Tit for Tat: CVS Caremark Kicks Walgreens Out of Its Network

Some of our clients have asked about the rationale for the Walgreens/CVS-Caremark issue. Clearly money is the primary rationale. However, the National Community Pharmacist Association (NCPA) is providing some other rationale from their viewpoint. We thought that you would find this of interest.

NCPA eNews Weekly | June 15, 2010

Two days after Walgreens announced that it would not participate in any future CVS Caremark network plans, CVS Caremark responded by terminating Walgreens' participation in all its network effective July 9. The giant chain pharmacy/PBM/ mail order conglomerate said it would drop Walgreens from its Medicare Part D network effective Jan. 1, 2011.

When Walgreens announced its decision June 7, it cited many of the same problems experienced by independent pharmacies and prompted NCPA 18 months ago to launch a campaign for a Federal Trade Commission investigation of CVS Caremark's business and patient privacy protection practices. Last November, CVS Caremark disclosed that it was under FTC investigation. In addition, 24 states are probing the company created by the merger of the pharmacy chain with a PBM/mail order firm. NCPA members have had a number of meetings with FTC officials about their experiences since the 2007 merger.

Those experiences largely mirror those cited by Walgreens:

CVS Caremark limits patient choice by requiring patients in Maintenance Choice and other plans to use CVS retail pharmacies or Caremark mail order facilities.

CVS Caremark provides little or no information when a CVS Caremark prescription drug plan is transferred to a different and differently-priced CVS Caremark pharmacy network, or when CVS Caremark acquires a new prescription drug plan as a client."

CVS Caremark reimbursement rates are unpredictable and payments for certain drugs often don't reflect the market."

"If a large, publicly traded chain with the clout of Walgreens finds the business practices of CVS Caremark untenable, then it's easy to understand how much greater the problems have been for independent community pharmacists and their patients," commented Joseph H. Harmison, PD, NCPA president. "The concerns expressed by Walgreens echo and further validate the concerns expressed by independent community pharmacists and their patients."

"Unfortunately, for most independent pharmacies, simply telling CVS Caremark 'no' isn't a viable business option," Harmison continued. "The evidence is piling up and hopefully corrective action will be taken that either erects substantial walls between CVS and Caremark or rescinds the merger so that the market can operate equitably without one company abusing the system for its enrichment at the expense of patients and fair competition among pharmacies."

Craig S. Stern, PharmD, MBA
President
Pro Pharma Pharmaceutical Consultants, Inc.

We commonly receive questions about average pricing contract language. The following is a response to the usual contract language.

PBM contract language often refers to the use of average, rather than per-claim, pricing for drugs. The average pricing issue does not preclude the fact that there are other pressing and relevant issues that need to be addressed from both the contract and audit/accounts payable screening of invoices pre-payment. These issues are the plan/purchaser’s (“plan”) responsibility, and are not open to the discretion of the PBM, but rather to how the plan/purchaser requires implementation of the business rules for claim adjudication. The following summarizes those issues that are not resolved regarding the average pricing language.

Ø Average pricing does not address contract requirements for –

o Situations where the AWP is inflated above Medicaid, above manufacturer published AWP, and above the reference database published AWP – all of these lead to both individual and average higher costs while discount guarantees are met.

o Situations where the generic MAC price is inflated above the FUL and the Medicaid MAC. This makes the average a larger number, but allows for the discount guarantees to be met.

o Drugs coded as brand that should be generic, generic drugs that should be on the MAC, multisource that don’t exist in benefits – these all implicate generic pricing as they are incorrectly priced so they affect all generic average prices.

o Situations where the U&C (e.g., $4 programs) is inflated above pharmacy published prices. This results in the plan paying more than a cash paying patient and improves the average making it easier to meet the AWP guarantee.

Ø Formulary coding, quantity limits, early refills, and COB for Medicare are responsibilities assigned to the plan. The amendment for average pricing does not implicate these benefit issues. The responsibility for benefit definition and what the PBM should use as business rules for claim adjudication are also assigned to the plan. As a result, the PBM cannot modify or apply rules that are other than what the plan requires without plan approval.

Ø Invalid claim administration where claims include invalid identifiers for doctors, pharmacies, drugs, and expired drugs

Ø Retrospective audits do not remove the responsibility for reviewing and remedying plan ongoing issues with the above listed items. Further, issues identified in the bimonthly/monthly invoices require reconciliation at each invoice period, and do not allow for future settlements for claim history outside of the invoice period. The plan has the discretion and the authority to define and ensure that the PBM is complying with plan current business rules for claim adjudication. This is not applicable to average versus per-claim pricing. As the fiduciary, the contract does not allow the PBM to make those decisions without the express approval of the plan.

Ø The retrospective audit process does not address the following issues that are not applicable to average pricing – reconciliation of each invoice, performance guarantees and applicable financial penalties (e.g., level of satisfaction with account client management, pharmacy network training to Count benefits and business rules), rebate reconciliation, network pharmacy audit results, and review of pharmacy network agreements for validation of pass-through pricing.

Note: The lack of oversight of average pricing allows a Pharmacy in the retail network to be paid at different AWP discounts and dispensing fees for brand drugs. This applies across the retail network and disadvantages a pharmacy for some drugs and advantages them for others. While this is not a direct contract with the plan, this is the source for potential pharmacy complaints and lack of compliance with the COB claims. This results in a decision for the plan to determine what parity rules they require for management of their retail network.

Craig S. Stern, PharmD, MBA
President
Pro Pharma Pharmaceutical Consultants, Inc.

Response to Pharmacy Benefit News, Issue 127

Below is an article we published in March, 2010 and a response it solicited from one of our subscribers (published with his permission). We welcome feed back on all of our publications!

AWP CHANGES
On September 26th 2009, the Average Wholesale Price (AWP) for over 95% of brand medications changed. "The New England Carpenters vs. McKesson & First Data Bank" ruling required that effective September 26th 2009, the Average Wholesale Price (AWP) of 1442 specific National Drug Codes (NDC), be reduced from a Wholesale Acquisition Cost (WAC) mark up of 1.25% to 1.20%.
First DataBank & Medi-Span also announced a voluntary roll back of all brand medications that had an AWP markup greater than 1.20%. This voluntary AWP adjustment from First DataBank increased the effected number of NDCs to over 20,000.
Finally, AWP is expected to be replaced by WAC in 2011.
COMMENT: AWP is the basis for PBM payments to pharmacies. Consider changing contracts to WAC now to prepare for 2011. Payers and purchasers are not receiving compensation for the inflated AWPs that they have been paying on for years. Pharmacies, PBMs, Health Plans, etc., don’t want to be disadvantaged so they requested the previous prices be based on AWP = WACx1.25. If you wish to pay a more cost-based price, then consider contracts based on a cost of WACx1.2.


From: John Cronin
Sent: Thursday, March 11, 2010
To: Dr.Craig Stern
Subject: RE: Pharmacy Benefit News #127

Craig:
Couldn’t help but notice the comment in this newsletter that “Payers and purchasers are not receiving compensation for the inflated AWPs that they have been paying on for years.” As you are aware, PBM contracts with pharmacies were quickly adjusted over the years to compensate for the “inflated AWPs” with reimbursements falling from AWP -12% to AWP -17% on average. When the First Data Bank case was settled, many, but not all, PBMs re-adjusted their reimbursement rates to keep pharmacies whole – something that was necessary in order to maintain the pharmacy networks. The major payer who did not make that change in California is the Medi-Cal program, which has had two federal lawsuits challenging their (in)action.
Despite what the federal judge in Mass. has to say on the matter, the reality is that most PBMs were not paying pharmacies based on “inflated AWPs”; how the PBMs dealt with payers is a matter you know better than I. I’m not sure this distinction is clear from your comment and hope you’ll clarify it in a future newsletter.
Thanks
John A. Cronin, Pharm.D., J.D.

Is Flat Fee A New Trend?

Payers understand that one of the major advantages of a PBM (Pharmacy Benefit Manager) is their pharmacy network. PBMs sign up pharmacies, approve and monitor pharmacy claims in real time, set up formularies, and send the pharmacies checks for prescriptions filled.

• Most pharmacies expect to get paid for dispensing prescriptions based on a formula that is outlined in their network contract.
• Most payers expect to pay their invoice for dispensed prescriptions based on the formula that they agreed upon in their contract.
  
  It is understandable that pharmacies may be paid a different price in one network. One would expect urban dispensers to compete for the network and drive the dispensing fee down. Conversely, a rural pharmacy (possibly the only drugstore in town) would probably get a higher price for filling a small community’s prescriptions.
  
  Networks also contain other dispensers such as mail order pharmacies, specialty products pharmacies, and preferential pharmacies. Each group would probably have a different contract and a different payment formula.
  
  What about government pharmacies that fill prescriptions in a non-government network? The VA (Veterans Administration) is such a network.
  
  Government pharmacies buy drugs at special government prices. Many prices are 50-75% below the community pharmacy cost.
  (The government doesn’t need to buy drugs from Canada because it already gets a very special low price.)
  The government, because of their buying advantage, is not supposed to compete with community pharmacy. In many cases, the government gives away prescriptions to the disadvantaged and has many programs to assist states in covering the medical needs of those that can not afford care.
  
  Based on the government’s goals and purpose in the health care system it is understandable that they would get a special low price on drugs. It is also understandable that the government can dispense drugs for a much lower price than can retail pharmacy. But what about the reverse? What if the government charges a payer more than retail pharmacy – in a flat fee system?
  
  One network (XYZ) that is of interest is with one PBM and the VA on the east coast. Instead of charging a low price for drugs, they are paid $51 for each prescription they fill no matter what the cost. How could this happen? More importantly, why did this happen? Community pharmacy is paid on a cost plus a dispensing fee formula and the VA on the east coast is paid on a flat fee formula?
  
  We called several VA pharmacies and tried to find out if they knew that they were being paid much more than retail pharmacies on each prescription and no one knew what we was talking about. When the PBM was asked we were told that this is what the VA demanded.
  
  Should community pharmacy ask for a flat fee too? Is this a new trend in contracting? And even more complicated, should the government give payers the advantage of their lower cost of drugs?
  
  Please let us know if you have seen any of these issues. We are interested in your comments and opinions.
  
  
• Developed by Barry Pascal, PharmD, Pro Pharma Pharmacist

AWP update

Several clients have asked about what to do with the change in AWP when they receive calls from pharmacies complaining about reimbursement. Many clients have signed amendments to their agreements that allow the PBM to change the AWP or to change the AWP discount. Please consider the following when you receive complaints from pharmacies:

• Ask the PBM to review the pharmacy/PBM agreement (possible in pass through contracts) to ensure that the AWP change is consistent between what was promised by the PBM and what is being paid to the pharmacy; namely, if the pharmacy is to be kept whole, then the pharmacy contract should reflect the same language and AWP calculation as in the amendment that the purchaser signed with the PBM.
  
• Make sure that you have the specific telephone number at the PBM to refer pharmacy complaints.
  
• Ask the PBM for a report every month of the number and nature of pharmacy complaints regarding AWP changes, and determine if the complaints are being handled to your satisfaction.
  
• Ensure that the formulas used by the PBM for calculating AWP are fixed and does not change for the term of the contract with the purchaser.
  
• Please remember that the only gold standard for the AWP is the one that is published by the manufacturer. Everything else is a calculation and may not reflect the same AWP. As a result, the pharmacy computer system may, or may not, have the same AWP as the PBM.
  
• Closely monitor your invoices and supporting claims for the impact on cost inflation.
  
  

Please call if you require clarification or need assistance.

Be well,
Dr. Craig Stern