AH031 - Dissecting Pharmacy Cost Drivers and the Value of PMPM, with Kristin Begley, PharmD, and Mike Miele, FSA, MAAA

Transcript

Lightly edited for clarity.

[00:27] Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare podcast. This is Justin Venneri, your host and Director of Communications at Capital Rx, and this was a tough one to line up. Today we have Kristin Begley, our Chief Commercial Officer, and Mike Miele, Senior Vice President of Insured Services, in the studio with us. The two of you presented at our first annual summit, and that was a great presentation. So, I just had to find a way to make this work as usual. I'll link the relevant articles in the show notes, but let's get right into it. Kristin and Mike, thanks for joining us.

[00:58] Kristin Begley, PharmD, and Mike Miele, FSA, MAAA: Great to be back / glad to be here.

[00:59] Justin Venneri: Mike, I'll start with you. Kristin just noted, if you heard it, that she’s been on the show before (AH010 - The Power of PMPM: Holding PBMs Accountable for Total Drug Spend). She's a former consultant, spent some time in value-based care, digital health, focused on women's health, and then came back to the PBM industry to lead the commercial team here at Capital Rx. But Mike, can you tell us a little bit about your background please, to start?

[01:16] Mike Miele, FSA, MAAA: Sure. I am a healthcare actuary by training. I've been in and out of the PBM industry for many years. So, I started my career at Prudential, and when I went to Mercer, there was this little employer maybe you've heard of called General Electric. They were thinking about using a prescription plan instead of like everybody else in the '80s, covering pharmacy through their major medical plan. And that was sort of my trial by fire into the prescription benefits world. And I then later went into pharma. They were wrestling with this concept called rebates and wanted to know how to properly contract for formulary access. So, I've had a pretty diverse career in the pharmacy world, and I've been at Capital Rx since 2018, and I'm one of the first employees here.

[02:06] Justin Venneri: Awesome. Thanks, Mike. So, Kristin, first question to you. At the core of this discussion is kind of finding the best measure of net or true cost. Why is that so important to plan sponsors and set the table for us? How can we start to get there?

[02:21] Kristin Begley, PharmD: I think that Mike and I are very closely aligned to what we believe has happened in the prescription drug industry. You know, prescription drugs used to be 5% of total healthcare. Now it's 20-30% of total healthcare. And it was just neglected. It's kind of interesting. If you talk to a CFO, they know what they pay for paper clips, but in the prescription drug space, they get discounts and rebates off a starting price that they don't really know. So, it's kind of like, do you wanna buy jeans that are $100 with a 50% discount, or do you wanna buy jeans that are $20 with a 10% discount? What's the better deal?  

Well, clearly, if we’re talking paper clips, it's better to get the $20 jeans, right? The 10%. So, the starting price has been elusive between different PBMs. And it's elusive because, if you think about it, you don't really know the total cost between their formularies. You don't know which PBM is gonna do a better job managing. You don't know which PBM is gonna have more refills than another refill. And if I circle back to that better job managing, that means how appropriate are their clinical programs? Are they in there to drive more costs? Because the more you spend, the more they make. So, this whole kind of swirl, it was always there. But as the drug costs got bigger and bigger, we needed to evolve the evaluation model.  

And Mike and I have had lots of discussions about how difficult it is to nail down the actual cost. So, we said, let's make this simple and really go back to per member per month. What did you spend last year divided by the membership? My fifth grader could do this math. And what is the vendor willing to spend and guarantee the following year that you will spend divided? And assuming that you have disclosed what your plan design is going to be, and there's no major changes, it's their job to know what new drugs are coming out in the pipeline. What's the inflation? You know, when you have new categories like GLP-1s, which is a much better measure of what a PBMs would do. A pharmacy benefit manager, which has been lost over time, the management piece of it. And I think PMPM, it needs to be the safety net. If people want to feel comfortable with discounts and rebates, they can keep looking at those unit costs. But PMPM, what is the actual drug filled, that drug utilization or drug mix, that clinical component is probably driving 50% of your total costs. You know, 3% of claims are specialty driving 50% of spend. Like 3% of claims are what matters. So, I will turn it back over to you. Obviously very passionate about the subject, and it's a hot topic.

[04:52] Justin Venneri: Yeah, you rattled off several factors there that go into this equation, which ultimately is a simple equation, right? But misaligned incentives, low or no accountability, I think there are a couple things that are interesting here. Mike, I'd love your take on this, especially the accountability issue as an actuary. So, the pharmacist and the actuary, how can plan sponsors and other stakeholders, fiduciaries responsible for their health plans, start to think about getting to real predictable costs for their plan?

[05:23] Mike Miele, FSA, MAAA: Sure. All the things that Kristin described are actually not unique to pharmacy. They're common on the medical side, too. We used to joke, is it managed care or is it managed cost? What I mean by cost is, I mean unit cost. So, I can buy a bed day very cheaply from a national network. Is that the litmus test of which carrier is best on the PBM side? I can pay $6,000 for Humira. I can pay $9,000 for Humira. Which is better? I guess it depends on how many units you're buying. If one vendor delivers half the units and meets all the quality metrics, then unit cost is not quite as important as it is to total cost. And that is really the dynamic that's going on in our industry today when we bid on business.  

And no disrespect to consultants, they are working hard to try to unravel this mess, but they tend to focus more on unit cost than total cost. So, your question was, how do you get to total cost? Well, you take -- I don't want to be a wise guy -- but you take the unit cost and you times it by the number of units. And the number of units varies wildly by PBM. Some PBMs approve every high-cost drug under the sun. Some PBMs don't. And that has a huge impact on the total cost. When employers talk about their deal with whatever PBM they have, often they'll say, I negotiated for months with my PBM, I've got a really good deal. Okay, well, what's your really good deal? Well, I got really good discounts and really good rebates. Unheard of. I've never gotten a rebate this big before. Well, okay, but how many units are you going to use? Well, who could possibly know that? Well, that's what actuaries are tasked with doing all the time is, I don't care what the discount is; what's the forecast for next year's cost? I think we need to get back to that and hold consultants and actuaries accountable, hold employer leadership to those budgets, as opposed to saying, well, I don't know, I got a really good discount. I don't know what happened. I thought I was going to save money, but I didn't.

[07:38] Kristin Begley, PharmD: Well, and I'll break in on you, Mike, I think so often-- and the trend lately is the PBM with the highest rebate was always the winner on the spreadsheet. But it's been a very strong correlation that rebates are about 40% of ingredient costs. So, you literally could take your results from an RFP and say, how much rebates did I earn? And multiply that times 2.5. So, in fact, the person that was winning on the spreadsheet with the highest rebates was actually guaranteeing you the highest amount of cost.

[08:10] Justin Venneri: And so just quickly, for listeners that may not know, the spreadsheet is how pharmacy benefit managers are compared. When you're running an RFP and you have a consultant or a benefits broker, and they're saying, here are your options, it's on the spreadsheet. This is how the math shakes out.

[08:26] Mike Miele, FSA, MAAA: Yes, thank you for clarifying that. The PBM with the biggest discount generally wins, and that is not necessarily the PBM with the lowest cost. So, when you go to a different construct, like a per member per month quote, that can be very, very different than what you're used to. Now, rebates and discounts, they matter, but so does a lot of other things, like your clinical management, your formulary, how many refills you auto refill, do you let people get 15 months of drugs in a twelve month period? And some PBMs do that. That all gets factored into the per member per month calculation.

[09:03] Kristin Begley, PharmD: And I think there's this piece of it. We were talking about the math and factoring in clinical, which has been complicated. But the other thing that lurks inside the typical analysis is if anybody has been watching the investigations around PBMs where the price is just wrong, where PBMs are controlling what the price of the drug is, and maybe they charge $4,000 for a drug that really costs $70 in general, and that sits inside the spreadsheet and just gets pushed forward. And you can't tell when a quote unquote “good PBM”, that's closest to the actual cost of the drug, when that drug is no longer being filled at a cost basis of $4,000 or higher, and it's filled at a cost basis of $70, that's a shift, right? You're taking it from one NDC price point to a different NDC price point. That value is never displayed.  

And I think the investigations that have been very bright and bold on TV, you're starting to see, oh, wow, my PBM took advantage of me, which then leads us to other problems. And you're seeing lawsuits against their employers, whether that be major pharmaceutical companies or banking companies, where employees are waking up and saying, you're not being a good fiduciary of the plan. You didn't negotiate a good deal, which costs me more money, just like the 401K industry. So, there's a lot of tailwind saying something's not right in this industry and we're not getting the value we thought we were getting.

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[10:32] Justin Venneri: Mike, I'll flip it over to you for the value that's being presented to you or the potential savings or forecast that's being presented to you and what's actually going on in the market, and then what we've actually seen occur over time. Can you put some percentages to that for the listeners so people can get a frame of reference if there's a red flag that they see and something presented to them or what reality looks like in the middle of 2024?

[10:59] Mike Miele, FSA, MAAA: Well, I have a couple of comments about that, and that's a really good question. If your consultant is evaluating four or five PBM quotes, there shouldn't be anybody who is 20% ahead of somebody else. Okay, so if somebody says, well, you know, you came in at 10 million, but there's a bidder out there that's coming in at 8 million, well, my recommendation to that employer group is really challenge how those numbers came about because the industry on unit cost anyway is pretty similar. So, unless that consultant is making adjustments for clinical factors and other things, that would be a red flag for me. The other thing that I would caution buyers about is make sure you really understand how your consultant is running the RFP itself.  

And, you know, one of the things I like to ask people is how many questions did you ask the industry? Oh, we have a 300-question questionnaire. We ask them everything. I would just say, well, of those 300 questions, how many of them are about unit cost and how many of them are about other things, like, how often do you refill drugs on auto refill, what's your prior authorization approval rate, and how long does it take to approve a high cost drug? Those questions are often not asked at all in an RFP, and those things have huge impacts on the cost. So, I challenge the questionnaire and say that some questionnaires are probably better than others.

[12:35] Kristin Begley, PharmD: I would add to that, go back to the litmus test of if someone is winning with this massive delta. Take the rebates that are displayed from the procurement process and multiply it times 2.5. Because if you think about how GPOs, how they've sold off their rebates, they didn't have 20% deltas out there, nobody gets to retain 20%. And if all the value is being earned out of there just to keep yourself out of and your company out of its own potential financial litigation issues, just take that spreadsheet and say, I'm going to take the rebates and I multiply it times 2.5 and see how each bidder comes out. Because the supply chain just does not grant us that kind of flexibility and rebate modeling, which means they're driving cost up. More expensive drugs will go out the door, more units will go out the door to hit those rebate numbers that they promised you while expanding your balloon. And that's why your costs continue to go up.

[13:35] Justin Venneri: Kristin, what would you say if someone asked you for your thoughts on prior authorization approval rates and whether it's just limiting access or whether it's managing the plan in a more appropriate fashion?

[13:51] Kristin Begley, PharmD: That's a great question. I'm a pharmacist. Obviously, I always love to point to Kaiser and their generic dispensing rate. So, Kaiser has generic dispensing rates well into the nineties, far beyond what most commercial markets have. And they have better outcomes than anybody else. So, you know, we as Americans tend to be very prone to seeing a commercial on tv and thinking, well, if it's more expensive, it must be better. Any specialty drug out there that's been taken with less than 3% of the population will have more side effects that we don't know about. It took us almost 20 years to realize all the side effects of the stomach and ulcer medications. Antibiotic resistance could lead to cancer. Those sort of things that really pushed us, it takes years and years and years and lots of people taking them. So, it really is about safety. If a topical cream can manage your psoriasis, you want to take the topical cream, not the commercial you saw on TV. Just because it's newer and just because it's more expensive doesn't mean it's better. And unfortunately, that leads to just higher costs when you could take a drug that was safer for you.  

Some of the best examples are some of the clinical drugs that most of us have in our top ten categories. Often those immune modulating drugs can reduce your immune system, which means that you have a higher chance of cancer because our immune systems clean out cancer. Secondarily, a lot of them will have hearing impact. You can lose your hearing. And when patients are explained some of those other side effects that come with these newer, expensive drugs, they're usually more than happy to start with a less expensive older generation that is not so invasive. It's a risk reward. If you have severe symptoms and you've tried the other medications, you should absolutely be on the most expensive drugs because you've gone through the steps to say the safer, older drugs aren't working for you and it's time to go to the most expensive, latest and greatest for your quality of life.

[15:41] Justin Venneri: Mike, anything you'd add to that?

[15:43] Mike Miele, FSA, MAAA: Well, I'm going to stay in my actuary lane as that's what I was hoping.

[15:50] Justin Venneri: Okay, so as we close in on the end of this episode and I ask everyone, Mike, what's something that a listener could do that's astonishingly simple or surprisingly easy to help themselves get set up for 2025 and have a better outcome on their plan spend next year?

[16:10] Mike Miele, FSA, MAAA: I love that question. I wish more people asked me that question.  

If I was a buyer and I'm sitting here in August looking out a ways for next year, I would not rush to do an RFP. What I'd rather see employers do is educate themselves more on the market because the market is really changing quickly. There are a number of different PBMs out there that have very different strategies now, and it's important that the buyer educate themselves. So, for one, find out truly who is using spread pricing and who is not. If you have spread pricing, then you always have the chance for an employee lawsuit saying, hey, you didn't negotiate the best deal from it because there's a total conflict there. I'd also want to ask PBMs to talk about their book of business results. These are all things that PBMs have at their fingertips and they can talk about their performance. I think that's very, very important to see. Well, this PBM is trending at 5% and this other PBM is trending at 10%. Or this other PBM says they're trending at 5%, but they excluded 15 things. So, there's a lot of caveats.  

Ultimately, your performance is going to be very similar to other groups that are with that same PBM. You know, you're going to have similar formularies, similar clinical management, similar network economics. So that is a much better thing to ask yourself and then formulate your RFP. Don't just delegate it to your consultant and say, we're going to bid. Send the 300-question questionnaire like you did last time. Maybe have less questions, more meaningful questions. Tell me about your book of business. Tell me how you manage the benefit differently. How do members respond to the way you manage the benefit? Are they angry? Do they get their pitchforks out? Or are they happy? Those things are important questions, yet I never see those questions in RFPs. Your question is about how many pharmacies do you have in your network? If one PBM has 50,000, another PBM has 60,000, what difference does that make?

[18:25] Justin Venneri: That's great. Thank you, Mike. Kristin, anything you’d add?  

[18:27] Kristin Begley, PharmD: Two prong approach here. I agree with Mike totally. But you should be asking your PBMs that are bidding on you, what is my PMPM going to be? And hold them accountable. One solid number. Specialty and traditional medications all in one. And if you could not do a PMPM, let's say you're a smaller group, you're under 4,000 total belly buttons – 2,000 employees. You should be asking the PBMs to tell you what their prior authorization approval rate is globally.  

But then in the top five therapeutic classes of your top five spend, it would be very easy for your consultant to know how many drugs were approved the previous year. What was the average cost? And then multiply it times that approval rate. That will give you a sense of the differences between PBMs. It doesn't get you to formulary, but again, prior authorization approval rate is one of the biggest things that is a predictor of your total spend and look at what that would mean to you based on your historical cost on those scripts.

[19:32] Justin Venneri: That's awesome. Thank you. And so, I think that was one of the favorite slides from the presentation at the summit. People could see that drug mix effect on the total cost for the plan. So, Mike and Kristin, thank you so much for joining us today. Mike, look forward to having you back on. And Kristin, thanks for taking the time again.

[19:50] Mike Miele, FSA, MAAA: Thank you.

[19:51] Kristin Begley, PharmD: Thank you.

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