BEYOND TRANSPARENCY: THE $4 DOLLAR EFFECT

Using the four dollar generic program in a transparent, Full Pass-through PBM Model to drive rapid reduction in cost to Payors & members

First, this case study will seek to highlight the impact of the $4 generic program, which has growing enthusiasm with payors, and has been applied to a Health Plan in the Midwest with over 80,000 members. The Midwest Health Plan is under a fully transparent and pass-through PBM arrangement with ProCare Rx. 
Secondly, this case study will describe the overall impact on the claims volume effect on this segment of generic pharmacy utilization.  Health Plans and Pharmacy Benefit Managers have suspected that claims volume dilution continues to occur from $4 generic claims not being submitted electronically to payors.  Finally, this case study will evaluate the program’s impact at Walmart^®, since the company was and continues to be both the innovator and leader in this segment of the pharmacy market.

ProCare Rx, a leading privately held national Pharmacy Benefit Manager (PBM), recently completed a case study for a Health Plan with 80,000 members in a fully transparent and pass-through arrangement and reports the overall impact and savings experienced from the $4 drug program offered by the pharmacies.

Analysis of a Transparent & Full Pass-Through $4 generic program

The $4 generic program, which was initially developed and launched by Walmart around the third quarter
of 2006, sought to lower the cost on a specific population of generic drugs.  Since then, the selection of drugs covered under the program has steadily grown and represents more than 300 generic products today.  The initiative’s original goal was to create an attractive price to cash payers, attempt to heighten therapeutic compliance, and increase foot traffic at Walmart stores in select markets.  The initiative was well received and became an immediate success in the market, lowering the cost of generic prescriptions for both patients and payors nationwide.  Shortly thereafter, the entire pharmacy market (with some exceptions including Walgreens^®, Rite Aid^® and CVS^®) moved to match the offering for fear of losing market share in the retail pharmacy space.  This program, which was originally designed for the cash and uninsured pharmacy patient, has now expanded exponentially, and has benefited employers and managed care organizations (MCOs) nationwide.  There are just a few exceptions where a small number of states prohibit these types of pricing methods.  Today, the $4 generic program continues to expand and now patients are able to obtain a 90-day supply of most of the $4 generics for only $10; further reducing the generic drug cost of medication for both members and plan sponsors.

However, some members and payors argue that they are not seeing the benefits of the aggressive pricing of
the $4 generic drug program across all of the different pharmacies offering this type of program.  They say that PBMs and Health Plans offering traditional pharmacy benefits are not “passing through” the full discounts.  Instead, they are keeping the additional monies as “spread margins” to offset administrative
costs for the services they offer employers and MCOs.

Health Plans and Pharmacy Benefit Managers (PBMs) contend however, that pharmacies are not submitting $4 generic medication(s) claims since these agents Usual and Customary (U&C) prices return less than what members would pay at the Point of Service (POS) using the standard pharmacy benefit offered through their Plan.  Furthermore, since these claims are essentially 100% member copay claims, pharmacies often choose to not process the claims to allow members to benefit from the greater cash price (U&C) discounts which also contribute to preserving the maximum pharmacy benefit thresholds.  If true, this raises a significant quality of care issue, as this subset of claims may circumvent the concurrent online Drug Utilization Review (DUR) clinical edits, which may lead to unwarranted drug-drug interactions.  By not processing the claim through proper plan channels, the pharmacist will not see the member’s complete pharmacy profile, and will miss any drugs the member may currently be taking that could cause serious injury when mixed with the new generic prescription.  This could expose the pharmacy to unnecessary liabilities if it’s proven the pharmacy had access to a complete check against a more complete online medication profile held by the health plan or PBM.

ProCare Rx, a leading privately held national PBM, recently completed an analysis comparing first quarter 2007 and 2008 generic claims volume to determine the cost benefit between a traditional PBM arrangement the Plan was under in 2007 and the ProCare Rx Transparent Model in 2008.  In addition, ProCare Rx then compared first
quarter 2008 versus first quarter 2009 generic claims volume to compare the impact on overall generic trends and the impact of the $4 generic drug program for a Health Plan in the Midwest with 80,000 members, which began in 2008 with ProCare Rx.  The Plan is contracted in a full pass-through transparent arrangement and the value of all negotiated pharmacy discounts are passed directly to the Plan and its members.

Additionally, ProCare Rx reviewed the overall generic claims volume to measure the net change in claims
volume for this subset of generic claims.  The intent of this effort was to identify and measure any potential impact of the suspected $4 generic claim non-submission phenomenon.

Overall Impact of $4 Generic Program in a Transparent Model, First Quarter 2007 (Traditional Model) versus First Quarter 2008 (Transparent Model)

For the period of January to March 2007 the Plan experienced a 57.90% generic utilization rate with an average total prescription cost for generics of $25.76.  Using the Walmart $4 generic list as a benchmark for drugs eligible for this discount, 43.48% of all generic prescriptions overall were eligible for the $4 generic discount benefit**.  The overall average total cost per prescription of this subset of generics was $19.25 for this period.  The amount per prescription reflects a mix of 30-day supply and 90-day supply utilization, but is heavily weighed to 30-day utilization since the number of claims dispensed reflects a 30-day supply. 

For the same period in 2008, the Plan experienced an 11.30% increase in generic utilization with basically the same plan benefit design; achieving a 64.44% generic fill rate and the average total prescription cost for generics was $13.92 or $11.84 (45.96%), less expensive year over year for the same period.  Using the benchmark generic list mentioned above, 48.06% of all generics were eligible for the $4 dollar benefit.^** The overall average total cost per prescription of this subset of generics was $4.90, which represents a 74.5% decrease versus the same period in the traditional PBM model in 2007.

Table 1. First Quarter 2007 vs. 2008, Generic Utilization, Entire Pharmacy Network

 *Normalized data to account for increased membership to neutralize the effect of membership increase.

**ProCare Rx has identified a benchmark of potential $4 generic products using the $4 Walmart list; some pharmacies may not honor the same list or may not participate at all.  However, by using the benchmark it allows for comparative analysis amongst periods and amongst different chains to determine the performance of such programs inside of a pharmacy benefit.  In addition, these programs are part of the usual and customary (U&C) pricing practices and these product prices cannot be managed as
consistently as non U&C claims in the PBM Pharmacy Networks. Thus, some utilization identified as $4 eligible may not have actually been submitted by pharmacy under such program, which would serve to increase the average cost over the $4 price.

Comparing the results between PBM models clearly and decisively shows the significant positive impact
the $4 generic program has made in lowering the overall generic pharmacy cost of goods to members and the Health Plan.  The ability to review the impact is simplified because of the transparent and pass-through model ProCare Rx is offering the Health Plan. Under this arrangement, the Health Plan’s and PBM’s objectives of maximizing savings and providing optimum member care are fully aligned.  More importantly, this model and its benefits are reproducible nationwide since the generic drug mix remains consistent throughout the managed care marketplace.

The high percentage of $4 generic claims (approaching 44% in first quarter 2008) minimizes the concern that $4 generic claims are not being submitted to ProCare Rx.  During this time period, it appears that the majority of the $4 generic claims are being submitted to the Health Plan.  If pharmacies were not submitting these claims, ProCare Rx would see a lower percentage of $4 generic claims as a percentage of total generic claims.  ProCare Rx has developed analytical tools to allow it to measure the increased utilization of the $4 generic program within its pharmacy network.  And nationally, the overall percentage of $4 generic claims averages 35-40% of total generic claims.  Thus, this Plan is performing above the national average, in part due to its pharmacy network participation in the $4 generic program led by Walmart.

The Positive Impact of $4 Generic Program Continues in 2009

Comparing first quarter 2008 to first quarter 2009, the strong trend in utilization remained consistent for the Midwest Health Plan during first quarter 2009.  For the period of January to March 2009 the Plan experienced a 68.88% generic utilization rate with an average total prescription cost for generics of $11.63.  The overall generic fill rate increased 6.8% (4.4%) over 2008 for the same period.

Using the Walmart $4 generic list as a benchmark for drugs eligible for this discount, 43.91% of all generic prescriptions overall were processed under the $4 discount benefit.  The overall average total cost per prescription of this subset of generics was $6.80 for this period^**.  The amount per prescription reflects a mix of 30-day and 90-day utilization but again was heavily weighed to 30-day utilization since the number of claims dispensed reflects a 30-day supply.

Table 2. Overall Health Plan Performance on Generic Utilization, 1Q2008 vs. 1Q2009

 *Normalized data to account for increased membership to neutralize the effect of membership increase.

**ProCare Rx has identified a benchmark of potential $4 generic products using the $4 Walmart list; some pharmacies may not honor the same list or may not participate at all.  However, by using the benchmark it allows for comparative analysis amongst periods and amongst different chains to determine the performance of such programs inside of a pharmacy benefit.  In addition, these programs are part of the usual and customary (U&C) pricing practices and these product prices cannot be managed as
consistently as non U&C claims in the PBM Pharmacy Networks.  Thus, some utilization identified as $4 eligible may not have actually been submitted by pharmacy under such program, which would serve to increase the average cost over the $4 price.

After neutralizing for higher utilization resulting from increases in membership numbers; overall total generic utilization increased 24.87% and $4 generic drug claims increased 25.18%.  In the first year after implementing this transparent business model with ProCare Rx, this Midwest Health Plan saved over $2 million in total drug spend without significant changes made to their pharmacy plan benefit.  The $4 generic program has been a key contributor to that accomplishment and can no longer be underestimated.  Employers and other payors battling tough economic times must ensure they position themselves to take advantage of the benefits of a transparent pharmacy benefit model.  These agreements allow payors the opportunity to realize the full benefits of the aggressive discounts retail pharmacies are offering their members through the Walmart $4 generic program, and other generic programs offered by national pharmacy retailers.

The overall percentage of $4 generics as a whole remained consistent for the Plan year over year at 43.91%.  Indeed, this demonstrates that the majority of retail pharmacies are transmitting the claims to ProCare Rx and are not circumventing the DUR online protocols.  DUR online protocols are critical to ensuring PBMs and Health Plans are able to alert pharmacies of potential drug interactions or conflicts in therapies.  With the rising adoption of e-prescribing, having this data means that PBMs and Health Plans will be able to maintain and report accurate member drug histories.  This element is critical to the success of e-prescribing as it is based on the premise that pharmacists and physicians can provide the highest level of care when they are able to access a complete medication profile.

Walmart^® Performance Compared to Overall Pharmacy Network

As the innovator in the retail marketplace for the $4 generic drug program, Walmart is leading the charge for delivering aggressive cost savings and is exceeding all key performance metrics.  This is a tangible advantage to the Midwest Health Plan because ProCare Rx is passing through the aggressive pricing of this $4 generic program at POS, in real-time.

Consistent with the findings of the $4 generic program utilization for the entire pharmacy network, it is clearly evident that these claims are being submitted online.  This is proven with the percentage of $4 claims at Walmart stores exceeding the overall average of $4 generics being recorded as dispensed at all participating pharmacies – including Walmart.

Walmart continues to show consistent growth in the $4 generic program and is increasing the selection of
generic drugs included in the program.  This forces the competition to match the aggressive pricing strategies at retail.  In a transparent, full pass-through model, with ProCare Rx passing all discounts at POS, the Health Plan essentially has no Plan pay for these $4 generic drugs and members continue to pay less than their copayments, which can encourage greater compliance and represents a true ‘win-win’ for all parties.

Table 3. Walmart Performance, Summary

*Normalized data to account for increased membership to neutralize the effect of membership increase.

**ProCare Rx has identified a benchmark of potential $4 generic products using the $4 Walmart list; some pharmacies may not honor the same list or may not participate at all.  However, by using the benchmark it allows for comparative analysis amongst periods and amongst different chains to determine the performance of such programs inside of a pharmacy benefit.  In addition, these programs are part of the usual and customary (U&C) pricing practices and these product prices cannot be managed as
consistently as non U&C claims in the PBM Pharmacy Networks.  Thus, some utilization identified as $4 eligible may not have actually been submitted by pharmacy under such program which, would serve to increase the average cost over the $4 price.

Conclusions

This case study objectively illustrates that Transparent PBM models can offer competitive and substantive cost advantages to Payors over Traditional PBM models if they effectively pass-through all discounts generated at POS.  In the transparent, full pass-through model which ProCare Rx offered this Midwest Health Plan, ProCare Rx passed 100% of the savings to the Plan as well as members.  In the industry, the benefits of a true transparent arrangement are beginning to gain momentum and the final outcome of this Plan changing models, including the PBM administration fee that was charged, still resulted in significant savings to the Plan.  Thus, by changing to a transparent model, the overall costs to the Midwest Health Plan did not increase over what the Plan had paid the previous PBM under a Traditional PBM arrangement.

The results of this case study attempt to offer a plausible explanation for the non-claim submission phenomenon that some PBMs and Health Plans state is occurring nationwide in the industry.  ProCare Rx believes the Health Plans and PBMs that do not pass the discounts to the patients is one of the key root causes for participating pharmacies not submitting these claims; since the U&C cash price of these claims is less than what the PBM or Health Plan is charging its members.

Since patients are becoming more aware of these benefits due to increased retailer marketing campaigns, it is expected that members will no longer tolerate paying more than the advertised price – especially when they expect their insurance cards to provide deeper benefits over the U&C prices seen at national retail pharmacies.  Pharmacies will continue to feel the monetary pressure from their customers, and save them money on their prescriptions by processing the prescription as a cash payment.  This will continue until Health Plans and PBMs accept that they will have to pass the entire discount to the member for the $4 generic products regardless of the current business model a payor may have with its Health Plan or PBM.  This case study provides a measurable and proven example of the benefits a $4 generic program can offer a payor when a true transparent and pass-through PBM model is implemented in the marketplace.

To learn more about ProCare Rx, contact Alex Knight.