PBMs Accused of Gouging Drug Prices

Pharmacy benefit managers, who process payments between pharmacies and health benefit plans, either have saved their clients millions or run up the price of prescription drugs.

PBMs point to several reports that show there is no question that they save consumers money on prescription drugs. But critics charge that, through undisclosed arrangements with drug companies, PBMs have forced health plans and health care consumers to pay inflated prescription drug prices.

A lawsuit recently filed in California alleges that the nation’s four major PBMs — including one that contracts with the state of Arkansas — have collected billions of dollars in illegal profits by steering health insurers and health care consumers into reliance on more costly drugs. The lawsuit also charges PBMs received rebates from drug manufacturers and failed to pass the savings on to health plans and consumers.

What would help reel in some of the PBMs’ practices is government regulation, said Richard Beck, executive vice president of the Arkansas Pharmacists Association.

The Arkansas Pharmacists Association had hoped that Senate Bill 313 would impose some overdue regulations on PBMs, but the Arkansas Pharmacy Benefit Management Regulation Act died in the House Public Health, Welfare & Labor Committee after sailing through the Senate 34-0.

The proposed regulation would have provided more information about PBMs, Beck said.

PBMs collect undisclosed fees from drug manufacturers to promote high-priced drugs, while at the same time they are supposed to manage the employers’ prescription drug program to lower their costs, Beck said.

“You can’t serve two masters,” he said.

PBMs also have faced accusations of overbilling. The Arkansas Division of Legislative Audit found AdvancePCS of Irving, Texas, the PBM for the State Employee Benefits Division, overbilled the state $479,454 for prescription drugs between December 2001 and March 2002.

Brent Wallace, the Audit Division’s program evaluation specialist, said AdvancePCS told the agency it didn’t know about the overbilling until it was brought to the company’s attention. The company blamed the error on its computer system and quickly repaid the money, Wallace said.

But Beck didn’t buy the explanation.

“That was not a computer error. That is a tactic that is going on all over the country,” he said.

Middle Man

PBMs started out as the hero of the health care industry about 30 years ago.

PBMs offered to lower employers’ drug program prices by signing contracts with pharmacies. Like physician networks, participating pharmacies were willing to take lower reimbursements in exchange for having more patients funneled to them under the terms of the contract with employers.

PBMs made money subtracting administrative fees from the amount they reimbursed to the pharmacies after they were paid by the employers or their insurance plans. That is also where PBMs were able to overbill, critics charge.

When a PBM bills for generic drugs, it will often charge the health plan what’s called the maximum allowable cost, or MAC, said Gerry Purcell, managing partner of Pharmacy Partners in Alpharetta, Ga., who worked in the PBM industry and now questions its practices.

“What the plan doesn’t know often is that there is more than one MAC,” he said.

The health plan thinks it is being charged the lowest price available, “but the PBM has negotiated a different, more aggressive MAC with the pharmacy, creating another spread,” Purcell said.

He said the PBMs keep the difference and don’t disclose it to the employers or insurers.

In one of the most extreme examples, a PBM billed an employer $200 for fluoxetien, the generic version of Prozac, but only paid the pharmacy $30, said Robert Garis, a researcher at Creighton University in Omaha, Neb., who has studied PBMs.

Providing Savings

AdvancePCS said it has saved the state of Arkansas money. From 2001 to 2002, the Employee Benefits Division saw its pharmacy costs drop by about $4 million as a result of AdvancePCS’ techniques, AdvancePCS said.

In 2001, total employers’ health benefit costs rose 11 percent, while prescription drug costs climbed 17 percent, according to a U.S. General Accounting Office report.

Purcell said that if PBMs were effective, drug prices wouldn’t have risen 200 percent between 1990 and 2000. But AdvancePCS argues that it’s practices have keep drug costs from escalating even more.

“It is a fact that the drug costs for companies that use a PBM typically are below that of companies without a managed benefit,” AdvancePCS said.

The federal Government Accounting Office in January released a report that showed AdvancePCS and other PBMs achieve savings of 18-53 percent on the cost of retail prescription drugs for the Federal Employees Health Benefits Program.

Rebates

A lawsuit filed in Los Angles Superior Court charges AdvancePCS and three other major PBMs — Express Scripts, MedCo Health Solutions and Caremark Rx — with getting undisclosed rebates from drug companies and failing to pass the savings on to health plans and consumers.

AdvancePCS said it has reviewed the lawsuit and believes there is no merit to the claims. It also said it plans to vigorously defend itself.

Drug manufacturers typically pay PBMs for placement of their products on the PBMs’ list of approved drugs. AdvancePCS’ logo is on an advertisement for Nexium, the heavily marketed “purple pill” that is designed to relieve heartburn. Deskin, the spokesman for the Pharmacy Benefit Management Institute, said the advertisement makes him wonder whether the manufacturer of Nexium influenced other business decisions by AdvancePCS.

“It may be a perception issue, but it certainly creates issues … such as has it affected [AdvancePCS’] decision to make Nexium a preferred product or a nonpreferred product?” he said.

No AdvancePCS official was available for an interview.

The main problem the Pharmacists Association has with PBMs is they don’t reveal what they’re receiving for rebates, said Beck. But the Employers’ Health Coalition of Fort Smith, which opposed the regulation for PBMs in the state, said employers know about the rebates.

“It is not a secret arrangement to the employers,” said the coalition’s executive director, Caryol Hendricks. “We share those rebates back into the plan … It allows us to get a better price.”

The GAO report found that PBM rebates reduced total annual drug spending by 3 percent to 9 percent from 1998 through 2001.

The Act

The Arkansas Pharmacy Benefit Management Regulation Act would have called for the Arkansas Insurance Department to regulate the financial aspects of PBMs and required PBMs to obtain licenses.

Also, the PBMs would have had to apply for a certificate of authority from the Arkansas State Board of Pharmacy. The board would watch the PBMs to ensure they didn’t violate the Arkansas Pharmacy Practices Act.

Beck also said the bill wouldn’t stop PBMs from receiving rebates but would force them to disclose PBMs’ practices to the public.

The Employers’ Health Coalition opposed the bill because PBMs might have fled the state. And without PBMs, employers couldn’t afford to pay retail prices for drugs, Hendricks said.

“When this bill came up, I was approached by several nationwide PBMs sharing their concerns about their abilities to do business in this state,” Hendricks said.

She said employers are intelligent buyers and they know what they are doing.

“It’s been many years since we’ve been led around by anyone,” Hendricks said. “If we lose these PBMs, even a few PBMs, it will drive the cost of prescription drugs up …20-plus percent.”