HR Policy Association Pharmaceutical Purchasing Coalition

2006 Rx Benefit Innovation Award

Problem Identification

In response to the issues surrounding transparency and disclosure in the pharmacy marketplace, HR Policy’s Health Care Policy Roundtable formed the Pharmaceutical Purchasing Coalition in 2004. To date, more than 50 companies representing approximately five million lives with more than $4 billion in combined drug spend joined together to achieve greater transparency and disclosure in the way pharmaceutical benefits services are purchased. The Coalition believes it is in the best interest of members and plans to move the market away from traditional pricing in which a pharmacy benefit manager (PBM) derives revenue from sources that are not disclosed to its employer clients, such as rebates from drug manufacturers.

Target Audience

The target audience is PBMs who provide prescription drug benefit administrative services and clinical management in the U.S. marketplace, and employers who purchase pharmacy benefits for their employees, dependents, and retirees.

Objectives

In an effort to accomplish change in the way employers purchase pharmaceuticals to a model that encourages patients to use the most clinically appropriate and cost-effective medications, the Coalition established the following objectives for transparency standards:
• Achieve complete disclosure to employers and employees,
• Create competition among PBMs for administrative services and clinical management, and
• Establish incentives for employees to maximize the use of cost-effective therapies.

Solution

The Coalition, with technical assistance from Hewitt Associates, has developed a uniform definition of transparency and standard requirements called the Transparency in Pharmaceutical Purchasing Solutions (TIPPS). Requirements stipulate that PBMs should:

• Charge the plan sponsor the same amount being paid to retail pharmacies for brands and generics

• Allow for acquisition-based pricing plus a dispensing fee for brands and generics dispensing by mail-service pharmacies, using AAC or WAC.

• Pass back any revenue associated with plan sponsor’s drug claim utilization including:                         
  • Access rebates,
  • Marketshare rebates,
  • Administrative fees,
  • Data aggregation fees,
  • Data sales to third parties, and
  • Compliance and adherence revenues.

• Provide information to consumers including point-of-sale rebates, lowest cost basis for adjudication rules, and integrated retail-mail processing system.

• Agree to full audit rights of pharmacy claims data, retail pharmacy network contracts, pharmaceutical manufacturer contracts, utilization management criteria and logic, and mail-service audit with operational assessment.

• Perform effective utilization management by conducting a Value Drug Report Card analysis, a standardized measurement tool developed by Hewitt Associates to successfully negotiate performance guarantees for optimal drug utilization management.

• Provide financial and clinical services for specialty pharmacy including pass through of 100 percent of pharmaceutical manufacturer revenue, dose optimization and consolidation programs, cross-walk billing for medical claims, case management for critical disease states, and acquisition cost basis pricing for reimbursement from mail-service pharmacy.

• Support Medicare Part D in the following ways: coordinate benefits on all Part B-eligible medications through mail-service, meet all Centers for Medicare and Medicaid Services (CMS) requirements for data/eligibility transmission, administer a Part D Prescription Drug Plan (PDP) benefit or wrap program, provide actuarial attestation services for those filing subsidy, be willing to contract as PDP subcontractor, and offer formulary evaluation support for self-funded employers’ PDPs.

Impact and Results

The Coalition published its transparency standards in 2005. PBMs are responding to the marketplace interest in transparent contracting. In July 2005, Aetna Pharmacy Management, MedImpact Health Solutions, Inc., and Walgreens Health Initiatives were certified by the Coalition under the TIPPS platform. The Coalition's second certification process will begin in spring 2006. Two Coalition members implemented plan designs using this transparency framework beginning January 2006. A growing number of companies are considering doing so for January 2007. The impact on drug expenditures and utilization trends will be better understood in late 2006 or early 2007.

The Coalition continues to push toward market reform in all aspects of health care, remaining focused on price transparency in an effort to achieve the lowest total drug cost. It is the TIPPS Coalition’s expectation that by demanding market reform, it will help create an industry with improved care and reduced costs without government regulation.

For more information about the Coalition’s transparency standards, contact Marisa Milton at mmilton@hrpolicy.org.

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