Skip to main content

PBMI Specialty Rx Forum: Getting the Most from Your Specialty Contract

Milliman headshotsIn an upcoming session at PBMI’s 2019 Specialty Rx Forum, Gregory O Callahan, MBA, consultant, and Brian N Anderson, MBA, principal, both from Milliman, a consulting and actuarial firm, will offer expertise on how to maximize the effectiveness of specialty contracts. First Report Managed Care recently spoke with both of them to share a preview of what attendees can expect. 

Please introduce yourself and tell me a bit about your background.

Greg Callahan: My name is Greg Callahan. My history prior to Milliman involves 12 years of direct PBM [pharmacy benefit manager] experience working for multiple PBMs, including two of the top three, and then two mid tier, mainly focused on Medicare Part D and commercial coverage. 

Specifically, I worked in the account services department as a senior or strategic account executive, going through contracting, negotiations, plan development, and plan implementation—kind of the soup to nuts of the PBM experience on the client side prior to my life here at Milliman.

Att Milliman, that’s exactly what I’ve been focused on, specific clientele who are looking for help with managing their PBM relationships and their pharmacy benefit strategies. It’s all in an effort to curtail costs and be best situated in the competitive landscape right now.

Brian Anderson: My name is Brian Anderson, I’m in the San Diego health practice of Milliman. I run our pharmacy practice for this office. 

Milliman is a broad company, with over 3,500 employees across the globe. One area of focus is health care and different avenues of health care, with the goal of protecting the financial well-being of people everywhere. It’s our mission and vision.

We assume the role of a staff extender and have the opportunity to work on the payer relationship of the PBM side, helping them reduce health care cost and identify ways to contract better and reduce spend. The big focus now is specialty, as people are getting over 50% of their costs in the specialty category.

You're both speaking at the PBMI Specialty Forum in September, can you explain what the presentation you're giving will focus on? 

GC: We’re going to focus on three main areas based on recent experiences. We’ve gone through multiple RFPs [request for proposals] looking at new contracts that are going live in 2020. We want to share what we’ve learned and what to look out for.

As you probably know, the PBM industry changes every single day. Along with those changes come contractual term changes, strategy changes, and everything in between.

The three things that we’re going to focus on include helping to level set and keep folks up-to-date on the specialty sector and what comes in a specialty benefit. What’s new? 

For example, how PBMs are employing “what’s old is new again” within bucketing strategies when they set their formularies and certainly the way they’re setting their guaranteed rates. 

A second focus is understanding the specific guarantee strategies PBMs are employing. There’s a little bit of curtailing going on, without giving too much away, a bait and switch type of approach that we think the market needs to be aware of when negotiating the specialty portions of PBM contracts.

A third focus is going to be specific to contractual definitions in their contracts. What we’re seeing now are some practices that are…confusing, at best, for our payers.

In fact, a couple of instances took quite a bit of time to uncover, peeling the onion back on exactly what some definitions mean with the big three PBMs.

BA: We’ll also focus on high-cost items and emerging categories. What is the best way to position your PBM contract to make sure you’re maximizing the specialty opportunity?

What are the most important factors a payer should pay attention to when negotiating a PBM or a specialty pharmacy contract?

BA: That’s where our position comes from, the payer side—a large employer or a large health plan. We help them contract with the PBM. Typically, the PBMs these days own a specialty pharmacy. Some have some separate contracts but those are few and far between.

In most situations, they’ll contract with the PBM. Then the PBM owns or has a separate contract with an exclusive type of specialty arrangement.

Important factors are price, service, and access, which are really the key areas you want to focus around. How do you get to that?

When you look at price, you want to look at overall net cost. Is the drug price where the product is dispensed the lowest-cost option? How is it contracted? Are you getting the best rate? Are there default rates in place when new products emerge? Are you receiving pricing at a product level or an overall effective discount approach?

How are rebates factored in? What is the rebate default for a new product? What percentage or amount of the rebate are you receiving that the manufacturer may be paying to the PBM and back to the payer?

Those questions are really key. The biggest question now with emergent therapeutic classes is whether it’s something covered under the pharmacy program. If so, how is it contracted and how is it going to be priced? That’s a really key issue in the specialty arena right now.

You have a $2 million-plus product. How do you contract it? Is it best to go through the medical benefit or the pharmacy benefit? Where can you get the lowest net cost opportunity?

GC: What’s done after the contract is signed is just as important. There’s the before work and then there’s the after work, to make sure that what was agreed to is solid and competitive in today’s market. There should be a process in place to make sure that all commitments have been executed.

It is specifically part of the negotiation process. You want to have the language in place that allows you to do that, and that language is put in place during the negotiation and can determine what’s going to happen after the contract is signed.

What are some of the biggest mistakes made when negotiating a specialty contract?

GC: Right off the bat, the biggest mistakes tie into what I just said. After a contract is negotiated and signed, one of the biggest mistakes is never following up again. Brian and I see that, time and time again, where commitments are made but unfortunately, follow-through has been, for lack of a better word, lackadaisical.

That’s when mistakes that happen and can go undetected. Making sure that after the good work and the time has been put in on negotiating the contract, you’ve still got to do the follow-up that is specific to the specialty side. As Brian just said, specialty spend is now up to around 50%. It’s getting more and more important.

BA: Keeping with that, to Greg’s point, is making sure you monitor price changes and set your pricing to go along with it and making sure you’re maximizing the rebate, the manufacturer administrative fee, and the other discounts that are available through various components like price protection.

If price inflation occurs on specialty items, are you receiving the value that your PBM rebate contracts have provided as an avenue to help lower the specialty costs?

Monitoring, like a blocking and tackling approach, is needed to make sure you’re maximizing that value.

Also, one of the hardest things to evaluate is value. Just because you’re paid a lot for these specific drugs, are they driving value over a lower-cost product?

If something only needs to be administered once a week versus once a day, does that benefit outweigh the cost or does the cost outweigh the benefit? Looking at it from both directions, is it improving the quality of life?

Another area we’re venturing into is making sure that people are receiving the right amount of a product. If they’re sending out an $8,000 box of medication, is that medication the right supply? What happens if a member can only handle it for a few days and then no longer take it?

In the specialty arena, you’ve wasted a lot of medication. If the amount isn’t correct in other medications, sometimes a doctor will say, “Just try taking half a dose or try taking double the dose, like you would in a pill.”

In a specialty or injectable medication, you don’t have that option for treatment. The medication goes to waste. That’s a lot of the member cost, and also the client cost.

The Administration recently pulled the proposal that would eliminated safe harbor rebate in a big win for PBMs. Are there any looming changes coming in 2020 that payers working with PBMs specifically should prepare for?

BA: I could see an executive order come about as a result of this. The change in rebates are likely too large of a lift for Medicare Part D. I do feel like that is dead at the moment.

One of the big items that might come out could be an executive order around a most favored nations approach to drug pricing, whereas the country closest to us is somewhere around 30% less than our average cost for medications.

Trying to find a way that we can share in the research and investment that’s associated with drug prices for the rest of the world versus the U.S. market picking up a majority of the cost.

Potentially there could either be, first, a most favored nations executive order that will come out in lieu of the rebate approach. Or it could be some kind of reimportation-type of bill. That reimportation may look a little different from what they tried to pass previously because a lot of these drugs aren’t manufactured or controlled by American companies.

How do we make sure that those products are steering at a lower cost to other countries or steered back internally to our country?

I think those are the next items that they’re going to be looking at. There’s also varying state levels, a lot of action in California and different states. They’re all looking at different approaches that contract value for pharmaceuticals or purchasing at larger scales to help reduce cost.

I do feel, overall, that the rebate, as we originally saw it, is now dead, but we’re going to see some kind of variation of that approach that focuses more on the value of care, and also buying at a lower cost.

Are there any specific challenges that recent drug pricing legislation present for you and your clients?

BA: Right now, there isn’t really legislation out there controlling drug prices, but I do see a time it may come. I don’t know when it’s going to be, but at some point there could be new benchmarks or some kind of national average price set that people are going to look toward for contracting.

Right now, it’s essentially a capitalistic market. People need to buy better.

I do believe that the solution is not going to be on price controls at a government level. I believe that the solution’s going to be on a consumer level, at the patient level. Greg may have a different opinion, which he’s more than welcome to.

I feel once people have the tools necessary to make informed decisions on price, they will do that. Right now, patients do not know what the real costs of medications are. If I asked one of my family members or my wife how much a drug costs, they would say, “I pay a couple dollars at the pharmacy,” versus me saying, “Don’t you know that’s a $50 item and you paid $2?”

I do think that to control costs, patients need to be involved in the decision-making process and aware of the crisis so they can make informed decisions, just like we do in every other way of our lifestyle.

I buy gas based on where it costs the least and is closest and most convenient. I buy milk, and eggs, and other things thinking of cost and convenience. I’ll make the same kinds of decisions on pharmaceuticals, but the average American would not be doing that without the tools.

We’re going to see more tools and a lot more investments in technology. I think that’s going to bend the curve more than any legislative requirements that could be coming down
the pipeline.

GC: This is the question of the year, right? You have industry experts talking about it, with varying opinions on it, which is why it’s such a good question and why it’s so hot right now.

Brian and I have had good discussions about the question of what the issue is here. We were just talking to a client yesterday about the problem being the list price. Brian touched on that.

The rebate action that the current presidential administration took focused on rebate, but we in the industry can see that and say, “Well, is that going to impact and lower the cost of prescription drugs?” when all the manufacturer needs to do to is increase its list price to cover whatever economies happen at the point of sale with the rebate.

Then the question, “Well, is the list price of prescription drugs a problem?” Then the question is whether the solution to that is cost controls.

You can make arguments for and against cost controls. There are also discussions about whether we have a utilization problem in this country. Do we simply take too much medication? There’s a medication for absolutely everything now.

Maybe the problem lies in there. I like what Brian’s saying about education transparency. Is there going to be one silver bullet that’s going to ultimately bring drug prices down? I don’t think so. I think it’s going to be a little bit of everything.

Just to add to what Brian said, it’s certainly a dynamic conversation right now that everyone’s interested in. It’s fun to be a part of it.

BA: It’s something we need to figure out first. We have terrific opportunities for care management, tons of information and data that support getting the right treatment to people at the right time. If we don’t figure out this cost issue, then everything else is kind of meaningless.

The latest data shows that specialty pharmacies have significantly expanded their 340B presence. How does this affect specialty contracting for payers and PBMs?

BA: The 340B program is a difficult topic. A specialty pharmacy still has to contract with a 340B-covered entity as a local type of presence. Essentially, through virtual supply chain management, specialty pharmacies need to leverage and distribute their 340B products.

It’s a huge component. It’s a huge revenue stream for pharmacies, hospitals, and community-based organizations. The 340B program is growing in the specialty arena, but it’s still a very vague and difficult topic to get your head around. Not all specialty pharmacies are capitalizing on it.

Also, there’s a lot of legislative changes in the 340B arena that are impacting a lot of people. It’s still to be determined, but it is something they’re looking at, looking for opportunities to maximize.

It’s going to have to be driven with a community pharmacy presence attached to it.

GC: I’d like to add that the 340B program, in and of itself, has been the premier gray area in our industry and also can and does vary from state to state.

To tie this back to what was said earlier about some executive orders, some of the fallout that we might see are some more executive orders like what we’ve seen in California.

If those executive orders go out, that will also have an impact on 340B in those states. California is the example that could certainly put a big question mark on the life of 340B, if not eradicate it. Based on the nature of new executive orders, California could become a sole purchaser of prescription drugs for all health plans in the state.

The 340B program always seems to be an enigma when it comes to pharmacy talk. Carving out discounts like that in the specialty area is going to be much of the same, I suspect.

Is there anything I haven’t asked that you'd like to add?

BA: I think the key of managing health care costs, specifically pharmaceuticals and specialty pharmaceuticals, is going to be making sure that we’re not overprescribing or over-dispensing. I strongly believe there is a big push in the industry to get people the most medication as frequently as possible.

It’s not always the best approach. I think part of the solution of reducing health care costs is not only bending the cost curve. To do that we’re going to have to make sure that the right medication gets to the right people.

At the moment, we have a lot of waste. I think that’s a key component. If we’re able to mitigate the waste, we can help bend the cost curve that much more. Right now, I think everybody’s medicine cabinets in America has way too much medication.

We need to find ways to dispense smaller supplies so people can modify their treatment regimens as needed to essentially have just
enough medication.

Now, with the shipping being more efficient, turnaround times and those things, you don’t need to keep a stockpile of medication.

What’s key is finding ways to not only bend the cost curve but to reduce waste and unused medication. I don’t think a lot of people are addressing that. They’re always thinking, “How do we get more people more medication?”

The best savings is the money you don’t spend.

GC: I just wanted to add that it starts with transparency and an understanding of this industry.

What we do here at Milliman with our clients is try to make them the experts. When we interact and work with our clients, it’s always to try to get them to become the industry experts themselves. If we can help those who are making decisions at the payer level, the PBM level, or the legislative level, then we can help with educating. People are open to receiving that, and actually have the energy to put toward it, and that’s exactly what we want to do. If we can make that effort with those who are in the place to make decisions, there is a light at the end of the tunnel here. 

Back to Top