Justin Venneri
The practice known as “spread pricing” in the pharmacy benefits management (PBM) industry has contributed to drug price variability and pharmacy program cost inflation for years. The “gross-to-net bubble” has inflated as list prices have, on average, risen year-on-year. Meanwhile, net prices have remained steady or fallen1, and this spread has allowed the larger “traditional” PBMs to reap excess profits for over a decade.
Why should PBM contracts be so complex yet lack detail on drug prices so that nobody can see the drug's actual price at the pharmacy counter? Does it make sense for a PBM to keep two sets of books and pay one price to the pharmacy yet collect a higher fee from the payer (employer, labor union, etc.) for the drug? And one last rhetorical question: should two patients in the same line, picking up the same exact prescription from the pharmacy, pay wildly different prices at the counter?
Stakeholders have been forced to accept the status quo PBM model, but it’s time for a change.
What is a Single-Ledger Model™?
In 2019, Capital Rx introduced a new pricing paradigm for prescription drugs. The Single-Ledger Model remains the first significant innovation in prescription drug pricing in over 30 years. Most importantly, it solves two fundamental problems with the pharmaceutical supply chain and the traditional PBM model by leveraging a single drug price for plan sponsors, the PBM, and pharmacies.
Prescription Drug Prices Should be Visible.
In a typical PBM contract, price is defined as the average discount off the average wholesale price (AWP) over the course of a year for drugs bucketed into categories like generic, brand, or specialty drugs. And there is no industry standard definition for these categories, so the current AWP structure forces drug pricing claims to be categorized within these arbitrary buckets.
Without going into the gory details, this framework allows traditional PBMs to fluctuate prices and move drugs from one category to another to advantage their profits. And because PBMs have “two sets of books” and control the flow of money between payers, pharmacies, and pharma, they can charge a higher amount for medications than what they pay for them (as we describe in more detail below), and that creates a margin opportunity. This practice is known as “spread pricing,” It works because the parties involved in the transaction cannot see the price of the drug being filled. They aren’t allowed to!
Hidden Profit Should be Eliminated.
The use of a dual ledger – i.e., two sets of books, one that is for payments to/from the plan sponsor and another for payments related to acquiring and distributing the drugs – creates unnecessary opacity.
The Single-Ledger Model, however, solves the conflicts by eliminating the profit opportunity depicted above.
Creating Accountability via Transparent Drug Prices
Capital Rx’s pricing framework offers true claim-level accountability for prescription drug pricing. Unlike other PBM models that do not allow the buyer and seller to communicate directly (and only allow annual reconciliation), the Single-Ledger Model encourages the pharmacy to verify charges to the plan sponsor, and the plan sponsor can see the reimbursement to the pharmacy.
PBM Contracting Doesn’t Have to be Complex
The Single-Ledger Model also helps simplify the typical PBM contract. Rather than bucketing drugs into arbitrary categories and pricing based on the average over an entire year, each drug has specific unit-level pricing based on its unique identifier (an NDC-11 code), and each claim transaction reflects that actual price.
To address inconsistent pricing due to AWP, the Single-Ledger Model often leverages the National Average Drug Acquisition Cost (NADAC) database as the source for drug prices. NADAC data is publicly available and maintained – published weekly – by the Centers for Medicare and Medicaid.
With a publicly available price for 98.5% of dispensed drugs, there’s no “wall” up between pharmacies and plan sponsors or a need for complex agreements with artificial guarantees. Additionally, NADAC makes it simple to audit any drug claim.
Does a Single-Ledger Model work?
The proof is in the results. Capital Rx’s aligned PBM model powered by next-generation technology and clear pricing produced year-over-year savings for clients switching from a traditional model. We pass through pharma revenue, and drug-level rebate reporting supports better plan management by creating alignment between payers and Capital Rx. In fact, Validation Institute reviewed client data before and after partnering with Capital Rx showing an average reduction in per member per month (PMPM) costs of -14.1% and determined that our full-service PBM solution meets its standards for savings.
The ability to both rein in and control prescription drug costs has never been more important for health plan sponsors, and working with a PBM partner using a Single-Ledger Model can help achieve that goal.
Please get in touch if you’d like to learn more about Capital Rx’s Single-Ledger Model and full-service PBM solution.
1 https://www.drugchannels.net/2023/01/brand-name-drug-prices-fell-for-fifth.html