Episode 3 – Drivers of Pharmacy Trend, Trend Update, PBM Marketplace

Mike Stull (0:00) 

Alright, we are ready to go, and welcome to the Employer’s Health Benecast, your monthly source for clarity on health benefit trends and strategies. This is your host, Mike Stull. I’d like to start this month by saying thank you to everyone who took the time to listen to last month’s episode, covering specialty pharmacy, private exchanges, and other hot topics and benefits and total rewards. 

As always, we invite you to submit questions or topics of interest that you would like covered in future episodes. I’d also like to congratulate August’s gift card giveaway winner, Misty White, from Wayne County, Ohio. Misty submitted the code word, “HEALTH,” from the August show, and is the winner of a $50 Visa gift card. 

I’ll give you the code word for this month’s drawing at some point during the episode. Be sure to listen closely. In this month’s episode, we’re going to dive into first half pharmacy plan performance from our book of business, and strategies that plan sponsors are utilizing to control trend. 

(1:06) 

But first, I want to acknowledge a question we received related to fiduciary responsibility. I wanted to tackle this topic on this month’s episode, but I needed to phone a friend and couldn’t align schedules with our subject matter experts. As such, we’ll discuss it in next month’s episode. 

What I will say about helping plan sponsors comply with their fiduciary responsibilities and obligations is that we do have some resources and services that can help. First, we recently presented a Health and Wealth Administrators Workshop here in Columbus, where we had a number of speakers talk about the ways in which plan administrators can remain compliant with their obligations. The presentations from that event are on the Employer’s Health website, and you can access them. 

All you need is the password, and you can get that from your account management representative here at Employers Health.  

The other service that we have is called Compliance Dashboard. Compliance Dashboard is an online tool that lists out all of the filings, all of the reports, everything really that you need in order to be compliant and fulfill your obligations as a plan administrator. 

It’s a very economical service, and our members that utilize it have found it very useful. Again, if you’re interested in Compliance Dashboard, you can contact your account management representative, and they can get you started on that path.  

So be on the watch for next month’s podcast, and we’ll be sure to get the proper members of the team on the line to discuss fiduciary responsibilities. 

(2:42) 

But now to the topic at hand, first half performance of our Pharmacy Benefits Program. And at a high level, how is our book of business performing?  

The short answer is very well. Per member per month cost, which is what we measure pharmacy trend by after copay and before rebates, is 1.5% for our book of business. 

Again, that’s through the first six months of the year. When we compare that to what CVS Caremark has put out for the first half of the year for its book of business, it listed 3.6%, but that was after rebates. So for our book to have a PMPM trending at 1.5% before we take into account the offset of rebates, that’s very good. 

Generic dispensing rate, again looking at the percent of all prescriptions dispensed under our plans that are dispensed as generics, is 85.3%. Again, very strong performance. Brand price, we’re talking about the list price of drugs here. So the list price of brand name drugs has gone up 14.1% over the same period last year. 

That’s one of the key contributors to trend. It’s also for our book of business a little bit higher than the CVS book of business, which is at 9.2%. Generic prices also have seen a slight increase in the CVS book of business at about 0.6%, although they’ve been flat under our book of business. So that’s good for our plan sponsors. 

Specialty, as a percent of overall pharmacy cost, is currently at 29.6%. So creeping up on that 30% mark, and it’s much higher than that for the Caremark book of business. And also, when we look at OptumRx, it’s also lower than the OptumRx book of business percentage as well. Both of those are up in the mid-30s. 

CVS also reported that utilization is up about 2.7%. So outside of price and our strong generic dispensing rate performance, what are some of the other drivers of trend over the first six months of the year?  

(4:48) 

The first topic that I want to talk about is good news for plan sponsors, and that’s a decrease in spending on drugs used to treat hepatitis C. For our book of business, over the first half of the year, spend was down 27.8%. Compare that to the CVS book of business. CVS reported that its spend on hepatitis C treatments were down 50% for the first half of the year. Comparing it to OptumRx, OptumRx reported that its book of business was down about a third. 

So overall, whether it’s CVS Caremark, OptumRx, or the Employers Health book of business, we’re seeing a reduction in spending for hepatitis C, which is overall bringing down trend for the first half of the year. We expect to see that trend continue.  

Bad news, so in terms of what’s driving trend, include medications to treat inflammatory conditions like rheumatoid arthritis. 

In that class for Employers Health, our trend is up 28.5%, so up almost a third. A third of that trend is related to increased utilization of the medications. Two-thirds of the trend are a result of price inflation. 

One of the advantages in the class that hopefully will benefit plan sponsors in the near future is that a biosimilar for Humira, which is typically what we see at the top of the top drugs list for most of our plan sponsors, a biosimilar for that drug has been approved by the Food and Drug Administration. The uncertainty around that biosimilar for Humira has to do with patent litigation that’s currently tied up in the courts. So when that litigation is decided by the courts, then we should have a clear picture on when that biosimilar may come to market. 

Another class with double-digit trend is the oncology class. It’s up 16.4%. That’s only looking at drugs dispensed under the pharmacy side, which historically have been a smaller percentage of the overall drug costs associated with cancer treatment. We expect to see this continue to climb as a lot of new drugs in the pipeline for oncology will most likely be covered under the pharmacy benefit. 

So again, oncology up 16.4%. Diabetes continues to trend upward, and prescriptions to treat diabetes saw a 6.17% increase in utilization and a 13.6% increase in price inflation. So again, diabetes continuing through both increased utilization and increased price of the drugs to drive trend upwards.  

(7:31) 

Final thing that I’ll talk about is compound management. 

So those compound drugs, those creams that were prescribed and dispensed inappropriately starting back in 2014 have come down considerably. We saw a big impact on trend last year as a result of plan sponsors putting clinical management around compounds, and we continue to see that through the first half of 2016. If we look at per member per month spend on compound management, or on compounds as a class, in 2014 the PMPM in quarter two was $5.00. This year, 2016, the PMPM in quarter two is $0.20. So $5.00 PMPM in 2014, $0.20 PMPM in 2016, as a result of some of the clinical management step therapies prior OSS exclusions that were put in to manage compounds. 

And we continue to see additional drugs being targeted in ways similar to compounding that are priced inappropriately, utilized inappropriately, and will continue to come out to talk to you about coverage for those drugs.  

(8:41) 

So that’s the trend update for the first half of the year. Again, very strong performance from a book of business perspective, about a 1.5% increase in the per member per month costs. 

Across our book of business, that’s before rebates, it’s after member copay, and outperforming what we’ve seen reported from both CVS Caremark and OptumRx through the first half of the year.  

There’s a lot of factors that go into trend, and so the one thing that I’ll leave you with as it relates to this discussion is that it’s important to understand the context in which you’re viewing trend. So know what the actual PMPM dollar values are, how those compare to the benchmarks, how those compare to our book of business, so that you can understand, you know, if your trend rate is a little bit higher than our book of business, or a little bit lower, or even higher or lower than either CVS or Optum’s book of business or their peer benchmarks, there are a host of valid reasons that may suggest that planned performance is fine, but that it’s normalizing versus those benchmarks. 

So again, just keep in context as you interpret your own plans performance versus our book of business, Caremark’s book of business, Optum’s book of business, or any of the peer benchmarking that you may be looking to compare against.  

(10:15) 

In the next segment, we want to talk about news from around the PBM marketplace. I hope this is a reoccurring segment in our podcast, and I just want to point out a couple things that have come out in the news and offer just a quick comment about them. 

The first one is that Prime Therapeutics and Walgreens recently announced the formation of a joint company for purposes of combining their respective mail order and specialty pharmacy operations. Prime Therapeutics, the fourth largest PBM in the marketplace, it’s owned by around 14 Blue’s plans from across the country, and so its primary customers are customers of those Blue Cross Blue Shield plans. In short, what this really does for both Prime Therapeutics and Walgreens is increases their respective scale from a purchasing perspective. 

So, from a mail order purchasing perspective, from a specialty pharmacy purchasing perspective, it certainly increases the amount of scale that each has with pharmaceutical manufacturers and wholesalers. We’ll see how that increased scale then kind of trickles down into the pricing that’s offered.  

Here’s my bottom line on the deal. 

If you’ve listened to my webinars, you know that I think there’s a battle of leverage going on in the marketplace. We’ve seen the consolidation that’s occurring. Everyone’s looking for more scale, and so this is a very convenient way for both Prime Therapeutics and Walgreens to gain more scale. 

From Prime Therapeutics’ perspective, having Walgreens as a purchasing partner for mail order and specialty makes a heck of a lot of sense. From Walgreens’ perspective, it wants to drive more customer volume through their retail stores, not just from a prescription perspective, but from front-end store sales as well. And so that’s why you’ve also seen Walgreens do these types of deals, not necessarily where they’re combining mail order and specialty pharmacy but at least offering a very competitive 90-day retail offering to other PBMs, whether it’s Express Scripts or OptumRx or Envision. 

So again, very consistent with what we’ve seen in the marketplace in terms of PBMs and retail pharmacies trying to gain greater scale in order to better negotiate in the marketplace. And from a planned sponsor perspective, what we’re really interested in is how does all this additional scale translate into better pricing for us in our contracts with the PBMs.  

(13:02) 

One of the other headlines in the industry is Express Scripts’ recent announcement that it was adding new initiatives to its SafeguardRx programs, and in particular around inflammatory conditions, which if you recall from our trend conversation just a few minutes ago, we said that inflammatory conditions was one of the primary drivers of increased trend. 

This program is really about creating a value-based contract where if a participant fills a drug for an inflammatory condition at the Acredo pharmacy, which is Express Scripts’ specialty pharmacy, and that patient drops off of that therapy within the first 90 days, then there’s a refund given back to the planned sponsor.  

Here’s my take on it. Value-based contracting is sort of a populist term. Everybody wants a value-based contract, right? Everybody wants transparency. They’re populist terms. The devil’s in the details, and most of the details that we’ve had come out about these new programs are in press releases and other marketing. 

Where the rubber meets the road is, is this over the long-term going to help control trend, help control adherence, and actually be a positive for the planned sponsor? What we know is that the dollars are coming from somewhere. The big key, if you use CVS or you use Optum or you use another PBM, is to figure out, okay, these dollars are obviously available from the manufacturers. How are they getting passed back to you as the planned sponsor? Are they coming back in the form of rebates, or are they coming back in the form of potentially coming back in the form of some type of guarantee? Express Scripts has done this with its inflation protection program, so really that’s a different way of packaging price protection rebates. 

If you look at the way CVS or Optum handles price protection clauses in their rebate contracts, they treat them as rebates, and they’re passed back to the plan sponsors. Particularly if you have 100% rebate pass-through contracts, typically the price protection dollars are passed back to you. Express Scripts has just packaged it in a different way by putting guarantees out that if your planned spend goes above a certain inflation threshold, then you’ll get some of those dollars back. 

So, it’s just a different way of packaging dollars that are coming back from the pharmaceutical manufacturers, and your job as the planned sponsor is to figure out whether or not you’re getting those same dollars back from your PBM in a different way. And remember that good PBMs push utilization through their own assets, whether that’s a mail order pharmacy, or a specialty pharmacy, or in the case of CVS, 9,000 plus retail pharmacies that it owns. So, when you look at these types of programs, just keep in mind that part of the objective here, just like it is with mandatory mail, or with maintenance choice, or with the new Walgreens initiatives with Prime, part of the objective here is to push additional utilization through its own specialty pharmacy. 

(16:21) 

Finally, let me just mention that we’ve heard pretty decent sales growth numbers from all three of the major PBMs. When I hear that, I’m interested in kind of who are they actually taking business from. I think in a lot of cases they’re just trading business, but in other cases they’re taking business from some of the smaller mid-sized players as well. 

CVS has been reporting pretty strong sales growth this year, nothing like what it had over the previous two years, but doing all right. OptumRx, on the other hand, has had a fantastic year from a sales growth perspective. I know that it had some early wins in terms of CalPERS, so the California Public Employee Retirement System. 

It also sold a retirement system in Texas for public employees and had a number of other employer wins. So OptumRx has really had a very strong growth year, and part of the plan that its CEO and leadership team had was showing that Optum could compete on a standalone basis. We’ve seen efforts around proving that come through fruition this year for Optum. So again, really good year for them.  

(17:35) 

So now let’s move to another new segment where we talk about what’s new at Employers Health. But before we do that, let me give you the code word to enter for the $50 Visa gift card, and that code word is “value”. 

So again, the code word for this month’s $50 Visa gift card is “value”. Please submit that along with your name and email address using the link on the landing page on the Employers Health website. Again, that word is “value.” 

(18:04) 

So what’s happening at Employers Health? We’re committed to providing learning and networking opportunities to our membership. Consistently, our membership ranks these types of learning and networking opportunities as one of the most valuable aspects of their membership at Employers Health, and you can certainly join us at some of our upcoming events.  

The first learning opportunity that I want to mention will happen right after the election in November, and it will be all about how healthcare policy will be affected by the results of the election. 

So that’ll be held in Fairlawn. It’ll be an in-person meeting. Stay tuned. You’ll be receiving information about this. Shortly, I think we have a good lineup of speakers. It’ll be basically a half-day event in Fairlawn. 

The other learning opportunity that I want to bring to your attention today is our annual meeting, and this occurs every year in December. This year, it’s going to take place on December 7th, so you can mark your calendars for the 7th. The meeting will be held at the conference center at Kent State Stark. 

The topic will be specialty pharmacy, so obviously a very relevant and important topic to everyone. So hope to see you there, both in November for the post-election healthcare policy discussion, and then again on December 7th for our annual meeting. And you can register for any of these events and find more information on our website at employershealthco.com, and don’t forget to follow us on LinkedIn and Twitter to stay up to date on all upcoming Employers Health events. 

There is a lot going on within the organization, and so if you’re on LinkedIn or you’re on Twitter, I’d encourage you to follow us and stay up to date with everything that’s happening here at Employers Health.  

(19:57) 

So on that note, what are some of the things going on here at Employers Health? Well, first we continue to add new team members to our organization. We recently welcomed Emily Guy to our marketing and communications team. 

Emily will be responsible for our member learning and networking opportunities like those that I just mentioned, and she comes to us from the Akron Canton Airport, so welcome Emily. We’ll also be adding two new account management team members this fall. We’re currently on pace to add approximately $100 million in new pharmacy business to our program, and so as we continue to grow, we need additional team members to help deliver on the strong value that our members have come to expect from Employers Health. 

And then finally, our CEO, Chris Goff, just returned from a study mission with other health care leaders in Denmark. Chris and the group learned firsthand about the health care system in Denmark, its pros, and cons, and how we might learn from their experience to improve our own system for delivering care. So if you see Chris out and about at either a holiday lunch or at one of our upcoming learning opportunities and you have interest in what he learned in Denmark, you might just ask. He always has some good insights that he took away from those study missions.  

So again, there’s always something new at Employers Health, and I would encourage you to follow us on LinkedIn or Twitter to stay updated.  

So that’s going to wrap up this month’s episode. 

I hope you enjoyed the new format. Hope you enjoyed the news and my personal take on some of the events going on in the industry. Thank you again for taking the time to listen, but more importantly, thank you for those who are members. 

Thank you for your continued membership and interest in Employers Health. 

Please be sure to submit your questions so that we can answer them in upcoming editions of the Employers Health Benecast, and again, you can submit those questions along with this month’s code word for the for entry into the $50 Visa gift card drawing on our website at employershealthco.com.  

So welcome to fall. Hope everyone has a smooth open enrollment season. 

Be well and we’ll see you soon.