatisfaction; the medical providers who now make margin on the drug would be forced to only be paid for the infusion service.

So Where Do We Choose to Cover a Medication

All of these are important facts, but come to a head when making decisions on where to cover medications – on the pharrmacy benefit, medical benefit, or allow coverage on both. A world of analytics must help in those evaluations to uncover all the available levers to deliver lowest net cost to the payer. Coverage of medications go beyond “dispensed medications are covered on the pharmacy benefit” and “health care administered medications are covered on the medical benefit”.

There are now mechansims to allow for cross-benefit coverage that need to be included in the evaluation as well. Can you take a drug that is medically administererd and find the lowest net cost by allowing coverage only on the pharmacy benefit or a tandem pharmacy-like benefit? Can you find ways to maximize the use of providers with lower reimbursement on the medical benefit (site of care management)? Can you find mechanisms to pull in manufacturer funding?

It is a careful balancing act to understand what each benefit can now offer in terms of levers to control cost and allow them to compete against each other to drive the best outcome.

Moving Infused Medications to the Pharmacy Benefit

Notably recently, we have seen medications administered by a health care professional increasingly being covered on the pharmacy benefit. We will dive into three ways we have seen this more and more in the marketplace: home infusion providers, white bagging, and medical provider networks on the pharmacy benefit.

Home infusion providers are uniquely positioned to be contracted with the pharmacy benefit managers who control the pharmacy benefit claims. Because home infusion providers are commonly pharmacies themselves who employ nurses, they more easily fit into the mold to bill a pharmacy benefit. We are seeing infusion providers maintain direct contracts with payers and offering to bill on the pharmacy benefit for clarity in NDC and pricing. The hurdle is billing for the services, however, home infusion providers (who in many cases were underpaid for the infusion or nursing component of their service on the medical benefit) are willing to build the cost into the payment model on the pharmacy benefit in a few ways. First, we see it incorporated in the cost of the drug reimbursement itself, or for a more direct tie to the level of service, we have seen unique faux billing NDCs used to bill for the service or use of the DUR-PPS code (an NCPDP standard code set) for LOE (level of effort) to designate the type of infusion. The use of the DUR-PPS codes is similar to how it is used by some PBMs for compounded medication claims.

The second mechanism for paying for these medically administered therapies is to cover them on the pharmacy benefit; require them to be billed to the pharmacy benefit by a network specialty pharmacy provider and then mailed to the medical pracitioner for adminsitration. This process, commonly referred to as white bagging, allows the specificity of NDC and pricing on the pharmacy benefit, yet can create some significant concerns with medical providers who were seeing revenue from the difference in acquisition cost of the medication and the reimbursement from the payers. There are also some logistics challenges; mailing in advance of the appointment, inability to return for change in therapy/dosage, and even just the mailing to providers for delivery of these temperature-sensitive products during open clinic hours.

Finally, there has been the recent development of medical provider networks, however, on the pharmacy benefit. In this situation medical providers who infuse these therapies continue to buy and bill the medication, however, they are contracted with the PBM in a medical provider only network to bill the pharmacy benefit. This can, therefore, create consistent network payments to providers at a more specific NDC and quantity level. The issue with these networks remains that provider systems are not inherently capable of billing the pharmacy benefit, therefore, they can use a vendor to modify a medical billing to a pharmacy-like claim transaction, or the PBM can provide a direct access portal to bill the claim. These are not yet common-place, however, offer a glimpse into the collapsing of what was historically a very divided space, in which medical providers who were administering a service were only billing and being paid from the medical benefit.

Changes in Managing High Cost on the Medical Benefit

The medical benefit management of high cost medications is not immune to the influx of change either. Although, in some ways they have used the changes afore mentioned in the pharmacy benefit (e.g. exclusion of medications for coverage and requiring a white bagging or delivery of the drug product from a pharmacy connected to the pharmacy benefit), there are other newer mechanisms being used to try to control costs that mimic pricing controls seen in the pharmacy benefit. One of those is the use of formularies and rebates and another is a network management technique involving site of care.

Medical formularies and medical rebates, as mentioned earlier, have their own hurdles to overcome in order to be impactful tools, however, the value of rebates is ever-increasing in the medical benefit. There are mechanisms during the authorization process to create preferred products and drive utilization, which is compensated with more lucrative rebate agreements. Medical rebates were largely “pay to play” rebates, which really just means that it was a flat rebate just for the use of the product and aggregate data being sent to the manufacturers without any preferential status on a formulary. Now as more aggressive management of these products has been entertained, so have rebate values that are modeled after a shift of market volume.

Site of care management has been one of the most aggressive tactics used in cost control on the medical benefit. With 5x the differences being seen in network provider payments between infused therapies at hospital outpatient facilities vs physicians offices or even home infusion; there have been programs instituted to either direct patients to the lower cost options or even redirect patients already receiving routine infusions. These programs can save thousands of dollars per patient per month on their treatment and have proven well worth the administrative cost they bear to administer them.

Where to Cover and Why

To reiterate the importance of this topic, our medication pipeline is littered with largely ultra-expensive medications that are infused, injected or through more expansive treatment protocols like gene therapies; decisioning on where to cover these medications is now, more than ever, a priority. It is time to lay down the division of two benefits and find meaningful ways to use the capabilites of both benefits to drive down prices.

In many payers, the medical and pharmacy benefits are managed separately with each trying to independently drive down costs, yet when aggregated for analysis and decisioning, there are areas where using the benefits more synergestically can be the answer to the greatest reduction in medication cost.

Where is the future? It is yet to be seen, however, with the now very gray area between the benefits broadening, there may be a day out there that medical and pharmacy medication management collapse entirely into a single management strategy. A day when NDCs and J-Codes collide and are easily managed in a single manner. A day in which rebate strategies are not thought of as pharmacy or medical. For now, the best we can do is use every lever in the medical and pharmacy management tool chest to navigate and drive to the lowest cost of the high-priced specialty medication marketplace.