By Lockton Insurance, Risk Management & Employee Benefits Specialists
- Generics are defined as drugs with more than two manufacturers.
- Generic drugs in limited supply are classified as brands.
- Usual and customary claims (for example, $4 generics) are included in the generic discount calculation.
- Compound claims are included in the generic discount calculation.
- Average Wholesale Price (AWP) is based on Medispan or First DataBank or another nationally recognized source.
- AWP is not necessarily based on actual package size.
While these may sound like small nuances in the way discounts are calculated, they can substantially distort the link between pharmacy discounts and the true cost of the plan.
Consider the findings below for one of Lockton’s clients:
Consider the findings below for one of Lockton’s clients:
| Industry Standard Calculation Method | Lockton Standard Calculation Method | |
| Are generics defined as drugs with two or more manufacturers? | Yes | No |
| Are compound claims included in the discount guarantee calculation? | Yes | No |
| Are Usual & Customary (U&C) claims included in the discount guarantee calculation? | Yes | No |
| Calculated Generic Discount: | 70% | 67% |
| Total Pharmacy Plan Spend: | $1,771,010 | $1,771,010 |
Notes:
- The “industry standard calculation method,” which was used by the incumbent PBM results in 70 percent.
- Lockton’s calculation, based on actual claims data and a strict definition of generics and brands, results in 67 percent.
- Regardless of how the discount is calculated, the plan spend is the same.
Results:
- The plan was not running as well as the PBM made it appear.
- Based on findings from our pharmacy data analysis, Lockton was able to negotiate more competitive pricing for our client.
- In 2011, our client is projected to save more than $200,000 without changing PBMs.
2011 Pharmacy Contract Checklist
In addition to new specialty medications and updated Preferred Drug Lists, 2011 also brings changes related to over-the-counter medications and average wholesale price (AWP). Yellow and red lights indicate areas where your plan may be at risk. Please contact your Lockton representative for assistance in negotiating a “green” pharmacy contract that is aligned with your plan’s goals.
2011 Over-the-Counter Changes for FSA Plans
Starting January 1, 2011, members can no longer use FSA funds to pay for over-the-counter prescriptions without a prescription.
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2011 Changes in AWP Pricing Methodology
Due to the 2009 AWP class action lawsuit, it is possible that First DataBank and Medi-Span will stop publishing AWP, the basis for all pharmaceutical pricing, by the fall of 2011. The industry has yet to decide upon a universal pricing methodology to replace AWP if and when this occurs.
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About Lockton
More than 3,800 professionals at Lockton provide more than 15,000 clients around the world with insurance, benefits, surety and risk management services, offering an uncommon level of client service. From its founding in 1966 in Kansas City, Missouri, USA, Lockton has grown to become the 9th largest insurance broker in the world. You can learn more at www.lockton.com.
