Altamura Associates, LLC

Sunday morning read!

Quick read! Happy Friday.

Forward thinking and Breaking barriers!

Next up….How does your PBM use AWP and Aquisition Cost? Do you know the difference? • AWP: AWP is a benchmark price set by manufacturers and used as a standard reference for pricing drugs. It is often considered an “inflated” price because it doesn’t account for discounts, rebates, or negotiations and generally overestimates the actual cost. • Acquisition Cost: This is the real price that a pharmacy pays to acquire a drug from a wholesaler or manufacturer. It reflects any discounts, rebates, or negotiated terms and is usually lower than AWP. Typical Difference: • AWP is often 20-30% higher than the acquisition cost for brand-name drugs, though the difference can vary significantly. This margin enables PBMs to use AWP as a starting point to negotiate discounts while still maintaining profit margins. • Since acquisition costs reflect the actual cash outlay of the pharmacy, pharmacies can profit if reimbursed at or near the AWP while purchasing at the lower acquisition cost. #PBM #PBMDEFINITIONS

We can’t stop now… let’s peek under the hood together…. How does your PBM define a specialty drug ? Does your contract consider all the variables for specialty drugs? Does your contract include the list of drugs your PBM considers specialty? For employers and plan sponsors favorable definition of specialty drugs would focus on managing both clinical outcomes and costs, balancing employee access to effective treatments while controlling rising specialty drug expenditures. Here are a few elements that make a specialty drug definition more advantageous for employers: 1. Complexity of Administration: Specialty drugs often require special handling, administration, or monitoring. Defining specialty drugs this way can help ensure that employers only incur higher costs for treatments with truly specialized needs. 2. High Cost: Specialty drugs are usually high-cost medications. Defining specialty drugs by cost threshold (e.g., medications costing above a certain amount per month) can help employers identify which drugs are financially impactful and better prioritize coverage strategies. 3. Chronic or Complex Conditions: Many specialty drugs treat chronic, complex, or rare diseases (like cancer or multiple sclerosis). This aspect of the definition can help employers focus coverage on drugs that address serious, long-term conditions with significant health implications for employees. 4. Limited Network Access: Including limited distribution as part of the specialty drug definition allows employers to better manage cost by working with select pharmacy networks, which can reduce overheads on these high-cost drugs. 5. Requirement of Care Coordination: Since many specialty drugs require close care coordination (e.g., frequent blood tests or health monitoring), defining specialty drugs in this way can help employers focus on providing high-quality, coordinated care rather than just costly medication access. By tailoring a specialty drug definition to reflect these elements, employers can balance their investment in high-cost therapies with effective treatment outcomes, all while maintaining sustainable healthcare costs. #PBMCONTRACTS #DEFINITIONS

How does your PBM define Brand Drugs? Does the definition in your contract include some of the below? Multi-Source vs. Single-Source Brand Drugs: Specify that single-source brand drugs (those without equivalent generics) are subject to one set of rebates and pricing, while multi-source brands (brands with generics available) are treated differently, potentially at a lower reimbursement rate. This can reduce costs if a brand drug’s exclusivity expires and generics are introduced. Brand vs. Authorized Generic Clarification: Explicitly differentiate brand drugs from authorized generics (generic versions marketed by the brand manufacturer). This ensures the plan isn’t paying brand pricing for an authorized generic, which should be classified and reimbursed as a generic drug. Always specify that brand drug definitions should be reviewed annually or upon major market changes, such as the introduction of a generic equivalent. This protects the plan sponsor from paying brand rates for drugs that have become generic or lost their exclusivity. Certain terms ensure that the PBM’s definition of brand drugs aligns with the plan sponsor’s cost-saving goals, transparency expectations, and the ability to control costs as market dynamics change. #PBMCONTRACT #PBMDEFINITIONS #BRANDDRUGS

How does your PBM define generics? In a PBM contract, a PBM-favorable definition of “generic drug” might be crafted in a way that: 1. Broadens the Generic Category: Some PBMs may classify certain brand drugs as “generics” if they lack direct brand competition or are “authorized generics” (brand drugs repackaged as generics). This allows the PBM to apply higher prices, close to brand-level pricing, while categorizing them as “generics” in reporting, which can increase profit margins. 2. Includes Multi-Source Brands: By including multi-source brands (e.g., drugs available from multiple manufacturers, even if some are branded) under the “generic” category, PBMs can receive higher rebates from brand manufacturers but pass along a lower cost to the plan sponsor, reducing transparency and often favoring PBM profitability over cost savings for the sponsor. 3. Uses “MAC List” Control: PBMs may define generics as drugs reimbursed at “MAC” (Maximum Allowable Cost), a cost set by the PBM, which might not reflect actual market prices. By controlling the MAC list and adjusting reimbursement prices at their discretion, PBMs can potentially widen the gap between what the sponsor pays and what the PBM reimburses to pharmacies, capturing this difference as revenue. 4. Allows Variable Pricing Tiers: In some cases, PBMs may define certain generics to fall under different pricing tiers or different levels of rebate eligibility, resulting in higher out-of-pocket or reimbursement rates for the plan sponsor while benefiting the PBM’s margin. For plan sponsors, reviewing the specific language around what qualifies as a “generic” drug, especially regarding “multi-source brands,” “MAC lists,” and “rebate exclusions,” can help ensure that definitions benefit them more equitably.

Reviewing a contract with a pharmacy benefit manager (PBM) requires a detailed approach to ensure your organization gets favorable terms and minimizes potential risks. We teach plan sponsors and fund administrators how to negotiate better contracts based on their populations utilization. Knowledge is powerful. Here are some key steps and areas to focus on: 1. Understand Your Organization’s Needs and Objectives 2. Evaluate Financial Terms and Transparency 3. Review Drug Formulary and Utilization Management 4. Analyze Specialty Drug Management 5. Network Management and Access 6. Performance Guarantees and Penalties 7. Plan for Data and Reporting Access 8. Evaluate Contract Length and Termination Terms Final Tip: It doesn’t need to be complicated. Due to the complexity of PBM contracts, our team simplifies the process allowing you to have better control over your plan. We will teach you how you can identify less obvious terms that may impact costs, member access, and overall contract value. Let’s talk!

The Real Cost of Chasing Rebates in Pharmacy Benefits Rebates can look like savings for plan sponsors, but when it comes to pharmacy benefits, rebate-focused strategies often mask the true costs. Here’s why: Rebates Don’t Equal Savings: High-rebate drugs often come with inflated list prices. While rebates may lower costs on paper, the result is higher overall expenses. Focus on Health, Not Rebates: Prioritizing clinically effective, lower-cost drugs keeps out-of-pocket expenses down and drives better health outcomes for members. Transparent Pricing Matters: A PBM partner focused on transparency and affordability—not rebates—ensures real value. The goal? Lower costs, better care—and that starts by leaving rebates in the rearview. #PBM #Healthcare #PharmacyBenefits #ValueBasedCare #EmployeeBenefits

Open enrollment is upon us. Be informed! Interesting read.