As the Trump Administration’s plan to lower the cost of prescription drugs continues to develop and unfold, transparency during rebate negotiation is emerging as a top priority. Because President Trump’s speech addressed the American people as a whole, the emphasis appears to be on the transparency between manufacturer and patient, or insurance company and patient.
However, as Lisa Bair, CEO of Quantuvis, points out, better and clearer communication between drug manufacturers and pharmacy benefit managers (PBMs) is a crucial part of the discussion.
Quantuvis is a healthcare IT company providing solutions for data-informed decision making. After decades of working with payers and pharmaceutical manufactures, Bair found that when it came to rebate negotiation, the procurement of critical data and information proved to be a significant challenge. It is of little surprise, then, that she began to receive requests from multiple pharma and payer companies asking for a way to gather and analyze data to help inform them when negotiating.
Crossing i’s and Dotting ‘tees’
To better account for this lack of information, Bair explained the history of drug negotiation to Pharmaceutical Processing, saying, “The reality is that for decades, the process of negotiating drugs was very, very manual. One way might be a phone call where notes are taken, and some kind of deal is drafted. Two, you had an email, so the terms were there in the body. And three, and I’ll say this with a little tongue in cheek, these conversations took place on the golf course. It was that informal of a structure to negotiate.”
She adds that although a more sophisticated way of negotiating was developed recently—through which a PBM drafts a word document that is sent to the pharma companies—there still was no consistency in what either party was asking for.
“They were asking for generalized terms and conditions, and so what they got back would have big gaps that would have a huge impact on whether the deal is profitable both for the pharma company and the payer,” Bair said. “So the past (had) over $100 billion of rebates being captured in a very informal way.”
With Bair’s solution, the Quantuvis platform, PBMs can create the bid with specific terms and conditions and within minutes, push it out to pharmaceutical companies. More importantly, the platform holds on to all the information from previous deals, allowing both drug manufacturers and payers to revisit every step of previous negotiation processes undergone by their companies.
Repeating History
This is particularly crucial for pharma companies because even if a previous account manager is no longer with the company, the entire bid history is available to them, along with every back and forth communication, and so there are no open questions about how the earlier terms were agreed upon and settled.
“They are able to better establish if there (are) changes they want to make,” Bair explains. “It’s critical that pharma tap into that data so that they are better informed when negotiating.”
Additionally, Bair explains that as the number of PBMs continues to dwindle, situations in which a larger player buys out a smaller one are increasing. PBM mergers have been a strong trend for some time now.
Express Scripts, for instance, acquired Medco Health Solutions in 2011, and then went on to buy EviCore in 2017, only to be acquired by Cigna earlier this year in a $52 billion deal.
The trend not only continues, but seems to be accelerating. One of the more significant mergers taking place currently is CVS’s plan to buy Aetna for $69 billion.
Mergers like these often are a headache for pharmaceutical companies because as separate entities, the two PBMs probably had different rates. These rebates will need to be leveled out and a new deal will need to be negotiated, a process that typically takes three to four weeks to complete due to its level of sensitivity and potential risk.
A tool like Quantuvis centralizes all the data, allowing a pharma company at the time of a PBM merger announcement to perform an informed calculation between the two rebate spreads and conclude what the risk is in the event that the merger goes through. This type of foresight was nearly nonexistent before tools like Quantuvis were developed.
Further, in response to feedback from the pharmaceutical community, Quantuvis has evolved the Quantuvis Rebate Negotiation module to accommodate the addition of bid data for all payers.
“All pharmaceutical companies can currently utilize the technology to include rebate bid data for all payers they negotiate with directly by creating a repository for all bid data, even for PBMs and payers that are not Quantuvis customers,” Bair says. “The idea is for Quantuvis to become the industry standard for housing negotiation data for all customers.”
Commercial Vs. Medicare Part D Bidding
Bair tells Pharmaceutical Processing, “One of the things that was in [Trump Administration’s] blueprint that I believe was miscategorized, is that there were aggressive formulary management tools being used to negotiate commercial bids, but the reality is that the bulk of our customers have Medicare Part D responsibility. They are using the tech to better negotiate for Part D patients, and that was missed in the conversation.”
While the negotiation processes for commercial patients and Medicare Part D patients tend to be similar, plans that participate in Part D must meet certain requirements put into place by The Centers for Medicare and Medicaid (CMS) to provide data showing they are effectively reducing costs of branded prescription drugs for their Medicare Part D patients during negotiation.
Another difference between the two negotiation processes is the formulary make-up of the separate population groups. For example, when negotiating for Medicare Part D patients, there will be a higher concentration of drug spending in certain areas, such as diabetes, hypertension, and cancer because these illnesses typically affect older adults at higher rates.
Lower co-pays are negotiated based on drug volume, and so a PBM that has a larger population sub-set represented by the plan—in this case, Medicare Part D patients—will use this factor to leverage in the negotiation process.
Addressing the Nuances
The nuances involved in price negotiation are another aspect that make the process challenging. “Even down to defining what drugs are in the market basket—the drugs you are competing with—is one of those nuances,” says Bair.
One important nuance that sounds simple, and yet is a major contributor to negotiation inefficiency, is the lack of clearly defined terms and conditions. Often, the details of terms and conditions are “left up to interpretation,” resulting in serious confusion about what either side believes the rebate is going to be.
Tools like Quantuvis, however, can eliminate this confusion, and increase negotiation efficiency, because when negotiation happens within the platform, a clear definition is included with every term. Neither side can come back and say, “Well, we thought it meant this” or “we interpreted it this way.” Having all of the nuances of meaning hammered out at the moment a bid is released speeds up the negotiation process.
Transparency’s Limit
In a perfect world, where negotiation transparency reigns supreme, transparency would perhaps extend outwards, making information about deals undergone by other companies available to competitors and the public.
Bair, though, explains that currently, Quantuvis is committed to protecting their customer’s data and making sure it is available only to them. She believes, however, that increased transparency in pharma is a process that’s just getting started, and that short-term, Quanitvis is focused on building effective, value-based partnerships among healthcare stakeholders—manufacturers and PBMs—as the first steps in this process.
“The longer-term focus will be utilizing innovative technologies and comprehensive patient outcome data to support value-based partnerships in achieving true market transparencies,” she adds.
While pressure continues to mount from Washington for lower drug prices, it’s becoming increasingly clear that pricing transparency is key to unlocking a system that’s been mired in mysterious method of rebates, emails, confusion, and even social handshakes among stakeholders that include manufacturers, PBMs, insurance companies, government Medicare programs, employer administrators, and others—just not the consumers and patients, who have the biggest stake in the game—their health at reasonable cost.
Certainly, systems aimed at speeding negotiations are a welcome step in the right direction. But, unless all sides in pharma use that step on the way to clearing the current pricing fog, it won’t be long before Washington prepares a treatment to ease the public’s pain—and it’s pretty safe to say that the pharmaceutical sector is better equipped to cure the actual illness before it’s too late.