NCPA Executive Update

NCPA Executive Update delivers insights on legislative, regulatory, policy, and industry developments from NCPA CEO B. Douglas Hoey, Pharmacist, MBA, to NCPA members and pharmacy leaders every other Friday.

Less Spread = More Bulletproof Vests? | NCPA Executive Update | September 14, 2018

by NCPA | Sep 14, 2018

Dear Colleague,

Doug Hoey

Changing the current pharmacy payment model is an imperative, but it won't be easy. This week Bloomberg did a story, "The Secret Drug Pricing System Middlemen Use to Rake in Millions," on PBM spread pricing. It highlighted just how convoluted the current pharmacy payment system has become. Bottom line: Plan sponsors like federal and state governments (i.e., taxpayers) are spending lots of money on the spread.

Bloomberg's story highlighted pharmacist Mark Frahm, a community pharmacist from Ottumwa, Iowa, who provides services for the county jail. In the "legal notices" published by the local newspaper, Frahm noticed that what the jail was paying to the county's PBM (Caremark) for prescriptions was far different than what he was being paid.

From the Bloomberg story:

    "As he compared the newspaper notice with his own records, and then with the county's, Frahm saw that for a bottle of generic antipsychotic pills, CVS had billed Wapello County $198.22. But South Side Drug was reimbursed just $5.73."

I talked with Frahm and, while he wants his pharmacy to be paid reasonably, this came down to something everyone can relate to: wise use of tax dollars. Frahm pays tax dollars to the county and he, like all of the citizens of Wapello County, wants to make sure those dollars aren't being wasted.

"I told the sheriff that with the money we're helping them save, the department can use the money to buy things it needs like bullet proof vests, or hire a security guard, or other things it needs to serve the citizens."

This comes as no surprise to community pharmacies across the country who have known about PBM spread pricing for years. In 2012, NCPA vocally advocated for transparency in Medicare Part D and CMS issued a requirement that plans have to disclose their spread pricing, making them think twice or have to come up with other drug price-raising schemes.

In May of 2017 I wrote an Executive Update titled: "How Much $ Should a PBM make on an Rx?" In that EU, we estimated the average amount Express Scripts was being paid for each prescription.

The earnings before interest, tax, depreciation, and amortization, or EBITDA, estimate we came up with was $6.15. That's similar to the reports from the state of Ohio's Medicaid program which found spread of $5.70 and $6.14 in two reports done for the state this summer. Ohio has since "fired" its PBMs and is demanding contractual transparency to help assure good taxpayer stewardship.

The recent Bloomberg story wasn't able to break apart how much the PBM received and how much the pharmacy received, but in last year's EU we did this estimate:

As a point of reference, while the NCPA Digest, sponsored by Cardinal Health, doesn't use EBITDA to measure pharmacy's pre-tax earnings, the figure that most closely resembles it has independent community pharmacies earning, on average, less than $2 per prescription.

For that $2, the pharmacy provides the following services: dispenses the product, counsels the patient, offers the convenience of being there for the patient for counseling and questions when needed, involuntarily serves as the PBM's insurance coordinator, and it carries the inventory (Here's another excellent Bloomberg story about how PBMs include your inventory purchases in their reported revenue).

Accountability and value are driving forces for changes to the current pharmacy payment model. Bloomberg's story opened the eyes of thousands of taxpayers, who now realize they are getting neither accountability nor value and must demand a different model.

Doug Hoey

P.S. This year's NCPA Annual Convention is shaping up to be a big one – both in attendees and opportunities. It's only three weeks away, but it's not too late to register. No fluff, no theorizing – just solid solutions you can bring home and put to work in your pharmacy.