Payor Insights for Manufacturers

BY: Staff

Payor formulary placement and reimbursement amounts are the two most important aspects of a manufacturer’s success in the marketplace – they create pharmacy demand which in turn leads wholesale customer demand and pricing.

So your product receives FDA approval – what needs to happen before your first sale?

Payor Coverage Decision

The very first step in having a product covered is to file the NDC with the FDA. Next, it is important for manufacturers to add the product to product compendias (MediSpan, Red Book, First DataBank, Gold Standard etc.) because that is how payors find out about new products. Under Federal law, payors have 90 to 180 days from the marketing approval date (PDUFA date) to decide on covering a product.

It is extremely important for small manufacturers to reach out payors to ensure proper coverage. The most benefit will come from targeting specific individuals at the biggest payors – of the roughly 342 million managed care lives, about 274 million (80%) are managed by one of top 10 payors.

  1. Pharmacy directors ; always a pharmacist as a lead over the entire program ;
  2. Actuary – value assessment committee (financial) – talk about disease overall 
    *PLEASE BRING BIM model – *
    must have value proposition – do a study with me…

During the discussion, there should be three focus points:

  1. PROBLEM: Presenting the epidemiology involving the product sets up the conversation. The discussion should be non-branded information where the disease area and mortality is covered.
  2. SOLUTION: The product is introduced and clinical trial information is presented.
  3. COST: Payors are most interested in the Return on Investment – it is crucial to provide a Budget Impact Model (BIM) on how there will be cost-savings over other products in the same therapy class; specifically, how it will reduce the Per Member Per Month cost.

High Cost/Reimbursement Drugs

The size of the largest payors makes it difficult for them to audit all products that make it on their formularies. This creates an opportunity for rogue companies to introduce excessively expensive products with equally high reimbursement. PBMs focus on “Per Patient Per Month” costs, which averages cost across patient populations. Therefore, if the therapeutic class doesn’t have diabetes-type volume, it may take PBMs roughly 12 to 18 months for the PBM’s to “catch up” to these problem products – possibly even longer.

Parallel Review for Devices with CMS

In 2011, FDA and CMS introduced the Parallel Review Pilot Program (Parallel Review), which established a mechanism for FDA and CMS to simultaneously review the submitted clinical data to help decrease the time between FDA’s approval and the subsequent CMS national coverage determination (NCD).  In October 2016, the FDA and CMS announced the Parallel Review program will be fully implemented and extended indefinitely.

Parallel Review has two stages:

  1. FDA and CMS meet with the manufacturer to provide feedback on the proposed pivotal clinical trial within the CDRH Pre-Submission Program.
  2. FDA and CMS concurrently review (“in parallel”) the clinical trial results submitted in the PMA or De Novo request.

Post-sale Clawbacks by PBMs

A new type of post-sale recoupment has taken the center stage: Generic Effective Rate (“GER”). This is the latest method in which PBMs continue to squeeze independent pharmacies.

Post-sale clawback by Pharmacy Benefit Mangers (“PBMs”) have become a huge issue for independent pharmacies.  Traditionally, these include audit-associated recoupment and performance-based recoupment such as Direct and Indirect Renumeration (“DIR”) fees that are charged to the pharmacies.  Recently, another type of post-sale recoupment has taken the center stage and has caused grave financial harm to the independent pharmacies.  PBMs call it Generic Effective Rate (“GER”). 

GER is a contractual rate set forth by PBMs for the reimbursement on generic claims.  Notwithstanding, the scope and extent of generic claims are dictated by the contract language and can be different from the widely accepted definition of generic claims.  The theory behind GER is to enforce stability around the reimbursements that pharmacies receive in a given calendar year.  In stark contrast, GER has only brought financial harm and burden upon the pharmacies and many pharmacies had no choice but to close and sell their stores (often to PBM-owned/affiliated chain pharmacy well below the fair market value).  

Many pharmacies first became aware of GER in late 2018 when their Pharmacy Services Administrative Organization (“PSAOs”) indicated that PBMs will begin reconciling overpayments made to the pharmacies in excess of the contractual rate.  PBMs wanted their money back on claims that they claim the pharmacies received reimbursements over the payment threshold (i.e., contractual rate).  More troubling, GER has been applied retroactively as well as at the point-of-sale.  As noted above, the pharmacies became aware of GER in late 2018 because some PBMs and PSAOs have alleged that the pharmacies were overpaid on generic claims above the GER threshold and began withholding payments to offset the alleged overpayment.  Notably concerning, these were claims that the pharmacies already dispensed prescriptions to the patients.  Thus, the pharmacies were not only forced to return the reimbursements but also could not make up the acquisition costs of the medications.  Moreover, a number of PSAOs and PBMs have begun applying GER at the point-of-sale to escrow and reserve funds in anticipation of the year-end GER reconciliation and any resulting adjustment/liabilities fall upon the pharmacies.     

Generally, PSAOs, on behalf of the member pharmacies, negotiate and enter into an agreement with PBMs in order to enable the pharmacies to adjudicate claims and receive reimbursements.  In vein, GER is borne by a contract negotiated and entered between PSAOs and PBMs.  However, PSAOs do not necessarily have the comparable bargaining power when negotiating with PBMs, which manage the drug benefits for approximately 95% of the US population or 253 million American lives.  Hence, pharmacies, especially the independently owned retail pharmacies, have zero bargaining power when it comes to PBM contracts.  Recognizing this disparity in bargaining power, several states have implemented laws and regulations to monitor and manage PBMs.  In particular, Tennessee recently enacted HB 786 effective July 1, 2019, a comprehensive PBM reform bill which, among other beneficial terms in favor of pharmacies, added Tennessee Code § 56-7-3115, which provides: “A covered entity or pharmacy benefits manager shall not charge a pharmacist or a pharmacy a fee related to a claim unless it is apparent at the time of claim processing and is reported on the remittance advice of an adjudicated claim.” 

In the current climate, pharmacists and pharmacy stakeholders must be cognizant of the different types of post-sale clawback.  It is very difficult for an independent pharmacy to operate by only focusing on the patient service.  Hence, pharmacies should also focus on the administrative and business aspect of the pharmacy practice and be in compliance with different regulations and PBM requirements.

Author Contact Information:

Dae Y. Lee, Esq.

A.J. Barbarito, Esq.

Author Organization Information:

Frier Levitt is a national boutique healthcare law firm, providing comprehensive regulatory, transactional and litigation counsel to the Healthcare and Life Sciences industries.