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“Uncovered: The #1 Way to Significantly Cut 
Employer Paid Prescription Drug Costs 
Without Impacting Current Benefit Leve...
Payment for the PBM Service 
n PBM service / claims processing 
– Very valuable service 
– PBM deserves a reasonable retur...
HHooww DDoo TTrraaddiittiioonnaall PPBBMMss MMaakkee MMoonneeyy?? 
% o f P r o f i t s 
Confidential and Proprietary 
5 0 ...
Cash Flows in the PBM Industry 
(Traditional vs. Transparent PBMs) 
n Fully Transparent and 100% Pass-Through PBMs charge ...
P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e , L P 
Courtesy of Pembroke Consulting, Inc.
How does the “Spread” arise?? 
n The drug pricing “standard” which forms 
the basis of the discounted prices… 
– Is not ne...
Generic Drug Pricing 
n Generic drugs have two prices 
1. The AWP price 
» This is grossly higher than the drug’s actual 
...
AWP Fluctuation of 
Generic Prozac 20 mg 
Manufacturer AWP Price / 100 Capsules 
Source: AmerisourceBergen 10/21/10 
Aurob...
Differential Pricing 
Billing terms AWP - 50% to plan sponsor: 
AWP = $266.00 - 50% discount = $133.00 / 100 tab 
Payment ...
Ongoing research on the “spread” 
n Ongoing research / consulting / auditing practice 
n Nearly one million prescription c...
Employer 1 Spread Pricing 
Confidential and Proprietary 
Drug Name, 
Strength and 
(Quantity) 
Transparent PBM 
Billed Spo...
Employer 2 Spread Pricing 
Confidential and Proprietary 
Drug Name, 
Strength and 
(Quantity) 
Transparent PBM 
Billed Spo...
Mail Order Pharmacy Excessive Mark-ups 
n Mail-Order Pharmacy: any pharmacy that 
delivers via mail or courier excluding c...
Employer 1* Mail and Retail (Community) Pharmacy 
Prices Compared 
Confidential and Proprietary 
Drug Name & 
Strength 
Dr...
Employer 2* Mail and 
Retail (Community) Pharmacy Prices Compared 
Confidential and Proprietary 
Drug Name & 
Strength 
Dr...
Mail Order Studies Go to College 
n Creighton University Researchers 
– Research presented in June 2005 at Academy Health ...
Misleading Contract Language: 
Sponsor and PBM 
n Nuances of the pharmacy benefit vocabulary 
n Seemingly favorable terms ...
Generic Discount Guarantees 
DRUG Quantity AWP- 60% Transparent 
Confidential and Proprietary 
MAC 
Prices 
Saving 
With M...
Multiple MAC lists 
n Contract language leads the reasonable person to believe 
there is only one MAC list... 
– There are...
Rebates by Many Names 
n Contract language will give the sponsor the 
impression that there is one rebate… 
– There are mu...
Repackaging 
Confidential and Proprietary 
Scenario #1 
● Patient goes to a community 
pharmacy 
● The pharmacist orders L...
What's the Bottom Line? 
'Transparency' Defined by Robert Garis, PhD, 
Professor Creighton University School of Pharmacy 
...
The #1 Way to Significantly Cut Prescription 
Drug Costs Without Impacting Current 
Benefit Levels is _____________? 
Conf...
#1 - PBM must sign as a 
Fiduciary! 
fi·du·ci·ar·y explained by Wikipedia... 
A fiduciary duty is the highest standard of ...
“SHAMELESS” Self-Promotion Slide 
Access: Mail, specialty & retail pharmacy network 64,000+ 
Pricing: No spreads and No ma...
Thank You! 
TransparentRx, LLC 
2850 W. Horizon Ridge Pkwy, Ste. 200 
Henderson, Nevada 89052 
Web site: www.transparentrx...
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The #1 Way to Significantly Cut Employer Pharmacy Benefit Service Costs Without Impacting Employee Access or Benefit Levels

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PBMs offer a valuable service, but no one outside the industry truly understands what they do or how they make money. This slide deck puts an end to this now. One can't permanently fix a problem (rising PBM cost) without first knowing how it was created.

Published in: Healthcare
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The #1 Way to Significantly Cut Employer Pharmacy Benefit Service Costs Without Impacting Employee Access or Benefit Levels

  1. 1. “Uncovered: The #1 Way to Significantly Cut Employer Paid Prescription Drug Costs Without Impacting Current Benefit Levels” TransparentRx, LLC By Tyrone D. Squires, MBA Managing Director Confidential and Proprietary
  2. 2. Payment for the PBM Service n PBM service / claims processing – Very valuable service – PBM deserves a reasonable return Confidential and Proprietary – Key Issue » Hidden cash flows to traditional PBMs (Pharmacy Benefit Manager) that make up for artificially low (10-50 cents/Rx) administration fees – Purchasers generally DO NOT know the actual cost of their PBM service » PBM cash flows go “under the radar” of purchasers » PBM industry claims transparency n Does not appear to include disclosure of cash flows we will describe
  3. 3. HHooww DDoo TTrraaddiittiioonnaall PPBBMMss MMaakkee MMoonneeyy?? % o f P r o f i t s Confidential and Proprietary 5 0 % 4 0 % 3 0 % 2 0 % 1 0 % 0 % 1 0 % A d m i n . F e e s 2 1 % R e t a il M a r k u p 2 2 % M a i l M a r k u p 4 7 % M a n u f a c t u r e r R e v e n u e P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e , L P
  4. 4. Cash Flows in the PBM Industry (Traditional vs. Transparent PBMs) n Fully Transparent and 100% Pass-Through PBMs charge a realistic and fair administration fee for their service – No other cash flows – Generally good value n Traditional PBMs charge a very low administration fee, but augment the low fee with “additional revenues” from other sources. These are hidden cash flows: » Differential Pricing » Spread Pricing – ingredient costs and dispensing fees » PBM owned mail order pharmacy – Excessive markups » Contract Language: discount guarantees, MAC lists and rebates » Repackaging § Plan sponsors are generally unaware of these hidden cash flows – Well over 90% of all plan sponsors are unaware § Most sponsors don’t know what they don’t know Confidential and Proprietary
  5. 5. P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e , L P Courtesy of Pembroke Consulting, Inc.
  6. 6. How does the “Spread” arise?? n The drug pricing “standard” which forms the basis of the discounted prices… – Is not necessarily standard » There is variation in the “standard” price – Is many times a grossly elevated price » Particularly with generic drugs – Is known as Average Wholesale Price (AWP) » We call AWP “ain’t what’s paid”! Confidential and Proprietary
  7. 7. Generic Drug Pricing n Generic drugs have two prices 1. The AWP price » This is grossly higher than the drug’s actual acquisition cost in the supply chain 2. The “Maximum Allowable Cost” (MAC) price » Relatively close to the actual acquisition cost An example will demonstrate the fluctuation in AWP for generic drugs… Confidential and Proprietary
  8. 8. AWP Fluctuation of Generic Prozac 20 mg Manufacturer AWP Price / 100 Capsules Source: AmerisourceBergen 10/21/10 Aurobindo $ 266.81 Mylan $ 266.55 Sandoz $ 266.52 Teva $ 266.81 Prozac Lilly (originator) $ 630.00 Maximum allowable cost (MAC) Confidential and Proprietary $ 25.20
  9. 9. Differential Pricing Billing terms AWP - 50% to plan sponsor: AWP = $266.00 - 50% discount = $133.00 / 100 tab Payment terms to pharmacy: MAC price = $ 25.00 / 100 tab Spread to PBM $108.00 ($133.00 billed - $25.00 paid) Confidential and Proprietary
  10. 10. Ongoing research on the “spread” n Ongoing research / consulting / auditing practice n Nearly one million prescription claims n It has been estimated that the average dollar amount of the spread nationally is approximately $22.00! n More examples in the “Spread” in the following slides Confidential and Proprietary
  11. 11. Employer 1 Spread Pricing Confidential and Proprietary Drug Name, Strength and (Quantity) Transparent PBM Billed Sponsor Traditional PBM Billed Sponsor Employer Savings Paid Pharmacy (Spread) Atenolol 25mg (30) $.67 $3 $2.33 $2 ($1) Fluoxetine 20mg (30) $1.28 $18 $16.72 $12 ($6) Fosamax 70mg (4) $80.18 $92 $11.82 $92 ($0) Lotrel 10-20mg (30) $104.70 $126 $21.30 $126 ($0) Norvasc 5mg (30) $53.66 $68 $14.34 $68 ($0) Pacerone 200mg (60) $25.00 $51 $26 $28 ($23) Tamoxifen Citrate 20mg (30) $6.26 $51 $44.74 $26 ($25) Timolol Maleate 0.5% (10) $1.76 $17 $15.24 $8 ($9)
  12. 12. Employer 2 Spread Pricing Confidential and Proprietary Drug Name, Strength and (Quantity) Transparent PBM Billed Sponsor Traditional PBM Billed Sponsor Employer Savings Paid Pharmacy (Spread) Allegra-D 12hr 120mg (60) $121.80 $139 $17.20 $131 ($8) Cyclobenzaprine 10mg (30) $1.42 $11 $9.58 $10 ($1) Flomax 0.4mg (30) $105.30 $116 $10.70 $116 ($0) Simvastatin 20mg (30) $2.86 $15 $12.14 $15 ($0) Metformin 1000mg (60) $2.88 $18 $15.12 $17 ($1) Nystatin 100 MIL 15 UN/GM CRM $1.36 $14 $12.64 $11 ($3) Oxycodone 5mg (180) $20.88 $29 $8.12 $25 ($4) Temazepam 15mg (60) $4.26 $11 $6.74 $8 ($3) Terazosin 2mg (120) $8.38 $16 $7.62 $12 ($4)
  13. 13. Mail Order Pharmacy Excessive Mark-ups n Mail-Order Pharmacy: any pharmacy that delivers via mail or courier excluding chain or independent pharmacies n A chain or independent pharmacy in our cities and towns includes – Target – Walgreen's – CVS – Sally’s Apothecary – Jim’s Corner Pharmacy Confidential and Proprietary
  14. 14. Employer 1* Mail and Retail (Community) Pharmacy Prices Compared Confidential and Proprietary Drug Name & Strength Drug Qty. Mail $ Community $ Saving in Community $ Atenolol 50 mg 90 $38 $8 $30 Cyclobenzaprine 90 $43 $8 $35 10 mg Fluoxetine 20 mg 90 $120 $54 $66 Gemfibrozil 180 $112 $39 $73 600 mg Naproxen 500 mg 180 $117 $33 $84 Temazepam 30 mg 30 $13 $5 $8 Trazodone 50 mg 90 $19 $6 $13 Verapamil 240 mg 90 $73 $32 $41 Minocycline 60 $102 $47 $55 100 mg
  15. 15. Employer 2* Mail and Retail (Community) Pharmacy Prices Compared Confidential and Proprietary Drug Name & Strength Drug Qty. Mail $ Community $ Saving in Community $ Alprazolam 0.25mg 90 $31 $10 $21 Atenolol 100 mg 90 $56 $10 $46 Avandia 8 mg 90 $370 $318 $52 Captopril 50 mg 90 $52 $16 $36 Cyclobenzaprine 90 $46 $17 $29 10 mg Doxycycline 100 mg 90 $63 $40 $23 Evista 60 mg 90 $177 $159 $18 Fluoxetine 20 mg Cap 90 $120 $56 $64 Fluoxetine 20 mg Tab 90 $126 $86 $40
  16. 16. Mail Order Studies Go to College n Creighton University Researchers – Research presented in June 2005 at Academy Health – Nearly 10,000 pairs of PBM mail order and community retail prescriptions for exact drugs and dates of service – Five employer groups (plan sponsors) – Conclusion » When the member co-payment is lowered to encourage members to go with mail order service… The mail order option costs the sponsor more than retail pharmacy. Confidential and Proprietary
  17. 17. Misleading Contract Language: Sponsor and PBM n Nuances of the pharmacy benefit vocabulary n Seemingly favorable terms may not be a bargain n Three examples follow: 1. Generic Discount Guarantees 2. Multiple MAC lists 3. Rebates by many names Confidential and Proprietary
  18. 18. Generic Discount Guarantees DRUG Quantity AWP- 60% Transparent Confidential and Proprietary MAC Prices Saving With MAC Atenolol 50mg 100 $33.33 $10.50 $22.83 Alprazolam 100 $36.28 $11.95 $24.33 0.5mg Captopril 25mg 100 $29.33 $19.00 $10.33 Cephalexin 28 $17.04 $11.50 $5.54 500mg Fluoxetine 20mg 100 $106.40 $25.00 $81.40 Lorazepam 2mg 100 $50.28 $25.50 $24.78 Ranitidine 150 100 $61.78 $49.89 $11.89 Glyburide 5mg 60 $17.44 $16.95 $0.49
  19. 19. Multiple MAC lists n Contract language leads the reasonable person to believe there is only one MAC list... – There are multiple MAC lists – The employers’ MAC lists will be less comprehensive and aggressive than the pharmacy MAC list. For instance... » Fewer generics with MAC pricing » Employers prices are higher than the MAC prices paid to the pharmacy » Pharmacy is paid with the lowest priced MAC list “Most sponsors don’t know what they don’t know.” Confidential and Proprietary
  20. 20. Rebates by Many Names n Contract language will give the sponsor the impression that there is one rebate… – There are multiple rebates » Access rebate » Administration rebate » Market share rebate » Other names as well (not classified as rebates but instead reimbursements for SG & A expenses) n Sponsors may get 90% “of the rebate” – Which rebate??? – Mike Winkleman » Medco rebate retention of 12% » From 10-Q for 1st Quarter 2010 Confidential and Proprietary
  21. 21. Repackaging Confidential and Proprietary Scenario #1 ● Patient goes to a community pharmacy ● The pharmacist orders Lipitor 20mg #30 from their wholesaler, which comes with an AWP of $147.04 ● The pharmacy is paid AWP – 14% plus a dispensing fee, which is calculated as... $147.04 - $20.59 + $2 = $128.45 *Most people outside the industry are unaware of this practice. Scenario #2 ● Patient sent to a PBM mail order pharmacy ● The pharmacist dispenses Lipitor 20mg #30, which comes with an AWP of $147.04 ● The PBM's pharmacy repackages drugs, in doing so they create a new package size with a higher AWP. For example, a new package might be #60 with an AWP of $408.60. ● The pharmacy mails the patient Lipitor 20mg #30 with an AWP of $204.30. At AWP - 22% the PBM pays itself: $204.30 - $44.95 = $159.35
  22. 22. What's the Bottom Line? 'Transparency' Defined by Robert Garis, PhD, Professor Creighton University School of Pharmacy Level 1. The PBM discloses in the sponsor's contract cash flows. (Traditional) Level 2. The PBM passes through all rebates and network prices to the sponsor [there is no spread pricing]. (Transparent) Level 3. The PBM passes through all rebates, more competitive prices than industry norms and provides full accounting (auditing provisions) to the sponsor. (Transparent + Pass-Through) Confidential and Proprietary
  23. 23. The #1 Way to Significantly Cut Prescription Drug Costs Without Impacting Current Benefit Levels is _____________? Confidential and Proprietary
  24. 24. #1 - PBM must sign as a Fiduciary! fi·du·ci·ar·y explained by Wikipedia... A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the entity to whom it owes the duty: it must not put its own interests before the duty, and must not profit from its position as fiduciary unless the principal consents. It is illegal for a fiduciary to misappropriate money for personal gain. Confidential and Proprietary
  25. 25. “SHAMELESS” Self-Promotion Slide Access: Mail, specialty & retail pharmacy network 64,000+ Pricing: No spreads and No mark-up (mail-order) ******TTrraannssppaarreennttRRxx,, LLLLCC****** DDrruugg PPrriicciinngg == TTRRUUEE AACCQQUUIISSIITTIIOONN CCOOSSTT ++ FFLLAATT TTRRAANNSSAACCTTIIOONN FFEEEE Rebates: Guaranteed 100% pass-through to plan sponsors Value-Added: – Fiduciary arrangement – Web-based access to audit and pricing detail – Disease Management Program (focus on adherence) – Extensive DUR Program – Discount OTC and Personal Care – Voluntary Benefits: Lifelock, roadside service and gym
  26. 26. Thank You! TransparentRx, LLC 2850 W. Horizon Ridge Pkwy, Ste. 200 Henderson, Nevada 89052 Web site: www.transparentrx.com Email: director@transparentrx.com Phone: 1-866-499-1940 ext. 201 Confidential and Proprietary

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