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Customized Restasis PA

New Rx Drugs: The “Latest” Is Not Necessarily The “Greatest” When It Comes To Drugs 

Rx Alert – October 2014

The drug marketplace is constantly changing, and new prescription drugs are continually entering the marketplace.

To protect your plan beneficiaries’ health – and your Plan’s financial resources – your Plan needs to position itself to monitor – and respond – to all these new drug developments.

You may assume that your Pharmacy Benefit Manager (PBM) is carefully evaluating all new drugs and implementing effective Step Therapy, Prior Authorization and Quantity Limit Programs. But your PBM may instead be “chasing rebates” and favoring new, high-cost drugs to obtain increased rebates that will win new clients in PBM RFPs.

Therefore, to protect your plan beneficiaries’ health as well as your plan assets, your Plan should consider customizing your Formulary – and your various Programs – as well as excluding many newly approved drugs from your Formulary until better evidence becomes available about the drugs’ efficacy and safety.

Are Your Plan Beneficiaries Part of the Next Post-Approval Study?  

Since the beginning of this year, the FDA has issued more than two dozen new drug approvals. For Type 2 diabetes, the FDA approved 4 new treatments in 2014: Farxiga (in January), Tanzeum (in April), Jardiance (in August) and Trulicity (in September). Those approvals followed 4 new diabetes drug approvals in 2013 – for Invokana, Nesina, Kazano and Oseni.

It’s reasonably certain that hundreds – or  thousands – of your plan beneficiaries are already taking these new drugs. Turn on your TV and you’ll be bombarded by advertisements for some of these drugs. Moreover, manufacturer drug reps have already fanned out across the country to doctors’ offices encouraging doctors to prescribe these new drugs.

But is it wise medically – or financially – for your plan beneficiaries to be using these new drugs?

Weaknesses In The FDA’s Approval Process

When a new drug is approved, typically it’s been tested on approximately 600 to 3,000 people. That’s not enough people to detect problems that may develop when far more people take the drug.

The tested individuals are also typically monitored for a very short period of time, usually ranging from as little as a few weeks to periods of several months. That’s not a long enough period to determine what will happen when people take the drug for many months or years.

Also, the drug is typically tested only against a placebo, not head-to-head against other drugs that are already on the market to treat the same condition. Therefore, typically, no one knows whether the drug offers any real benefit over existing drugs.

Even more important, there’s often doubt about the scientific evidence of the drug’s effectiveness and safety. It’s true that at the end of its testing, the drug manufacturer must submit to the FDA all clinical trials that the manufacturer conducted. However, if at least two clinical trials of all those submitted show that the drug has some benefit – for some people – that does not result from the placebo – and the drug’s risks do not outweigh that particular benefit – the FDA approves the drug and allows its manufacturer to market the drug in the United States.

The above means that if a manufacturer submits 10 clinical trials, and 8 show the drug isn’t effective and 2 show it is, the FDA will conclude the manufacturer has provided “substantial evidence” of the drug’s efficacy, and the FDA will approve the drug. And with many new drugs, that’s exactly what happens!

In sum, given the limited number of people tested – the short time period over which they were tested – and the relatively weak standard for approval, when a drug is approved typically we have no knowledge of:  (i) what will happen when hundreds of thousands or millions of people take the drug; (ii) what effects the drug may have when taken over long periods; (iii) whether the drug is better than existing drugs; (iv) or whether the drug is effective or safe at all. We also typically know nothing about drug-to-drug interactions, since drugs are tested on individuals who are not taking other drugs.

Post-Approval Drug Withdrawals, Black Box Warnings & Adverse Drug Reactions

Tellingly, during the past 4 decades, more than 130 drugs that the FDA approved were subsequently withdrawn from the market because they were deemed unsafe and often lethal.

From 1975 to 2000, 8.2% of FDA-approved drugs subsequently acquired the FDA’s strongest of warnings – a “Black Box Warning.” A recent study showed that since 1996, of 522 novel drugs approved, about one-third required boxed warnings, with many of those warnings issued after approval. The median time from approval to first boxed warning was 4.2 years.

It’s also worth noting that drugs rarely are withdrawn – or given Black Box Warnings – as soon as safety issues arise. Quite the contrary.

As FDA scientist Dr. David Graham warned when testifying before a Senate Committee, “the scientific standards [that the FDA] applies to drug safety guarantee that unsafe and deadly drugs will remain on the US market.” Dr. Graham went on to explain:

“When it comes to safety, the … paradigm of 95% certainty prevails. Under this paradigm, a drug is safe until you can show with 95% or greater certainty that it is not safe. This is an incredibly high, almost insurmountable barrier to overcome. It’s the equivalent of ‘beyond a shadow of a doubt.’ And here’s an added kicker. In order to demonstrate a safety problem with 95% certainty, extremely large studies are often needed. And guess what. Those large studies can’t be done.”

Thus, it’s not at all surprising that every year, there are about 2 million adverse drug reactions (ADRs) and about 100,000 ADR-related deaths.

Your Plan’s diligence in monitoring – and responding to – new drugs may protect one of your plan beneficiaries from becoming one of those statistics.

The Benefit Of “The Known” Clearly Trumps The Risk Of “The Unknown”

All of the above facts mean that unless a new drug is a “break-through” drug, the health of your plan beneficiaries is likely to be far better protected if they avoid new drugs and rely on existing drugs that have withstood the test of time. Dr. Sidney Wolfe of Ralph Nader’s Worst Pills, Best Pills newsletter has long labeled most new drugs as “Do Not Use” drugs. Many other experts support his view, including the highly-regarded Consumer Reports on Health.

For diabetes control, experts agree that there are several tried-and-true generic drugs that your plan beneficiaries should first be encouraged to use, including metformin and the 3 sulfonylureas: glyburide, glimepiride and glipizide. That means, your Plan should make sure your PBM has implemented Step Therapy or Prior Authorization Programs related to all the new diabetes treatments.

Some PBMs have done so for some clients. Do you know what your PBM has done for your Plan?

And are you positioned to ensure that your PBM will react carefully and quickly to the next new drug that enters the marketplace?

Controlling Drug Use Reduces Plan Costs

It’s also worth noting that older, generic drugs are almost always far less expensive than new brand drugs. For diabetes control, metformin and the sulfonylureas should cost your Plan somewhere between $4 and about $50 per 30 day prescription (assuming your PBM contract contains reasonable price controls). In contrast, each of the new drugs is likely to cost your Plan several hundred dollars per 30 day treatment.

Looked at in a different way, the AWP of metformin ranges from 70 cents to $1.44 per unit (depending on the dosage level). For Jardiance, the AWP is $12.04 per unit, and for Invokana and Farxiga it’s $12.48.

Which cost does it make sense for your Plan to incur, if there’s no evidence that the more expensive new drugs are any better therapeutically than metformin, and their risk profiles are largely unknown?


According to a study comparing 2013 and 2012 costs for diabetes treatments, our nation spent 14% more on diabetes drugs in 2013 than in 2012. A major cause of the increase was the use of the 4 new high-cost drugs that were approved in 2013.

Do your know how many of your Plan Beneficiaries used those 4 drugs in 2013? Do you know the impact of those drugs on your Plan’s bottom line? And do you know what your PBM did to protect your plan beneficiaries – and your Plan – from such use?

Even more important, what has your PBM done to respond to the FDA’s approval of 4 new diabetes treatments this year?

In short, there are strong reasons for your Plan to consider customizing your Formulary – and Programs – and blocking many newly approved drugs, until the passage of time has enabled more information to emerge about the drugs’ safety and efficacy. If you don’t have the resources to do so, consider joining a Coalition. Just make sure that the Coalition has a PBM contract in place that allows customization – for every Coalition Member – and also verify that the Coalition is actually performing customization for Coalition Members.

If you’re interested in talking about the work our National Prescription Coverage Coalition is performing, do give us a ring. We’d love to talk with you. Call 973 975-0900.

Fix Your Claims Data Errors – Or Lose Money & Eviscerate the Meaning of Your PBM Contract’s Financial Guarantees

It’s critically important that every health plan monitor its claims data to determine whether claims data errors are allowing your PBM to overcharge for drugs and misrepresent whether the PBM is satisfying contract pricing guarantees.

As you read through our example of  a claims data error – and the impact that it had – you’ll understand why. Just note as you’re doing so: Don’t get flummoxed by the math and stop reading. We promise you’ll understand how to protect your plan if you read to the end of this Alert.

An Example of a Claims Data Error

Salex is a cream to treat psoriasis, among other skin problems. The AWP for a pound of Salex is $668.20. A retail pharmacy’s U&C might be, say, $700. Thus, assuming your PBM reimburses retail pharmacies based on “the lowest of AWP-15% or U&C,” your PBM will reimburse a pharmacy for 1 tube (or “unit”) of Salex based on AWP-15%, and pay the pharmacy – and invoice you – 15% less than $668.20, or $567.87.

But what if the pharmacy errs and enters the wrong data into its transmittal to your PBM? Since Salex is purchased by the pound, and there are 454 grams of Salex in a pound, rather than reporting that it dispensed 1 “unit” of Salex, the pharmacy may report that it dispensed 454 units. While the AWP of 1 unit of Salex is $668.20, the AWP of 454 units is $303,362.80.

If your PBM has not programmed its adjudication system to catch and correct this type of quantity error, the PBM’s system will now inaccurately conclude that “the lowest of AWP-15% and U&C” is the U&C. As a result, rather than reimbursing the pharmacy – and invoicing you – $567.87 for the single Salex tube, your PBM will reimburse the pharmacy – and invoice you – $700. That means your PBM will overcharge you for a single tube of Salex $132.02 ($700 – $567.87).

But that will only be the beginning of your problems! At the end of the year, your PBM will also inaccurately report whether it satisfied your contract guarantees. Here’s why:

To keep things simple, let’s assume that your contract requires your PBM to provide your health plan with an average annual discount guarantee for all retail brands of AWP-15%. Had the PBM’s adjudication system corrected the pharmacy’s error when the pharmacy reported it dispensed 454 units – and properly invoiced your health plan for 1 unit – at an AWP discount of AWP-15%, the PBM would average that discount into its calculation of its average annual discounts on all retail brand drugs. And assuming its average cost for all other Brand Drugs was AWP-15%, the PBM would accurately report that it satisfied this contract guarantee.

However, given the PBM’s failure to catch and correct the retail pharmacy’s error, the PBM’s system will now inaccurately calculate that 454 units of Salex – at an AWP of $668.20 per unit – was dispensed at a total AWP cost of $303,362.80. And the PBM will compare that total AWP to the price it invoiced your plan, namely $700. Therefore, the PBM will claim that it purportedly provided a discount on this one tube of Salex of AWP – 99.81%. And that is the discount that the PBM will average into all other Brand Drug discounts that it provided to determine if it satisfied its annual Brand Drug guarantee.

Imagine that! The PBM failed to detect and correct the quantity error, then overcharged your plan by $132.02, and now is able to claim that it provided a discount of AWP-99.81%!

Of course, the reality is quite different: If the actual AWP of 1 unit was $668.20, and the PBM inaccurately invoiced your health plan $700, the PBM charged your health plan AWP + 1.7%, and that’s the figure that should be averaged into the rest of its Brand Drug AWP discounts.

What’s the impact in dollars of the PBM’s inaccurate calculation? In calculating whether it satisfied its guarantees, the PBM has wrongly credited itself with $257,158.38!  ($303,362.80 x .85 – $700.00)

Does it matter if the PBM commits only a few such errors among hundreds of thousands of dispensed prescriptions? Believe it or not, it definitely does.

In fact, just a few such quantity errors – if you don’t catch them during the year – enable your PBM to overcharge you thousands of dollars. Even more important, just a few such errors allow your PBM to totally distort whether it satisfied your contract guarantees.

For example, in a recent audit of a plan, we found 32 such errors, resulting in total overcharges of $6,062, enabling the PBM to “pick up’ or wrongly credit itself in calculating its guarantee satisfaction with a total of $8.1 million. That, in turn, enabled the PBM to inaccurately report that it had provided an average annual guarantee for brand drugs of AWP-27%, when in fact it had only provided an average annual guarantee of AWP-16.2%. In other words, the PBM could grossly overstate its guarantee performance.


Even if you don’t understand all the above math, here are the obvious take-aways from our discussion:

First: Make sure your PBM contract contains the following critical contract provisions:

  • Your contract must require your PBM to correct all retail pharmacy errors before invoicing your health plan
  • Your contract must also state that if your PBM fails to do so, it must reimburse your plan for any overcharges that resulted from errors
  • Also, your contract must make clear that your auditor has the right to correct or exclude quantity errors when determining whether your PBM satisfied its contract pricing guarantees

Second: When you conduct a RFP, you must ensure that you evaluate PBM Contestants’ proposed guarantees accurately. To do so, you must:

  • Draft your contract before your RFP begins, and make sure you include the proper language in the contract
  • Bid out the contract, and require all PBM Contestants to provide all Financial Guarantees based on an exclusion of all errors
  • When you provide all PBM Contestants with a sample of claims data, you must make sure that you’ve eliminated all quantity errors from the data

Third: On a regular and ongoing basis, you must monitor your claims data:

  • Don’t assume that your PBM is accurately invoicing your health plan
  • Also, don’t assume that your PBM is accurately reporting its satisfaction of guarantees


Our review of hundreds of PBM / client contracts reveals that almost none contain the requisite language requiring the PBM to accurately adjudicate claims and reimburse for any errors that occur.

Moreover, our review of the claims data of numerous clients reveals that most PBMs’ adjudication systems are not automatically identifying and correcting or eliminating retail pharmacy errors.

Equally troubling, it’s our understanding that almost no RFPs are taking any of the above matters into consideration when evaluating PBM Contestants’ offers.

The above conclusions mean that (i) most clients are being overcharged for drugs, (ii) most PBMs are misreporting whether they satisfied their contract pricing guarantees, and (iii) most clients who are trying to improve their overall situations are unlikely to do so even after conducting RFPs.

We believe every plan is entitled to be accurately invoiced by its PBM. And every plan is entitled to know that its contract guarantees are being honored. Accordingly, we urge every plan to take the necessary steps to ensure these results.

New Hep C Realities: December 2014-January 2015

During the final days of 2014 and first week of 2015, newspapers around the nation announced three new developments that purportedly changed the prescription coverage world:

  • On December 19th, the FDA finally approved another new treatment for hepatitis C, AbbVie’s Viekira Pak [1]
  • Only days later, the largest Pharmacy Benefit Management company, Express Scripts, proclaimed it had negotiated a “significant discount” from AbbVie, and Express Scripts would therefore make Viekira Pak the exclusive Formulary treatment available to all individuals regardless of their disease’s severity [2]
  • On January 6th, the second largest Pharmacy Benefit Management company, Caremark, announced it would make Gilead’s two hepatitis C treatments – Sovaldi and Harvoni – Caremark’s exclusive Formulary treatments

At first glance, these developments appeared to be welcome news: Another new treatment for a potentially deadly disease. The two largest PBMs in the nation exercising their clout, presumably to create downward pricing pressure. And the possibility that all plan participants might finally be able to receive lower-cost hepatitis C drugs.

However, the picture is far more complex than newspaper stories revealed. Therefore, every HR exec trying to protect fund assets and plan participants’ health should take note of several underlying realities.

Will Health Plans Benefit From PBMs’ Recent Deals?

During the past year, health plans have been confronted with crushing costs from 3 new hepatitis C treatments: Gilead’s Sovaldi and Harvoni, and Janssen’s Olysio. The sticker prices of these 3 drugs for a 12 week treatment were about $84,000, $94,500 and $66,000 per patient.

Thus, many HR execs awaited the FDA’s approval of the next new hepatitis C treatment. When the FDA finally approved Viekira Pak on December 19th, and AbbVie fixed its sticker price at $83,300, the only question was whether AbbVie would agree to decrease its price to gain market share.

Enter Express Scripts and its claim that it had negotiated a “significant discount” from AbbVie, followed shortly thereafter by Caremark’s announced deal with Gilead.

But to what extent would either of these PBM deals actually benefit any of their clients?

After all, no one knows the amount of Express Scripts’ “significant discount” or whether Caremark even obtained a discount.

Even more important, no one knows to what extent either PBM will pass through any discount to its clients. Unfortunately, there’s good reason to believe that they won’t.

Notably, a drug “discount” can take many different forms: It may be a discount off a drug’s Average Wholesale Price (AWP). Or a discount off a drug’s Wholesale Acquisition Cost (WAC). Or a rebate. Or a chargeback. Or a reduction in price using some other label invented by the PBM negotiating with a manufacturer, of which there are dozens of such labels.

Tellingly, in our firm’s review of hundreds of PBM/client contracts, we’ve discovered that most PBMs are not passing through most of the above “discounts” to their clients.

For example, in connection with AWP (or WAC) discounts: Some PBM contracts require pass-through pricing for drugs dispensed through retail pharmacies. But very few PBM contracts require the PBM to pass through its actual costs for drugs dispensed through specialty drug pharmacies. Therefore, PBMs typically do not do so.

Notably, all 4 of the new hepatitis C drugs are usually dispensed by specialty drug pharmacies. Moreover, when announcing its deal with AbbVie, Express Scripts made clear that it will only allow Viekira Pak to be dispensed from Express Scripts’ Specialty Drug Pharmacy. Thus, if the “significant discount” that Express Scripts negotiated with AbbVie takes the form of an AWP (or WAC) discount, Express Scripts’ clients may never obtain any of the financial benefit of this purportedly “significant discount.” That may also be true of any AWP (or WAC) discount negotiated by Caremark.

Similarly, discounts that are structured as “rebates” may never get passed through to clients. Most PBM contracts do not require that PBMs pass through all rebates. And many PBM contracts explicitly state that PBMs are only obligated to pass through rebates on retail and mail drugs (meaning specialty drugs are excluded from the rebate obligation).

So what should every HR exec in the country now be doing?

Given the exorbitant sticker prices of all 4 hepatitis C drugs – and the large number of participants who may be given hepatitis C treatment – all HR execs should immediately access their claims data and determine whether, and to what extent, their PBMs are discounting each drug.

Note that in RFPs conducted by our consulting firm, when forced to do so, certain PBMs have bound themselves contractually to provide a specified guaranteed discount on every specialty drug, meaning clients are able to obtain drug-by-drug discounts for more than 800 drugs. And certain PBMs have agreed to provide guaranteed discounts for Sovaldi, Harvoni and Olysio that are as high as AWP-17%. That discount amounts to a lot of money on drugs that cost approximately $1,000 per day. Accordingly, every health plan should be receiving discounts of at least that amount on these three drugs.

Also note that in RFPs conducted by our consulting firm, when forced to do so, certain PBMs have contractually bound themselves to pass through 100% of all forms of third party “financial benefits” (whether they are labeled “rebates,” “administrative fees,” “chargebacks,” “grants,” or any other name). And these PBMs have agreed to do so for every type of drug – retail, retail 90, mail and specialty. Therefore, every HR exec should determine whether it is receiving “rebates” or any other form of third party payments for any of the hepatitis C drugs, and what those payments actually are.

Does It Make Sense To Expand Treatment To All Participants With Hepatitis C?

At first glance, it was also welcome news that Express Scripts now intends to dispense Viekira Pak to all plan participants using Express Scripts National Preferred Formulary and suffering from genotype 1 infection.[3] After all, given the high cost of hepatitis C treatments, many PBMs have been curtailing the new treatments to only those with serious illness.

But again, the picture is far more complex, and HR execs must obtain the facts lurking beneath the surface.

According to the Centers for Disease Control and Prevention (the CDC), approximately 15% to 25% of hepatitis C patients clear their bodies of the hepatitis C infection without any treatment at all. The CDC also states that 60% to 70% of hepatitis C patients develop chronic liver disease, meaning 30% to 40% do not.[4]

Therefore, it’s questionable whether any PBM should force all health plans using a specified Formulary to provide treatment to all plan participants. That’s especially true if large numbers of people have been diagnosed with the disease, the treatment has an enormous sticker price, and the amount of the discount that will be passed through to health plans is entirely unknown.

In other words, it may be that Express Scripts will benefit from its new, seemingly beneficent approach, but health plans will only go broke.

Tellingly, as long as Express Scripts fails to pass through all its negotiated AbbVie “discount” to its clients, Express Scripts will obtain profits for every patient treated. And the more patients it treats, the greater will be its profits.

In contrast, even if Express Scripts negotiated a “significant discount” with AbbVie, unless that discount is very steep and Express Scripts is passing through all (or at least most) of the discount to health plans, health plans’ costs may explode if every hepatitis C patient is treated.

Moreover, why would anyone treat every hepatitis C patient immediately, given that the disease typically develops over the course of many years, and at least two other new treatments may become available within the next two years, potentially reducing prices dramatically?

For patients, a sudden rush to treatment also makes little sense. After all, many individuals with hepatitis C are asymptomatic and will not suffer any harm from the disease for many years. Furthermore, the mid- and long-term efficacy, safety and side effect profiles of new drugs only become known with the passage of time. Therefore, those who don’t need treatment right away will likely be better off if treatment is delayed until more is known about each treatment.

So what should HR execs do given the above facts?

To protect health plan assets – and patients’ health – it makes sense to curtail the use of these new drugs to those who really need them. Thus, every HR exec should revolt if its PBM wants to impose mandatory treatment on all hepatitis C patients. And every HR exec should insist that its PBM implement an effective Prior Authorization Program for hepatitis C drugs. Only through these Programs can HR execs successfully control their costs and also ensure their participants will receive wise treatment.

Plans Must Control The Costs Of All New-To-Market Specialty Drugs

A final lesson can be learned from recent hepatitis C developments: Every HR exec should create contractual “protections” to control the prices of every new specialty drug that will enter the market in the future.

The contract terms that should be in every health plan’s PBM contract include the following:

  • A stated “default discount guarantee” that the PBM must automatically provide for every new-to-market drug
  • The client’s right to negotiate an improved guaranteed discount on any specialty drug, if a better discount becomes available in the marketplace
  • And if a PBM won’t provide a competitive discount when it’s requested, the client’s right to carve-out the specialty drug and have another vendor (that will provide the competitive discount) dispense the drug

If the above protections currently existed in every PBM contract, when a new drug like Viekira Pak entered the market, every PBM would be forced to provide an automatic default discount on the drug. Thereafter, every health plan could negotiate with its PBM to improve the discount it was receiving to ensure the discount matched what was competitively available. And if its PBM wouldn’t cooperate by providing a competitive discount, every health plan could turn to another vendor to dispense the drug at the lowest available cost.

In short, rather than relying on PBMs to create purported downward pricing pressure that may not bring about actual health plan savings, HR execs could exercise their own pricing pressure and truly change the prescription drug marketplace. Now wouldn’t that be an amazing development!


[1] See

[2] See

[3] Ibid.

[4] See

Linda Cahn to Speak at Specialty Drug Conference

Need to understand why your Specialty Drug costs are spiraling out of control, and what you can do to reverse the trend?

Make sure to register for the World Congress’ Specialty Drug Conference  on September 18th-19th. You can attend “live” in Boston, or register to “stream” seminars to your own venue. Click here to learn more about all courses and speakers. Register by August 11th – using promo code PHARMA – and reduce your costs by $100.

And make sure to attend the seminar given by our own executive director, Linda Cahn, captioned: “Improve Specialty Drug Transparency and Control Specialty Drug Costs”!