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Fair Enough? What You Need to Know About Common Hospice Pharmacy Pricing Models

pbm pricing modelNot all pharmacy benefits management (PBM) providers are created equal.

Take, for instance, changes in recent years to hospice Medicare benefits. In the near future, Medicare changes will phase out the common “per diem” pharmacy pricing model. Despite this, some vendors continue to tout the per diem model as an optimal solution, usually a mail order product. For hospice leaders focused on lowering costs while increasing quality of care, this model has built in obsolescence.

Let’s look at the situation, and ask “what’s next?”

The Per Diem Business Model

When we look at Medicare’s recent changes, we can read the writing on the wall. The question is not “if” the per diem pharmacy benefits management business model is on the way out, but “when.” Hospices which have adopted PBMs or a pharmacy solutions vendor operating on a per diem model will need to undergo a shift. Their provider’s business pricing model will no longer be cost effective. The resulting situation is an inconvenience at best, and an unforeseen expenditure of time and extra money at worst.

Unfortunately, some of the largest hospice care networks in the U.S. will find themselves in the position of weathering a storm of costly, frustrating fee changes and administrative snafus in the year ahead as their vendor plays catch up with Medicare.

The AWP Discount Model

PBMs and/or pharmacies which offer an average wholesale price (AWP) minus business model to their clients will also find themselves at odds with Medicare reimbursements and their clients’ bottom line. Right now, those companies are offering an AWP, minus a discount percentage that’s typically in the 40-60% range. On the surface, the discounts offered look like a fair deal. But care providers are actually losing money. How is this possible?

Often, generics are priced much lower than the fee charged. Take for instance, Olanzapine 5mg 30 tablets, with an AWP of $396.04. Staggering, when you consider this medication has a acquisition price of under ten dollars for a local pharmacy. With an AWP discount of 40%, a hospice provider would still pay $237.63 for 30 tablets of Olanzapine 5mg. The same is true of many other commonly prescribed hospice medications. Over the past decades, the chasm between what a drug costs, and the amount the hospice pays, has widened significantly.

PBMs (and many local pharmacies doing business direct with hospices) are touting an “AWP minus a Discount” model, therefore, have no problem with the illusion they are slashing prices. Further, their hidden margins allow for dramatic gestures used to direct their clients’ attention where they want it to go. Once opening a pharmacy benefits relationship in a specific location, these folks will promise almost anything to hold on to that contract.

What’s next? If the PBM per diem model is obsolescent and the non-transparent fee for service model pads prices at the expense of their clients’ economic health, what might hospice leaders consider instead? We’ve asked that question a lot at Delta Care Rx, and we’ve come up with a viable alternative: the cost-effective pass through model. Let’s take a look at it here.

The Pass-Through Model

Pioneered here at Delta Care Rx, the pass-through PBM purchasing model called “Hospice Taper™” has proven something of an industry disruptor. That’s because the level of transparency the client receives regarding pharmaceutical costs is unprecedented in hospice pharmacy. Just how transparent is it? In a fiduciary and truly pass-through purchasing model, the client retains the ability to audit the hospice pharmacy provider at any time. Plus, the contract between the client and the PBM specifies the actual pass-through rates. Such is not left undefined or identified in a vague manner. No fees or revenue sources are hidden, and the value provided to the client is agreed upon in advance.

With three different types of business models, how does one make sense of the offers advanced by potential pharmacy vendors? We suggest a cost comparison breakdown, like the one shared here. An apples-to-apples comparison of a hospice’s most commonly prescribed pharmaceuticals should reveal what may otherwise be hidden.

David Clapp is National Director of Business Development at Delta Care Rx.

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