Haas, who is vice president of Wells Fargo Pharmacy Consulting, spoke to BLR about the problem of generic drug pricing.
To attack the problem, Haas and his team at Wells Fargo created a unique procurement strategy. “About 4 years ago, we listed every generic drug—and there are about 2,750 of them—by their specific identifying codes. We went through an RFP process. We said to the marketplace, ‘Here’s what our customer looks like and is willing to pay for generic drugs. We also want to know what your AWP is for brand and specialty drugs.’ Then we said, ‘Are you able to meet these price points?’
“We began seeing a separation of the market; a number of the more traditional PBMs said, ‘No, we choose not to participate.’ But we also had a number of PBMs step up and say ‘absolutely, we’ll play, and we’ll meet these price points.’
So immediately we began seeing competition in the marketplace. We are able to have multiple PBMs competing for the right to serve our customers by meeting the procurement strategy requirements.”
These days, the RFPs are done a little differently, Haas reports. “When we put our RFP out to the market now, we don’t include the pricing that our client is willing to pay; we just leave it blank and request the PBM respond with the price they’re able to guarantee as the maximum allowable charge for these pills. So now when we put an RFP out on the street, we’re continually seeing the competition driving the price points down.”
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Substantial Savings Are Possible
How far down do the prices go? Haas says their typical client enjoys substantial savings. “As a rule, what we’re seeing is anywhere from about $100 to as high as $150 per employee per year onetime savings,” he says. In addition, he says this approach mitigates trend cost increases, typically resulting in a negative or zero trend for an extended period of time.
Ongoing savings are substantial, too. He illustrates the point using an employee who has type 2 diabetes, high blood pressure, and high cholesterol. “During the course of a year under a normal PBM contract structure, this person’s medications will cost about $3,000 a year. But when you fix the mechanics and the underlying pricing, it lowers that cost, on an annual basis, from $3,000 down to $300. That’s how much potential savings exist.”
The savings are both for the plan and for the employees, who may become more adherent to their doctor’s orders, simply because they can now afford to pay for the medications. This is especially true when companies are using high deductible health plans as a means of containing costs.
Sound Good to You?
Haas suggests that you take a look at your PBM contract. “Look at how the cost basis of generic drugs is defined, and if it says ‘AWP,’ you need to take action.” And don’t think you have to be big to take advantage of this new methodology.
“It doesn’t matter how big you are as an employer,” he says. “What matters is how big the PBM is that we can align you with, because the pricing will depend on their size, not the employer’s. We have clients of 100 employees who have better overall PBM pricing than many of the large purchasing coalitions that represent in excess of 1,000,000 members.”
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Wow–this is very eye-opening. Thanks for pointing out that PBM contracts are just like any vendor contract–it can pay (perhaps even more so with PBM contracts) to review them regularly and pursue renegotiation.