Managed Care - November 2010 - (Page 27)
Walgreens to track simvastatin’s declining cost, Walgreens’s profits would not have been so high for so many months. Nor would Walgreens’s profit have suddenly plummeted when PBMs, presumably, finally adjusted their payments.
Demand meetings Accordingly, we recommend that clients contractually require their PBMs to provide a quarterly Newly Available Generic Drug Report that will identify all generic drugs that became available during the previous quarter. We further recommend that clients contractually require their PBMs to meet with them quarterly to review, evaluate, and agree on maximum guaranteed prices for all generic drugs listed in previous quarterly reports. Clients’ pass-through costs for all such drugs can then be as good as are available in the marketplace. Given that six of the ten largest selling drugs — including the top two selling drugs, Lipitor and Plavix — are scheduled to lose their patents in 2011 and 2012, it is reasonably likely that this approach will prove worthwhile. As many MCOs and HMOs realize, although pharmacies like Walmart provide steep discounts for many drugs to walk-in, uninsured customers, PBMs frequently charge far more when those same drugs are dispensed from the PBMs’ mail order pharmacies. Accordingly, large payers should contractually require that PBMs’ mail pharmacies match discount pharmacy prices. To do so, payers should identify the discounters that are in the payer’s geographical area that are most likely to matter. Contracts should then establish a procedure for determining which drug costs will be matched, and for how long the matching requirement will remain in effect. Your goal should be to ensure that your PBM matches at mail the retail discounts that are most frequently provided, for as long as the retail pharmacies may have the discounts in effect, as long as the discounts do not constitute loss leaders for the retail pharmacies. Right to renegotiate Given that most payers execute PBM contracts with at least a three-year duration, every contract should give payers a right to renegotiate pricing
terms and guarantees — on a quarterly or annual basis, depending on the term or guarantee — coupled with a right to end the contract with 90 days notice, with or without cause. No matter how strong a contract may be at its inception, the prescription coverage marketplace is changing too fast for any client to allow itself to be stuck with a contract’s terms for three or more years. Every contract should state that each quarter, a client has the right to negotiate prices on newly available drugs and to renegotiate maximum guaranteed prices for certain commonly used generic drugs and all specialty drugs. The contract should also state that yearly, the client will have the right to renegotiate its administrative fee and the contract rates that are stated for each average quarterly guarantee. The contract should also state that all newly negotiated terms must be at least as good as those previously provided, unless marketplace conditions preclude that result, in which case the PBM will have the burden of proof to demonstrate that fact. As for the right to cancel the contract with 90 days’ notice, including that provision will ensure that every PBM will negotiate in good faith.
Guaranteed savings Generic drugs can provide enormous savings to payers. However, almost no payers are maximizing their potential generic drug savings. Instead, payers are allowing PBMs to retain enormous profit spreads on generic drugs. By writing entirely different contracts — and using your purchasing power, especially during requests for proposals to require PBMs to provide entirely different contracts — you can change the situation and retain all savings available from generic drugs. Accordingly, as soon as you are within 15 months of your current contract’s expiration date, take the steps that are necessary to dramatically reduce your drug costs, and draft and demand an entirely different form of PBM contract. You’ll be amazed at the savings you can generate. And you will help to change the entire PBM marketplace.
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NOVEMBER 2010 / MANAGED CARE
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