Episode 1 – What is a Market Check and Pricing Improvement Analysis?

Mike Stull (0:00) 

All right, we are ready to go. And welcome, Employers Health members, to this first monthly Employers Health member podcast. It’s nice in the 21st century to finally have a podcast of our own. 

This is Mike Stahl, Chief Marketing Officer at Employers Health, and we’re hoping that these podcasts become your podcast. So, we really want these to be helpful and a trusted source of information on relevant topics of the day. I’d definitely like to thank you for taking the time to listen today. 

So, if you have a topic of interest to you or your organization that you want us to cover on a future podcast, we’d invite you to submit that topic or submit those questions to your account management representative at Employers Health, and we’ll make sure that we try to address it in a future podcast. We also want to get more of our members listening to this podcast. And so, at the end of this, I will tell you more about how to submit both your questions and then how to enter a drawing for a $50 Visa gift card simply for listening. 

You’ll need a special code word to enter to win, so make sure you listen to the very end, and I’ll give you that code word. Additionally, each time, I will let you know about upcoming learning and networking opportunities and highlight one of our many best-in-class vendor partners.  

(1:45) 

So, with this first podcast, I’m going to address a couple topics that I hear being talked about or that I get asked questions about all the time. And the first topic has to do with market check.  

 So, in our pharmacy benefit contract, we often talk to our existing members and new members about a market check. What is it? Might be the first question that comes to mind. And then, how does it work and what does it mean for me?  

So, what is a market check? Quite simply, the market check is a negotiated term in our pharmacy benefit contract. It’s a term that we’re able to negotiate because of the billion-dollar buying leverage that we have in the marketplace. And what it does is it really allows us to look at our pricing and renegotiate it each year with CVS Caremark and with OptumRx to make sure that we have the most aggressive pricing that we possibly can for our members. 

Now, if you think about the way that pharmacy is managed five years ago, ten years ago, it was you negotiated your pricing with the PBM. It was typically for three years. And then, you might take that business out to an RFP or renegotiate after those three years. 

And what we found was that the pricing was stale or uncompetitive in the marketplace within the first 12 to 18 months. And so, by doing this market check on an annual basis, it allows us to adjust our pricing based on changes in the marketplace, whether it’s new drugs or new contracting strategies that have emerged or to take advantage of some sort of marketplace event, maybe that gives a particular PBM more leverage and the ability to negotiate better pricing.  

So how does the market check work? We actually contract with a third-party vendor, and in this case, it’s the National Pharmacy Practice at Buck Consultants, to benchmark our contract versus other coalitions or large employers in the marketplace. 

And they benchmark the contract, really by simulating an RFP, and benchmark our contract, both at a pricing component level, so maybe they look specifically at retail brand discounts, retail generic discounts, mail brand discounts, mail generic discounts, specialty discounts, dispensing fees, rebates. So they look at those things on a component basis, but then also look at what does that pricing lead to in the aggregate. So not only do they benchmark how we stack up against those other coalitions or other large employers on a component-by-component basis, but also in the aggregate, how much more competitive are we than the marketplace. We then utilize those benchmark results to negotiate directly with CVS, Caremark, and OptumRx.  

The nice part about Employers Health is that we have individuals on our team who really understand PBM. We have a clinical pharmacist on our team, we have attorneys on our team, we have a number of team members who worked at a PBM before joining our team. 

(5:31) 

So the person who leads the market check is Dave Aldrix, and Dave is our VP of Legal. Dave did rebate contracting at a PBM before joining the Employers Health team about nine years ago. 

Dave really understands how PBM contracting works. He understands that there are a number of levers that we can pull in any given year to try to improve the pricing for our membership as a whole. And it’s really a combination of those benchmark results and our own internal knowledge of what’s happening in the marketplace and our own knowledge of how we anticipate our data to change or our utilization to change over the coming year that allows us to make what we hope are wise decisions about which levers to pull. Because in any contract negotiation, you know that there are going to be trade-offs. 

And so we want to make sure that the things that we are asking for from the PBMs are things that are going to give our members the most bang for the buck.  

We really try to make these decisions in a very comprehensive environment where we’ve taken into account what gives our members the most bang for the buck. And believe me, there are a lot of different things that we could do with our contract. 

Every year we respond to probably somewhere between 50 and 60 RFPs. And they come from all different consulting houses. If you think of just our membership alone, our members utilize a very broad array of consulting houses. 

Each consulting house has a little bit different way that they want to manage PBM. And if you think about it, that makes sense because those consultants are competing on the uniqueness of how they help their clients manage their benefits. If they can create a differentiator by being unique in a certain area, then obviously that’s to their advantage from a marketing perspective. 

I’m often asked, well why doesn’t your contract line up with what my consultants looking for? The easy answer to that is, if I did that, I would have a hundred different contracts that I’d have to manage. So it really defeats the whole purpose of group purchasing.  

What we do at Employers Health is really try to evaluate what are the different things that consultants are looking for and what do we see as the most advantageous from our own membership’s perspective. 

And then try to work with the PBMs to get those types of terms into our contracts. Our members utilize a broad number of consulting houses. All of those consulting houses typically want to see things in a little bit different fashion. 

One of the unique aspects of the coalition or one of the unique positions that we’re in is that we get to see what all of the different consultants are asking for in terms of their respective RFPs. We try to take what we think are the best aspects of all of those, plus what we’ve learned from our own benchmark study and what we’ve learned from the marketplace, where we see our utilization going, and try to wrap that up and make the best decisions that we possibly can. And we take that information and we put it with what we’ve gathered and again really try to make decisions that give our membership the most bang for the buck in terms of their pharmacy dollar. 

(10:10) 

So the next part of it is, well what does this all mean for me as a plan sponsor? So what we do after we negotiate with each of the PBMs is we have our analytics team take existing plan data, trend it forward, and apply this new pricing that we’ve negotiated with each of the PBMs to that trend of data, and try to get a feel for what type of improvement, what the new pricing will provide our members that we just negotiated, versus what was already in the contract.  

Typically we see that this pricing yields on average, and again based on your unique plans utilization, it’ll yield somewhere around a 4 to 6 percent annual improvement over what was already in the contract. This past year, so thinking about 2016 versus 2015, the number was up in the 7 to 10 percent range, and again this year because of changes in the marketplace, we’ll see an improvement somewhere in the 6 to 9 percent range. 

A lot of the improvement does come in the form of additional rebate guarantees, and a lot of those additional rebates are driven by first some new like the hepatitis C drugs that carry a high price tag, but also carry with them higher rebates. And the second piece has to do with drug inflation in general. Many of the PBMs have negotiated a provision in their manufacturer contracts that we call price protection, and the manufacturers are willing to agree to a cap on how much they can inflate the list price of a drug, and if they go over that cap, then they owe the PBM additional rebate dollars. 

The PBMs differ in how they treat those additional dollars. The good news is with our two preferred PBM relationships with CVS Caremark and OptumRx, both of those PBMs consider these price protection dollars as rebate. When we look at our minimum rebate guarantees and we look at overperformance potential for rebates, these price protection dollars do come into play.

(12:57) 

So again, just to recap our discussion about the market check, it is a negotiated part of the contract. We’re able to do it each and every year based on the size of our group and the leverage that we have in the marketplace. We do use a third party to benchmark our contract each and every year against the marketplace, so looking at other coalitions and other jumbo employers. 

We then take the results of that benchmarking study, we negotiate with the PBMs and really determine where we can get the most value for our members, and typically the results are historically somewhere in the 3% to 5% range, but lately have been in the 6% to 9%, 7% to 10% range. This is really important as we look at double-digit trends in the next several years on the pharmacy side, and we look at the rising cost of specialty. We need a way to try to offset some of that spend. 

This market check, this price check, price renegotiation is one tool that we can utilize on behalf of our members to offset a pretty significant portion of that increasing trend. And it’s great for our members, not just in terms of the savings on pharmacy claims, but even in terms of the work that goes into actually doing this type of exercise each year. From a resource perspective, you don’t have to devote resources to actually doing this work, and from a financial perspective, we do this one time for our entire coalition. 

There are about 165 plan sponsors that participate on one of our two PBM contracts, and let’s just use a conservative estimate. Let’s say that you contract with a consultant to perform this on your behalf for $25,000 a year. If all 165 of our plan sponsors did that at $25,000 per year per plan sponsor, you’re talking over $4.1 million across our book of business. 

So not only does the market check save money in terms of better discounts, better fees, better rebates that we negotiate on our members behalf, it also saves a heck of a lot of time and a lot of dollars if each of our members were to do this independently. So a lot of different ways that the market check provides value to each of our members.  

(15:53) 

If you have questions about the market check, please by all means reach out to your account management team and we can set up a call. The results of the market check will be out to you hopefully by the end of the third quarter. 

If you have questions about the market check, we’ll have some additional information coming out soon. If you have an immediate question that you’d like to ask, you can reach out to your account management representative and that person can get you the answer. Our analytics team will also be working on an individual analysis for each group. 

We hope to have those results out to you at some point during the third quarter.  

So again, we want this podcast to be relevant to you and so we would invite you to submit your questions on what you’d like to hear. You can do this by completing the field on the landing page or clicking the link. 

The link is titled “submit your questions here.” So you can do it in one of those two ways and then tune in again to hear your questions answered in future editions of this podcast.  

(17:03) 

Moving on as you’re looking for ways to realize best practices and expand your benefits knowledge, don’t forget about the many opportunities that you have as a member to access both in-person and virtual learning events. 

We have benefits roundtables coming up over the summer and those are great opportunities for those members in Akron, Canton, Columbus, and Cincinnati to network with one another in person over breakfast or lunch. I would encourage you if you’ve not attended a local benefits roundtable in one of those marketplaces and you’re in one of those marketplaces, please consider doing so.  

Another event that we’re really excited about this year, and this will be the first time that we’ve done an event like this on August 31st in Columbus, Ohio, we will host the Employers Health and Wealth Administrator Workshop. 

It’ll be at the Hilton Hotel at Easton, which is just a fantastic shopping and dining center on the east side of town, really close to the Columbus International Airport. This program will run from 8 30 a.m. to 4 30 p.m. We will have a host of great speakers on things that plan sponsors need to know in terms of administering their health and wealth plans. You can register for this event or find information on any of our events on our website www.employershealthco.com. That’s employershealthco.com.  

(18:52) 

Finally, I want to take a minute to share with you about one of our valued vendor partners for this edition of the podcast. 

That partner is Compsyche. Since 2009, Compsyche has been the exclusive EAP and behavioral health partner and a preferred wellness vendor for more than 15 Employers Health members. Those 15 Employers Health members cover nearly 20,000 individuals. 

Compsyche is the world’s largest provider of employee assistance programs and is the pioneer and worldwide leader of fully integrated EAP employee wellness and work-life services under its Guidance Resources brand. Compsyche developed its unique brand, Guidance Resources, to seamlessly integrate employee assistance, wellness, and work-life services into a single solution that helps employees lead healthier and more productive lives. Whether the challenges are family care concerns or legal issues, financial matters, or even personal convenience requests, the Guidance Resource team at Compsyche delivers complete solutions for your employees and their families. 

We’ve had a fantastic relationship with Compsyche. We’ve had great feedback from the employers that utilize Compsyche and they’re always looking for ways to improve their services and add on to their solutions. So if you’d like to learn more about Compsyche, you can always reach out to your Employers Health account representative. 

(20:29) 

So that’s going to conclude this month’s podcast. Again, thank you for taking the time to listen, but more importantly, thank you for your continued membership and your continued participation with Employers Health. Again, please submit your questions so that we can get them answered in our upcoming editions. 

And also, if you want to be considered for the $50 Visa gift card, the code word is “Pharmacy”. So again, just for listening, to enter into the $50 Visa gift card drawing, the code word is “Pharmacy”. So please submit that along with your name and email address. 

We will enter you into that drawing and we’ll announce the winner before our next podcast. With that, I hope you all have a great summer.  

Be well, and we hope to see you soon. 

Thanks for listening.