By Gary Austin, President, TranzformHealth
July 2018 – In every industry where price transparency has occurred, the industry has been significantly transformed. Examples such as Expedia (Travel & Tourism), Amazon (Retail), StubHub (Entertainment), Zillow (Real Estate) and Uber (Transportation) have forced a lowering of prices in their respective verticals by making real-time price information available to their consumers at the point-of-purchase. The time for price transparency in Healthcare is now, and prescription drugs are an obvious and impactful starting point.
Prescription drugs account for 10-15% depending upon how you define total health spending (a nebulous term indeed!). While downward price pressure has occurred over the years with the introduction of concepts such as Pharmacy Benefit Managers (PBMs) who negotiate drug prices with pharmaceutical firms on behalf of their pharmacy risk-bearing clients, and generics which typically provide clinical equivalent drugs at a far lower cost than brand names, there has never been true prescription drug price transparency.
To be successful with prescription drug price transparency you need the following:
- Identify the actual cost of the prescription drug, or as near as you can get to the actual cost, from the entity who is taking on the pharmacy risk. This could be a Health Plan, a self-insured employer, or a Delivery Entity (IPA, ACO, etc.). While an excellent goal is to have perfect price information, don’t let perfect be the enemy of good. The savings potential is so large, that just getting “good enough” will return huge savings to the pharmacy risk holder.
- A mechanism to logistically deliver the cost of drug alternatives to the physician at the point-of-prescribing, before the prescription is written. While providing information to the consumer at the point-of-retail pickup is a noble endeavor, if you require the retail pharmacy to interact with the prescribing physician to change the prescription, you introduce rework into the system as a whole. This is not an effective nor sustainable solution. Drug pricing at the point-of-prescribing is the best solution.
- Real-time price checks (RTPBC) help close the gap since they occur before the prescription is sent to the pharmacy, but still occur after the prescription is written. Given that roughly 1/3 of RTPBC checks result in a re-written prescription, the burden of rework remains on the physician, disrupting his workflow.
- A list of clinically equivalent drugs from which the prescribing physician can select. Price transparency in and of itself is not enough; you must have available drug options to allow for the prescribing physician to make the most cost-effective selection.
- A mechanism to deliver the cost of the drug to the member/patient. This has an impact on the member/patient’s ability to stay on a given drug regimen. If you have two drugs that are clinically equivalent, and one costs the member/patient $5 and the other $50, which one is the member/patient more likely to stay on? Cost matters for adherence.
In effect, what you are using is the concept of pricing-as-a-service (PaaS). This is leveraging an independent 3rd party to gather the cost information, validate, and deliver to the prescribing physician, within their existing electronic medical record’s electronic prescribing subsystem, in real time. Whenever a drug price changes, you must be able to provide that new cost to the prescribing physician. Paper drug formularies are clunky, time lagged, and often inaccurate due to the rapidly changing cost of drugs.
This concept gets significantly more powerful however once you can compare drug prices across various purchasers. Then you can use the power of the network to expose and drive down pricing across-the-board. This makes the pharmacy risk holder that much more powerful in negotiations with the Pharmaceutical industry, whether directly or through their intermediary PBM representatives.
So, the question arises, why would any pharmacy risk holder not utilize this concept? Some reasons that I have heard along my journey:
- “Our PBM negotiates great prices”. The reality however is that while many PBMs do a great job of negotiation with the pharmaceutical industry, in the end they do not have any skin in the game as to what drug is actually prescribed. That falls entirely to the interaction between the prescribing physician and the patient.
- “I don’t want to tell the physician what to prescribe”. The concept of Pricing-as-a-Service is to provide the cost of clinically equivalent drugs, and then step out of the way and let the prescribing physician make the selection. Expedia doesn’t tell you which plane ticket you must buy, it just tells you the prices of those that you could buy. You make that purchase decision. The same model applies here.
- “It will be disruptive to the physician”. In fact, having this price information at the front end of the prescribing process is far-and-away the most efficient workflow. Everything else is rework, and if we have learned anything from the manufacturing industry, rework is the death knell of efficiency. Whether changing the prescription in the physician’s office, at the retailer, or somewhere in between, change is rework. Get it right the first time.
Once price transparency happens in an industry, you have two options; join in, or chase the dog’s tail. I urge all pharmacy risk-bearing entities to join in, for the betterment of their members and patients.
About the Author
Gary has 35+ years of experience across multiple industries as a C-level executive, strategic planner, program manager, product manager, business and IT consultant, and many other roles. He has been a principal in 3 start-ups, with one IPO, is a multi-Ironman triathlon finisher, has climbed Mt Kilimanjaro, bicycled across the US, and was a Mensa member.
He currently serves as a Solution Advisor to Ben|Medica, the Formulary Optimization company. Ben|Medica specializes in reducing drug spend for pharmacy risk-bearing entities such as Health Plans, ACOs, and Self-Insured Employers by bringing price transparency to the point-of-prescribing.
Is there a firm doing just what you describe above? Anyone close to providing this price transparency? PBM’s don’t have an incentive to participate in this model so who’s the best to drive this train – IT companies that develop and deliver the EHR’s? Great article and good information.
G’day Brent. There are several, using different methodologies. I am doing work with Ben|Medica where this is their sole focus. If you’d like to discuss further, please feel free to contact me at GAustin@TranzformHealth.com or 585.967.3562. Regards, Lumpy
As always my friend you made my day. Refreshing thoughts about a potential direction that the industry should head, from a patient, parent or member standpoint I would love to understand the actual cost and the associated “carrying/ handling” charges real time – it might actually push me to adhere to the script details and duration. As a consumer we get so wrapped up in the provide/price side we forget about the effects of the drug and its intended outcome. We are focused on the upfront price and waist 40-60% of every scripts effect….transparency on both would be great and might level set cost to outcome….JPM