Assessment of the impact of pharmacy benefit managers

232 Pages·1996·12.1 MB·English

by  Gondek, Kathleen

HCFAMasterContract
HCFA^95-023/PK
"AssessmentoftheImpactofPharmacy BenefitManagers"
ProjectOfficer
KathleenGondek,Ph.D.
DavidH.Kreling,Ph.D. HeleneLevensLipton,Ph.D.
Co-PrincipalInvestigator Co-PrincipalInvestigator
UniversityofWisconsin,Madison UniversityofCalifornia,SanFrancisco
TedCollins,R.Ph. KarenC.Hertz,M.A.
Researcher ResearchAssociate
UniversityofWisconsin,Madison UniversityofCalifornia,SanFrancisco
CenterforHealth SystemsResearchandAnalysis
UniversityofWisconsin,Madison
InstituteforHealthPolicyStudies
UniversityofCalifornia,SanFrancisco
September30, 1996
REPORTS
HG
9391
.5
U5
A77
1996
TABLEOF CONTENTS
Page
ACKNOWLEDGMENTS
i
EXECUTIVESUMMARY
iii
OVERVIEW
I. 1
Introduction 1
LiteratureReview: AnIntroductiontoPBMs 2
AnIntroductiontotheMedicaidDrugBenefit 8
II. RESEARCHQUESTIONSANDMETHODS 13
III. CHARACTERIZATIONOFPMBs 18
WhatarePBMs? 18
WhatDoPBMsDo? 20
TypologyofPBMs 22
IV. LITERATUREREVIEWONPBMFUNCTIONS 33
AdministrativeFunctions 33
BenefitStructureandDesign 33
LimitsonCoverage 33
CostSharing 34
MailOrderServices 36
PharmacyNetwork 38
DrugUseControlFunctions 39
FormularyandFormulary-RelatedActivities 39
Prior Authorization 47
DrugUtilizationReview(DUR) 48
V. STUDYFINDINGS 52
BackgroundInformationonPBMsInterviewed 52
W6,
PBMAdministrativeFunctions 53
BenefitStructureandDesign 53
MailOrderServices 56
PharmacyNetwork 58
PBMChargestoClients/FinancialArrangements 63
PBMDrugUseControlFunctions 64
FormularyandFormulary-RelatedActivities 64
Formularies 64
InterchangePrograms 74
CognitiveServices 80
DrugUtilizationReview(DUR) 84
DiseaseManagement 95
"ostSavingsinaPBMEnvironment 104
PharmacyPayment/Reimbursement 104
CostsforDrugs/MarketBasketofDrugs 108
ChangesinCostPMPM 108
Contracts/Rebates 113
CostSavingsEstimates 119
AdditionalPerspectives: PBMClients&BenefitsConsultants 120
VI. POTENTIALIMPACTANDROLESOFPBMs:
MEDICAIDANDOTHERGOVERNMENTPROGRAMS 130
MedicaidInterestInandExperiencewithPBMs 130
DirectContractingBetweenStateMedicaidProgramsandPBMs 130
IndirectAssociationBetweenStateMedicaidProgramsandPBMs
(viaMCOs) 132
PotentialImpactofPBMsonStateMedicaidPrograms 133
PharmacyPayment 133
MaximumAllowableCost(MAC)Programs 134
Rebates 135
RestrictingthePanelofPharmacies 136
MailServicePrescriptions 137
Formularies(andFormularyRelatedActivities) 138
DUR(ProspectiveandRetrospective) 139
DiseaseManagement 140
AdministrativeCostofClaimsProcessing 141
IssuesRaisedbyPBMsforMedicaidProgramstoConsider 141
CurrentandPotentialRoleinMedicaid 144
CurrentandPotentialRoleofPBMsforMedicareandOther
GovernmentAgencies 144
Page
VII. IMPACTOFPBMsONTHELARGERPHARMACEUTICALMARKET 148
Pharmacies 148
Pharmacists 150
Manufacturers 151
Wholesalers 152
BenefitsConsultants 153
PatientsandCaregivers 153
Prescribers 154
PBMClients 154
Vni. SUMMARYANDPOLICYRECOMMENDATIONS 155
ResearchAgenda 155
ActionAgenda 159
SummaryandConclusions 162
GLOSSARY 165
REFERENCE 168
APPENDICES
A. PBMINTERVIEWPROTOCOL 177
B. PBMHISTORYWITHDATASOURCE 194
C. SAMPLEPBMPANELDESCRIPTION 198
D. STATUSOFMEDICAIDDURACTIVITIES
(FY 1994) 199
E. MEDICAIDESTIMATESOFDURSAVINGS
(FY 1994) 200
ACKNOWLEDGEMENTS
ManypeoplecontributedtothesuccessfulimplementationoftheHCFAPBMstudy. In
particular,theresearcherswouldliketothankthemanypeopleinthepharmaceutical/pharmacy
fieldwhogenerouslysharedtheirperspectivesandinsightswiththeresearchteamsduring
interviewsandsitevisits. Specialthanksareduetotheindividualslistedbelow,whoservedas
consultants,providedcontacts, reviewedinterviewprotocols, andrespondedtointerimandfinal
reports. Inthankingtheseindividualsfortheirvariedcontributions,wewouldnonetheless
emphasizethattheauthorsofthefinalreportareresponsibleforanyconclusionsreachedabout
pharmacybenefitmanagementcompanies.
AdministrativesupportwasprovidedbyPatriciaCorayattheInstituteforHealthPolicyStudies,
UCSF, andPatriciaBeutelattheUniversityofWisconsin,Madison.
ExpertPanel:
DeborahA.Freund,Ph.D.
IndianaUniversity
MaryAnneKimble,Pharm.D.
UniversityofCalifornia, SanFrancisco
Harold S.Luft,Ph.D.
UniversityofCalifornia, SanFrancisco
StephenW. Schondelmeyer,Pharm.D.
UniversityofMinnesota
DavidG. Schulke
AmericanPharmaceuticalAssociation
Washington,DC
Consultants/Reviewers:
KathrynS.Duke,J.D.
UniversityofCalifornia, SanFrancisco
LynnEtheredge
MD
ChevyChase,
i
RobertC. Johnson
R. C. JohnsonAssociates
Scottsdale,AZ
EleanorM.Perfetto,R.Ph.,Ph.D.
Wyeth-AyerstResearch
Radnor,PA
JohnT. Skhal,Pharm.D.
PharmaceuticalCareNetwork
Sacramento, CA
LeslieWilson,Ph.D.
UniversityofCalifornia, SanFrancisco
PatriciaWilson
AssociatesandWilson
Rosemont,PA
EXECUTIVE SUMMARY
Introduction
PharmacyBenefitManagement(PBM)companiesareorganizationswhichapply
managedcareprinciplestoprescriptiondrugprogramswithagoalofoptimalandcost-
effectivedrugprescribinganduse. ThePBMindustryhasexperiencedconsiderable
growthbecauseithasfurnishedclientswithadministrativeefficienciesanddrugprogram
savingsviaretailpharmacycontractsthatprovidediscountsondrugpricesanddispensing
fees,manufacturerrebates, increasedgenericsubstitutionanddrugutilizationreview. The
industryalsohasgrownbecausepurchasersincreasinglyarebecomingawarethatdrug
therapyoftenpresentsalesscostlyalternativetoothermedicalcare, suchasphysician
visits, hospitalization, emergencydepartmentuse, etc. Payershaveidentifiedimproved
physicianprescribingandappropriatepatientdruguseandcomplianceasmethodsto
controlcosts(andhopefullyimprovequality), andtheybelievethatPBMswillachieve
thesegoals.
PBMsalsoareofinterestbecausetheindustryisdynamic. In 1993 and 1994,the
pharmaceuticalmarketwasjoltedbythepurchasebymajorpharmaceuticalmanufacturers
ofthethreelargestPBMs(PCS,Medco, andDPS). Manufacturersbelievedthatvertical
integrationthroughownershiporalliancewithaPBMwouldallowaccesstodistribution
channels, clinicaldatabases, andinformationtechnologysystems. PurchaseofPBMsby
manufacturerstriggeredaseriesofreactionsbyotherstakeholdergroups.
Therehasbeenverylittlesystematic,empiricalresearchoftheorganization, scope
ofservices,typesofclientsandimpactofPBMsoncost,quality, andthelarger
pharmaceuticalmarket. Thisstudywasdesignedtoprovidemoreinformationoneachof
theseareasandtoprovideafoundationforfuturelarge-scale, quantitativestudies.
Research Questions and Methods
The researchprojectwasdesignedtofocusonfourissues:
1. CharacterizingPBMsbasedonaliteraturereviewanddevelopingatypologyofPBMs
fromtheircharacteristics.
iii
2. InterviewswithPBMsandstakeholderstodevelopacomparisonofcostsandqualityof
careinprovidingpharmacybenefitsinMedicaidprogramsunderOBRA'90vsPBMs
forprivatelyinsuredorMedicaidenrolleesinmanagedcare.1
3. AnanalysisofpotentialimpactsofPBMsonMedicaidandothergovernmentprograms;
includingstates' interestindirectcontractingwithPBMs; andissuesraisedbyPBMs.
4. AnanalysisofthepotentialeffectsofPBMsonthelargerpharmaceuticalmarket
including,butnotlimitedto, pharmaciesandpharmacists, pharmaceutical
manufacturers,healthbenefitsconsultants, wholesalers,physicians, andpatients.
PBM Characterization: LiteratureReview and Typology
PBMsadministerandmanageprescriptiondrugprogramsforavarietyofclients.
ThedefinitionofPBMvariesfromabroaddefinitionreferringtofirmswhichprimarily
performclaimsprocessingandadjudication,toamorenarrowdefinitionwhichincludes
only"full-service"PBMsofferingadministrativeservicesandclinicalmanagementofthe
pharmacybenefit. The"worldofPBMs"ischaracterizedbycomplexrelationshipsamong
avarietyofstakeholdersincludingbutnotlimitedtopurchasers, payers, providers,
patients, andpolicymakers.
ActivitiesperformedbyPBMscanbecategorizedintotwomaingroups,
administrativefunctionsanddrugusecontrolactivities. Administrativefunctionsinclude
selectingandmaintaininganetworkofretailpharmacyproviders, providingclaims
processingandadjudication,benefitdesign,recordkeepingandprogramreporting. Drug
usecontrolfunctionsincludepoliciesandprogramstoaffectdrugusetargetedtowards
pharmacists, patients, andprescribessuchasformularydevelopmentandmanagement,
drugutilizationreview(DUR), diseasemanagement, andpatientcomplianceprograms.
TypologyofPBMs
TocharacterizetheuniverseofPBMs, atypologywasderivedfromthreeprimary
sourcesofinformation—directoriesintheMay 1995 and 1996issuesofManaged
HealthCare,adirectoryintheApril3, 1995 issueofBusinessInsurance, andalistof
PBMsobtainedfromtheAmericanPharmaceuticalAssociation(APhA). Atotalof107
PBMswereidentified, anddataforatleastsomecharacteristicswereavailablefor89
PBMs.
1TheOmnibusReconciliationActof1990(OBRA'90)mandatesthatstateMedicaidprograms
implementprospectiveandretrospectiveDURprograms;drugcounselingbycommunitypharmacistsfor
Medicaidpatients;andrebatesfromdrugmanufacturerstoallMedicaidprogramsfortheirproductstobe
eligibleforFederalreimbursement. Inexchangefortherebateagreement,Stateswererequiredto
eiminaterestrictiveformularies.
Geographically,PBMheadquartersaredispersedthroughoutthenation. Most
PBMslistedtheirserviceareaas"national,"whichmayreflecttheirservicearea
capabilities, ratherthantheiractualclientdistribution. ManyPBMsreportedoriginsin
managed tare,pharmacybenefitadministration, etailpharmacies,third-party
administrators,insurancecompanies,andprescriptionmailorderfirms. PBMsoftenhave
developedfromorganizationsforwhomclaimsprocessingisaprimaryfunction.
PBMsizecanbemeasuredintermsofnumberofcoveredlivesornumberof
prescriptionsmanagedperyear. Doublecountingofcoveredlivesoccurswhenmultiple
PBMsprovidedifferentservicestothesamegroupofpeople. BasedonPBM-reported
datainthedirectories,adozenPBMsservemorethan 10millioncoveredliveseach,6
PBMshavebetween5 and 10millioncoveredlives, andtheremaining71 PBMshave
fewerthan5million.
MostPBMsreportedprovidingacomprehensivesetofservicesforclients. Over
90percentofPBMsreportedclaimsprocessing, maintainingapharmacynetwork,
prospectiveandretrospectiveDUR, andmailorderprescriptionservices.
CategorizingthePBMsbyownershiptyperevealedthat4manufacturer-owned
PBMshavethelargestnumberofcoveredlives, followedby8PBM-ownedand6MCO-
ownedPBMs. Atotalof23PBMswereownedbypharmacyretailers.
PBMAnd StakeholderInterview Findings
TocharacterizePBMsandstudytheirimpact,theresearchteamusedacasestudy
methodology. Thestudywasconductedoverafourteen-monthperiod(July, 1995
throughAugust, 1996). DatawerecollectedfromPBMsviasitevisitsandfromother
stakeholders(i.e.,PBMclients,pharmacyconsultantsatstateMedicaidprograms, health
benefitsconsultants, andrepresentativesfromtheretailpharmacyandpharmaceutical
manufacturingindustries)viain-depthtelephoneinterviews.
EightPBMswereapproachedandagreedtoparticipateinthestudy,butdueto
logisticaldifficulties, acasestudyofonePBMcouldnotbeconducted. ThesevenPBMs
studiedrepresentedvariabilityinsize, origin,geographicregionandownershipstatus.
Variationalongotherdimensions, suchasPBMoriginandnumberofMedicaidenrollees,
wasachievedwithoutusingthesecharacteristicsasselectioncriteria. AlthoughthePBMs
werenotchosenrandomly,theyrepresentalargeproportionofPBMcoveredlives.
Similarly, non-random, purposivesamplingofPBMclientswasemployedto
achieveavarietyinclientperspectives. Atotaloftenclientswereinterviewed,four
employersandsixMCO/insurers. ThesamplingincludedamixofstudyPBMclients,
clientswhorecentlychangedPBMs, orclientswithMedicaidrecipientsintheir
populations.
V
Standardinterviewprotocolswereusedtoassessthecommonaltiesl.Atherange
ofvariationinthecharacteristicsofthePBMs,theclinicalandadministrativefunctions
theyperform,thedynamicsofchangetheyexperience,theirsimilaritiesanddifferences
from heMedicaidprogram, andtheassess .entsofrespondentsreportsoftheeffectsof
PBMsoncostsavingsandqualityimprovement. Thesesametopicareaswereanalyzed
PBM
acrosstheten clients.
InterviewFindings
Theinterviewsweredesignedtoyieldacomprehensivedescriptionofthe
administrativeanddrugusecontrolfunctionsPBMsperform, supportedbyrelevant
literature. Fromthesedata,theimpactofthefunctionsoncostandqualityofcarewere
derived.
PBMAdministrativeFunctions:
Benefit StructureandDesign
IncludedwithinPBMs'drugbenefitstructureanddesignareissuesregarding
specificdrugsthatarecovered, limitsondrugcoverage, andpatientcost-sharing
requirements. Thestructureanddesignofthepharmacybenefithavecriticalinfluenceson
thecostsofpharmacycare. PBMscanprovideastandardbenefitpackageforclientsto
adopt(basedontypicalpackagesusedbyotherclients), ortheycancustomizebenefit
packagestomeetindividualclientneeds.
PBMsreportedthatco-paymentsarethemostcommoncostsharingapproach
usedbyclients, althoughthereisanemergingtrendtowardco-insurance. Often,these
costsharingprovisionsareadjustedtofacilitateorenhancedrugusemanagement
initiativesimplementedbyPBMs. Forexample, differentialco-paymentamountscanbe
usedforformularypreferredorgenericdrugstodirectpatientdemandtolower-cost
agents.
PharmacyNetwork
PBMstypicallyrelyoncommunitypharmaciesprimarilyandmailservice
pharmaciessecondarilytoprovideprescriptionstoclients' drugprogrambeneficiaries.
PharmaciescontractwithPBMtoserveasthePBM'sproviderpanelornetwork. These
contractsensurePBM-covereddrugprogramindividualswillhaveaccesstopharmacies,
andviceversa.
SincePBMscanrepresentconsiderablenumbersofpatientstoapharmacy,
traditionalprice-volumetrade-offcanbepresentinpaymentoffersornegotiationsPBMs
havewithpharmacies. IfPBMcontractscanberestrictedtolimitednumbersofproviders,
additionaldiscountedpricesmaybeobtainedfromthoseparticipatingproviders.
vi