Highlights from Magellan Pharmacy Solutions' 2012 Medical Pharmacy & Oncology Trend Report

We sat down with Kjel A. Johnson, PharmD, senior vice president, Strategy & Business Development, Magellan Pharmacy Solutions, to learn more about buy-and-bill practices, 340b drug pricing, and how site-of-care changes may affect the drugs covered under the medical benefit.

Health plans must make sure they analyze specialty spend on the medical benefit, as many recent reports have shown that a large portion of this spend does not occur on the pharmacy benefit.

Touted as the “sole source” of important benchmarking and trending statistics for direct measures of injectables paid under a payer's medical benefit, Magellan Pharmacy Solutions’ 2012 Medical Pharmacy & Oncology Trend Report is now in its third edition. We spoke to Kjel A. Johnson, PharmD, senior vice president for strategy and business development with Magellan Pharmacy Solutions, to get some insight into the major findings of the report.

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SPT: Are buy-and-bill practices being displaced by specialty pharmacy provider services?

Johnson: Some providers are not really interested in buy and bill anymore. My impression of the data since 2005 is that we hit a steady state, and there hasn’t been a lot of change in the amount of drugs that have been referred back to specialty pharmacy. Regardless, the lion’s share of medical benefit drugs continues to be administered in the office or facility, not through specialty pharmacy distribution.

SPT: Is white bagging more common for oncology practices that have been acquired by larger health systems? That seems to be the trend.

Johnson: It is, but it’s a bit of a different twist. So what happens is, these oncology practices are purchased by facilities. And the reason for that is the quest to develop an accountable care organization (ACO). The ACO has to have integrated data and integrated care, so they’re buying these practices. Well, here’s the part of the story that many people don’t know. When a patient sees a physician in the provider’s office, drug claims are billed on CMS 1500s, usually at an ASP plus but sometimes at an AWP minus reimbursement rate. However, when the patient goes to a hospital for drug administration, drug claims now are facility outpatient claims or facility inpatient claims, which are billed on UB92s; these are reimbursed as a percent of charges. It turns out that the “charge” at an ACO, a hospital, or a facility will be approximately 3 times AWP, and most percent of charges are between 60% and 80% of that elevated AWP price. Therefore, on average, the cost to the payer or the employer went from AWP - 20% to AWP times 2.5 in that process. So it’s not so much that white bagging is occurring as it is that hospital systems are interested in facility administration once the facility acquires the physician’s practice.

SPT: So you would say it’s more of a transfer of site of service, rather than white bagging?

Johnson: Correct; it’s not so much a change in the “bagging” as it is a change in the site of service. Over 50% of facilities today are 340b eligible and because they’re 340B eligible, they can buy the drugs at half the price a doctor can—yet they’re charging 3 times the amount the physician gets reimbursed.

SPT: Will physicians have enough incentive to participate in models other than buy and bill for medical injectables? If they choose to not do so, will patients lose access to medications if the physician doesn’t participate in what the health plan wants them to do?

Johnson: This is a great question. When the Medicare Modernization Act (MMA), was enacted in 2005, Medicare went from AWP - 15% to ASP + 6%. The societies for oncologists said that oncologists need about ASP + 11% to be profitable or at least not at a loss. The average commercial payer today is right around ASP + 12%. So they’re at the rate that oncologists said 8 years ago they would continue to administer drugs in the office setting which is by far the least costly site of service. However, since Medicare began to reimburse at ASP + 6%, there are a lot of drugs that are not profitable or even break even to the physicians at such reimbursement levels. Doctors say, “If I can make money on the drug and it’s the right thing for the patient, I’ll keep it in my office. But if the payer is paying too thinly, or if it makes no financial sense or no care sense, I’ll refer those prescriptions or those administrations to the facility.” This is not in the best interest of the payer or the employer, of course.

SPT: As you mentioned, these health systems get 340b pricing that the providers may not get. How does this type of pricing affect drugs under the medical benefit?

Johnson: In 2005, we saw about 25% of medical pharmacy costs being administered at facilities, which is probably about the right amount. Now, we’re seeing the portion of these drugs administered through a facility at about 35% and heading towards 40%. And we’ve analyzed some payers where their portion of cost is over 50% facility based. So the trend now is for those drugs to migrate out of the doctor’s office and into the facility.

SPT: A lot of health plans aren’t incentivizing their lowest cost of care. Do you think that maybe this will be a type of strategy that health plans will adopt in the future to avoid issues with site of care?

Johnson: Yes. We developed a solution for this about a year and a half ago and we have implemented this solution with some of our key clients. Today, every single PBM states that they are developing or piloting or trying to put together a site of service management solution. At the recent PBMI conference, both CareMark and Walgreens outlined their strategies. I heard Procter & Gamble say at a meeting this week that they developed a program where they give a 50% coinsurance for facility administrations and zero member contribution for doctor’s office. Needless to say, such a program is very effective.

SPT: Many plans are attempting to move drugs from the medical benefit to the pharmacy benefit. And do you think this plan will actually work?

Johnson: It’s a flawed strategy. A number of health plans tried it in the mid to late 2000s—and it never really got any traction. The reason is that it leads to incredible provider unrest. I work with payers every day. The last thing they want to do is disrupt their providers. This is where their patients go for care. You have to keep providers satisfied with how the process works, and removing buy and bill leads to a lot of disruption. And, as stated in our recent Medical Pharmacy Trend Report, there is also the increase in cost - the acquisition price of provider-administered drugs is 17% less at the doctor’s office than at the specialty pharmacy.

On top of this, when a specialty pharmacy gets notified to ship a drug to a provider’s office, commonly 3 to 4 days in advance of administration, during that 3 to 4 days the patient could expire, the patient’s benefit could change, the patient may be switched to a different therapy, or they might show up to the office and they can’t take the drug that day because their white cells aren’t at the appropriate level. This happens 20% of the time. So we’ve studied and proven that in 1 out of 5 shipments from the specialty pharmacy to the doctor’s office for doctor-administered drug infusions, the patient doesn’t get the shipped product. Regardless of what was done with the product, as soon as it left the specialty pharmacy, the payer or employer was billed for that product. It’s a strategy that’s not acceptable to providers in general and it doesn’t really make sense financially or from a quality of care perspective.

Our estimates are that, taking away buy and bill and putting it into a specialty pharmacy is about a 50% price hike. And keep in mind, we have 2 specialty pharmacies. We’ve looked at it and it’s not the right model for our customers.

SPT: Now let’s shift gears a little bit and talk about biosimilars. Do you think that if more guidance were released and developed that these agents would enjoy more of a widespread market penetration?

Johnson: The issue is that the manufacturer comes out with biosimilar products, which are made by biologic material—not by chemical reactions—and they have to prove then that it is the exact same product that was originally approved based on efficacy and safety. It was the belief of an article in The Wall Street Journal (and my belief) that it is very difficult to do this. Two companies attempting to make biosimilar Rituxan backed out of production at the last minute and these were big, experienced manufacturers that have been in the drug development business forever. So, there’s the production challenge. But also you have the pricing side. Look at human growth hormone (hGH)—a biosimilar came out for hGH about 5 or 6 years ago and there really was no change in the cost structure.

The other thing is that existing non-biosimilar manufacturers commonly gave a rebate, and the rebate was better than what the flat discounted rate was from the biosimilar product.

SPT: You had a biosimilar pipeline graph in your report. If those were approved, would spend decrease? (See chart).

SOURCE: Magellan Pharmacy Solutions, Medical Pharmacy & Oncology Trend Report, third edition, released February 2013.

Johnson: If they were approved, the problem described in The Wall Street Journal goes away. You might see a 20% discount. I can tell you on the pharmacy benefit self-injectable side of the pricing trend, we’re showing about a 5% annual price increase. And as you know, certain multiple sclerosis drugs had a 10% to 15% annual price increase. So is it going to really save money? It might offset the trend a bit.

SPT: Speaking of cost savings, your report noted that fewer plans are receiving rebates from medical benefit drugs. Why do you think that’s happening?

Johnson: I’ll say this conceptually—there was product that was ubiquitously rebated and they developed a product that they wanted to bundle; as a result, the original product’s rebate either went away or was dramatically reduced. And this was a drug with which nearly every plan was getting a direct rebate. So, 1 drug drove most of that change in who’s getting rebates under the medical benefit.

SPT: When a new drug that has not been assigned a J code is filled, your report said that "half of lives project the drug to ASP pricing." What does this mean in layman’s terms?

Johnson: The whole Average Sales Price (ASP) process for new drugs without a J code is that the ASP price is the Wholesale Acquisition Cost (WAC) price for the first 2 quarters. And then it will get a code and an adjusted price in the following year. Payers are reimbursing on ASP, which is about 60%, according to the report. If the drug doesn’t have a code, payers follow the ASP rules that Medicare uses and assigns the ASP at the WAC price.

SPT: If providers join health systems, how will this affect the price of injectables and infusibles for patients and payers?

Johnson: When the drug moves from the doctor’s office to the hospital, the doctor loses the drug revenue, and I would also argue that there may be a disruption in the continuum of care because you’re seeing a different provider. The pharmaceutical manufacturers have less profit on drugs administered in a facility because they’re purchased at 340b pricing as opposed to their traditional, provider office price. But the real problem here in my book is that today, payers are assigning coshares more frequently than ever before. And the average coshare in the report I think was at 20% or 21%.

Let’s say a drug costs $100 in the doctor’s office. On average—and this is shown in our report—it will go to about $250 when it’s administered in the facility because of that percent of charges model that we talked about earlier. But the coshare goes from a $20 coshare at the office to a $50 coshare at the facility. Now that’s okay for a $250 drug, but these drugs don’t cost $250. On average, they cost $2500 a dose. So now you’re going from a $2500 infusion in the doctor’s office, which has a $500 coinsurance, to a $1250 average coinsurance for a facility-administered dose. This transition from physician office to facility has a bunch of stakeholders that get pushed a little, but the patient impact is enormous. Time will tell what the exact impact is, but if I were a betting man, I’d bet that these patients have reduced compliance with the therapies because they just can’t afford them. It has been proven that reduced compliance is directly related to reduced outcomes and quality of care.

SPT: On-label claims account for 93% of the allowed spend, according to your report. Can’t a small amount of off-label use (even 7%) throw a health plan’s numbers totally off in the case of a drug that’s very expensive? For example, the Acthar gel example that was recently highlighted in The New York Times?

Johnson: Well, yes it can. You’re absolutely right. Our report shows this year that prior authorization (PA) for the drugs you’re describing is pretty much commonplace now. So while there is off-label use, drugs that have significant health, quality of care, or cost of care impacts are by and large governed by PA, which prevents this off-label use.

If you have a cancer, say small cell lung cancer, and you go to see your physician, there’s a set of therapies that will work best for you. That’s called first line; it’s the best chance for cure or remission or the best outcome. If you fail that, you then go to what’s called second line. Third line and thereafter are ineffective. But what happens is, the request occurs, the physician is uncomfortable with stopping after just 2 tries, and a lot of that off-label care use that we see because of what’s called late-line chemotherapy. It is ineffective, it is harmful to the patient with respect to side effects and quality of life, and drives costs up substantially.

SPT: Is there anything about the report you wanted to add that I didn’t ask you about?

Johnson: We’re pretty excited about this report because it is the only one in the country like it. We are the only firm that gets medical data and manages these types of drugs and costs, so we think that’s pretty unique. Each year we look at the questions, we look at the trends and the environment and we revise our report a little bit and ask new questions—so we’re excited about sharing our results with you next year as well.

SOURCE: Magellan Pharmacy Solutions, Medical Pharmacy & Oncology Trend Report, third edition, released February 2013.