Episode 35 – Ask Mike Anything – Your Pharmacy Benefit Questions Answered

Mike Stull (00:09) 

Hi, everyone, and welcome. Thanks for joining us for our first 2023 episode of HR Benecast, your source for expert commentary and insights on current health benefits-related news and strategies. This is your host, Mike Stull. 

It’s hard to believe this is our seventh year of HR Benecast, so thank you to all of you who have listened since the beginning, all the way back in 2016, and welcome to our new listeners. We certainly hope that you enjoy our podcast made specifically for employee benefit professionals and their consultants. Before we get started with our Ask Mike Anything episode covering employee and pharmacy benefits questions submitted by our audience, I’m excited to share a few details on our 2023 in-person events. 

In its sixth year, the 2023 Pharmacy Benefit Conference brings the best and brightest professionals in pharmacy benefits management as they cover actionable and value-based strategies to assist employers in delivering comprehensive yet affordable pharmacy benefits. Join speakers from IPD Analytics, Real Endpoints, Employers Health and more. This event will be at the Hilton at Polaris in Columbus, Ohio, March 8th. Stay tuned for details on registration, and we hope to see you there.  

And back again for its 23rd year, the Innovations In Benefits Conference will be held May 10th here in Canton, Ohio. Attendees will gain exclusive insights into benefits trends. You’ll be able to network with like-minded professionals, meet leading solution providers and hear from the best and brightest from across the industry. Make sure to save the date. Again, May 10th. 

Finally, be sure to check out our events page at employershealthco.com/events for details on all of our upcoming virtual and in-person events. Working with more than 300 self-insured employers throughout the U.S., our team has frequently asked questions about benefits and how they can make the most of their pharmacy benefit plan. So today, we’ll cover some of these questions and answers on our Ask Mike Anything episode. 

So, I’m joined today by Emily Clevenger, Director of Marketing here at Employers Health, and she’ll be sharing some of the questions we’ve recently received. So, Emily, good morning, and I think we’re ready to roll.  

Emily Clevenger (2:53) 

Hi, Mike. 

Sure, so let’s get started. Why does the price of insulin keep going up, and what should employers do about the price caps in federal and state legislation?  

Mike Stull (3:06) 

All right. Well, let’s take this in two parts. 

First, let’s talk about price. So, we’ve watched the price of insulin go up, and the price has seemingly accelerated since the introduction of exclusions by PBM formularies. We thought that it would actually have the opposite effect, but when exclusions came about, we saw the price continue to go up and to go up at a faster rate. 

So, to counter this, PBM started negotiating price protection rebates that would require the pharmaceutical manufacturer to pay extra rebate dollars when the price inflation is above a set threshold. Even so, to get on to a PBM’s formulary to start with, the manufacturer has to provide large rebates, and since there are no limits to the price the manufacturer sets, they simply raise the price to cover the extra cost of these larger and larger rebate numbers. So, the list price rises and the rebates get bigger. 

We don’t have an exact idea of what the net cost is because we don’t have drug-level rebate information, which is the big problem in the industry, in my opinion. We know that generally speaking, the rebate is upwards of 75 to 80 percent of the list price, and that’s huge. And this is where the issue comes in for the patients who pay the full list price for drugs, either in a deductible or even as a coinsurance. 

And this, you know, the fact that patients are paying based on the list price of the drug takes us to the second part, price caps being put in place by legislators at both the state and federal level. Now the $35 price cap that was included in the Inflation Reduction Act only applies to Medicare participants, so it would apply to our clients that sponsor plans with an EGWP Medicare Part D offering. For many state laws that cap the price of insulin for patients, unless your plan is governed by state law, such as you’re a local government-sponsored plan like a school district or a county government, those won’t necessarily directly impact your plan either. 

However, for the self-funded commercial plan with ERISA protections, I think you should look at covering insulins at a flat dollar copay instead of a coinsurance, or you could implement a preventative drug list that includes insulin coverage before the deductible in a high-deductible health plan. So, whether you’re directly impacted by these laws or not, your plan participants surely have heard about these price caps and will wonder why their plans don’t offer a low price if you don’t act. So, I guess that was a long-winded answer, but back to the high price question, who’s to blame? The manufacturers are to blame for setting the price, the PBMs are to blame for the way they negotiate rebates, employers are to blame for the way they award business, governments to blame for the policies that allow the whole system to act this way. 

So basically, if you’re going to point fingers, you can really, there’s plenty of entities to point them at because really, you know, the system is designed to achieve the results that it gets and that’s because of all of us. So, if we want to make a change, everyone needs to start acting in a different way.  

Emily Clevenger (6:45) 

Thanks, Mike. 

So, switching gears, what would you say to an employer client who is faced with a large fee to carve out their pharmacy benefit from medical? 

Mike Stull (6:56) 

I guess find another medical provider would be the short answer, but we know that isn’t always possible. So, you know, I think you should be able to negotiate that fee away through a competitive RFP. Typically, there’s a fee because the health plan is making a lot of money off your pharmacy plan. 

If we look at one health plan that’s really popular across our clients, it uses one of the big three for its PBM. And when I listened to the earnings call, its pharmacy business keeps raising its earnings guidance, and that guidance is on the top end of the range of where PBM should be in the first place. And then when I go and listen to the PBM that it uses, when I go and listen to its earnings call, it’s hitting higher and higher earnings. So, both the PBM and the health plan are hitting the top of the range in earnings. And so, it makes me question who’s paying for that. 

Are you getting a good deal? I think that there’s a lot that health plans should be doing to control medical costs and to better manage those pharmacy costs that are administered under the medical benefit. So, putting pharmacy costs on them as well just seems illogical if they can’t manage what they already have and what they control directly. So, I think it’s something that certainly a fee can be negotiated out, but it’s good to understand, well, why is that fee there to start with? 

Emily Clevenger (8:27) 

Thanks. 

So Humira will lose its exclusivity at the end of January with sales of more than $20 billion annually. What does this mean for payers and plan sponsors? 

Mike Stull (8:39) 

Well, eventually it should mean lower costs for employers through either a lower list price for the biosimilar or more likely higher rebates for the plans. If the biosimilar has a lower list price, the savings will be easy to see. 

The larger rebates will help the plan. But again, the problem with getting larger rebates is that you still don’t know the price of Humira or the biosimilars due to a lack of transparency. So regardless, I don’t expect to see these benefits before the second half of the year and probably not until 2024. I say this because we need a biosimilar that has a chance to move market share. And I think there are key factors that will lead to this, including that the biosimilar needs to be the high concentration. It needs to be the citrate free version. Having interchangeable status would be nice. And also, I think it needs patient assistance programs. I mean, at the end of the day, the biosimilar has to earn formulary placement with the PBM. 

So first and foremost, that’s what has to happen to get market share. I think the immediate action step for plan sponsors is to check their PBM contract to see how biosimilars are treated from both a discount and rebate perspective. Do they get a specific discount or are they reconciled towards an overall discount? Do they get a rebate? If so, is it the specialty rebate or the retail rebate or even the mail rebate? Understanding this is the prudent first step. Our clinical team has authored a blog post about this topic that you can find on our website. So, I’d encourage everyone to head there for what I am sure is a more in-depth discussion of biosimilars. But the ability to get on formulary, move market share and save money is really what employers are most interested in. 

Emily Clevenger (10:49) 

Great. So, here’s a good one. Are rebates ever going to go away? 

Mike Stull (10:53) 

 Good question. 

I like to start my answer to these types of questions or this question in particular with just a little bit of context. And I think it’s good to remember why rebates exist in the first place. And that’s to provide a mechanism for the PBM to negotiate directly with the drug manufacturer for additional discounts off the price of medications in return for moving market share. 

And this mechanism accomplishes two things. One, it allows the PBM to bypass the normal supply chain to extract more discounts so they can go directly to the manufacturer instead of working through retail pharmacies who then work through the wholesalers who then go to the manufacturers. And number two, it avoids running afoul of a settlement to a price discrimination lawsuit brought against the manufacturers by pharmacies back in, I believe it was the late 90s. 

So, for employers, the ability to negotiate additional discounts directly with the manufacturers is something that they should want. The problem is that rebates have become so high with little to no transparency. And at the end of the day, they’ve distorted net prices for both plans and participants. 

At some point, I think we need some type of reset and or greater transparency. We also have an alignment problem as most of the big PBMs make money off of their rebate aggregation business. But rebates at the end of the day are a big piece of the pharmacy financial equation today. So, ignoring them just because you don’t like them doesn’t make much sense to me. So, I guess my answer to the question of whether they are going away, I don’t see that happening in the short term. And hopefully, if they do, we give employers another way to achieve these additional discounts because like I said, they’re a big part of the overall economics for brand medications. 

Emily Clevenger (13:04) 

Thanks. So next question, what’s the one thing employers should do today to protect their plans against the risks posed by the high costs of gene therapies?  

Mike Stull (13:13) 

Only one thing? So, I assume that this question was prompted by the release of hemogenics for hemophilia, which has a $3.5 million price tag. 

If I had to come up with one thing, for those who purchase stop-loss, make sure that any claim for a gene therapy, which is going to occur under your medical benefit, is covered by your stop-loss policy. And if you don’t purchase stop-loss, be sure that you can absorb these types of claims as part of your funding mechanism. Rob O’Brien, who was with us last year for the pharmacy benefit conference, will be with us again this year and will give us an update on the topic. 

So again, make sure that you’re signed up for our pharmacy benefit conference in March. 

Emily Clevenger (14:12) 

Okay, another good one. So, from your perspective, what’s the ideal amount of time for a finalist meeting? 

Mike Stull (14:17) 

Oh, so sounds like a consultant question. 

From my experience, probably an hour and a half seems to be the ideal amount of time. It really depends on what topics and how many topics you want to cover during your finalist meeting. But from my experience, allotting an hour and a half allows for the appropriate amount of time to cover all the agenda topics and also to have a good discussion as part of Q&A. I think when we typically get an hour, we end up rushing through all the topics and then are cutting things back at the end because of Q&A, which is great, right? We want these to be more of a discussion, but an hour and a half gives you the appropriate time. Plus, it doesn’t tire out those across the table that are sitting there listening to the presentations. It’s not overwhelming for them as well. 

Emily Clevenger (15:19) 

So last question, what’s your prediction for pharmacy trend this year? 

Mike Stull (15:25) 

Oh boy, get out the crystal ball. So, net of rebates I hope will be in the mid-single digits. We know a lot of manufacturers have taken a price increase for their brand products in January and I believe the figure I saw was an average of 6.5%, which is higher than what we’ve seen over the past few years. 

A lot of people think generics will remain flat, although I tend to think that the inflation that’s sitting, you know, generally across the economy should push those prices higher. I mean, you still have to manufacture the pill, you have to warehouse it, you have to transport it, you have to dispense it. All of those costs have gone up, the raw ingredient costs have gone up, and so my thought is that generic prices would need to go up as well. 

Diabetes drugs will continue to increase in both price and utilization, so that’ll drive trend up. I think we’ll continue to see more use of the GLP-1 category, so think about Wegovy and Saxenda for weight loss. I don’t think we’ll see, as I mentioned, I don’t think we’ll see as much relief from the Humira biosimilars this year, at least not until the second half of the year, and that likely won’t translate to your negotiated pricing until next year, either in the form of better rebate guarantees or overperformance payouts. 

I’m sure I’m forgetting something, but there certainly seems to be more factors that will push costs higher than lower. I think making sure you have a good contract, that you’re doing the market check each year, and that you’re managing the plan for unnecessary waste, and in particular, those high-cost, low-value drugs will be really important, particularly this year, if you want to get to that mid-single-digit number. 

So, that’s it. We hope you found this feature useful. If you have questions you’d like answered on a future Ask Mike Anything episode, please send them to Emily Clevenger, and her email is [email protected]. Again, eclevenger @employershealthco.com. There’s always something new at Employers Health, so be sure to follow us on social media, our LinkedIn and Twitter accounts, to stay up to date, and be sure to subscribe to HR Benecast to be notified when the latest episode is out, so you can hear the answers to your benefits questions.  

That will conclude this month’s episode. Thank you for the insightful questions, and thank you for taking the time to listen, and for your continued membership, participation, and interest in Employers Health. We hope you have a great first part of the year, and we look forward to connecting soon. Be well, and we’ll see you soon.