Audit: PBMs paying pharmacies differently; CVS Caremark says that’s normal business

An audit performed for the Arkansas Insurance Department of the state’s three dominant pharmacy benefit managers found different-sized pharmacies were paid different amounts for the same drugs last year, though in most arrangements it wasn’t considered significant, and that at least two of the PBMs charged pharmacies “clawback” fees.

But one PBM, CVS Caremark, says differential payments are normal, and it objects to the audit’s reliance on only one contract to make a determination about those clawback fees, which were legal at the time.

The limited scope examination was conducted of the PBMs serving the state’s Arkansas Works and Provider-led Arkansas Shared Savings Entity (PASSE) health plans. PBMs serve as middlemen between insurers and pharmacies.

The PBMs audited were CVS Caremark, Optum RX and Express Scripts. CVS Caremark provided PBM services for Arkansas Blue Cross and Blue Shield, Centene and the Empower PASSE. CVS Caremark accounted for 85.16% of the Arkansas Works claims examined.

OptumRX was the PBM for Qualchoice. Express Scripts was the PBM for the Summit Community Care PASSE.

The audit covered Jan. 20 to June 30, 2019. The firm, Lewis & Ellis of Allen, Texas, used data only from March 2019 and extrapolated the findings for the rest of the period. The examination was completed on July 27, 2020, and posted Oct. 28.

The audit focused on spread pricing, which occurs when a PBM pays pharmacies less than it was paid by the insurer and pockets the difference. The practice was made illegal by a 2019 law. It also covered two other practices: differential payments where pharmacies are paid different amounts for the same drugs, and direct and indirect renumeration fees, or clawback fees, which are retroactive fees assessed on pharmacists after drugs are dispensed.

The examiner found CVS Caremark and OptumRX had no significant spread pricing. However, it found that more than 83% of claims administered by Express Scripts through the Summit Community Care PASSE showed spread pricing practices. That amounted to more than an 18% difference between what Express Scripts charged the health plan and what it paid the pharmacy.

In its rebuttal, Express Scripts objected to the examiner’s definition of “spread pricing.” It said the auditors calculated spread incorrectly, and it objected to the audit report extrapolating from only one month’s data.

The report also found that differential pricing was not a significant issue among most of the plans, the biggest exception being the Empower PASSE, through which CVS Caremark paid independent pharmacies 17.7% less than national chains and 8.86% less than regional chains for the same drugs.

Most of the other differences in prices were below 5%, which the examiner said was not significant.

John Vinson, executive vice president and CEO of the Arkansas Pharmacists Association, disagreed. He noted that the audit found that independent pharmacies were paid an average of 3.69% less for all claims than national chains by both Blue Cross and Centene through CVS Caremark.

“The insurance commissioner defined, well, if it’s less than 5%, it’s no big deal,” he said. “Well, when you run on thin profit margins, 3.7% is a big deal. That can be all the difference in whether or not you stay open or not in communities like Strong, Arkansas; Junction City, Arkansas; Marvell, Arkansas, who all lost their local pharmacy in the last year.”

Leanne Gassaway, CVS Caremark’s vice president of state government affairs, said differences in payments are contract specific and a natural part of competition in the marketplace. PBMs exist to give pharmacies incentives to seek lower prices from drug wholesalers. She said her own company’s data doesn’t match the department’s when it comes to the differential payments.

Gassaway said the data was “tortured,” but it did validate CVS Caremark’s assertion that it’s not paying its own CVS chain of pharmacies more than it pays independent pharmacies. Gassaway said CVS Caremark pays its own pharmacies up to 33% less on a drug-by-drug basis than it pays independent pharmacies.

The audit also said PBMs were engaging in direct and indirect renumeration fees, or clawback fees, which are retroactive fees assessed after dispensing. The auditors found that CVS Caremark charged 9.71% clawback fees, Express Script charged 4.55% clawback fees, and OptumRx’s fees couldn’t be evaluated.

Vinson said the clawback fees allow PBMs to technically comply with the law banning spread pricing at the point of sale but then recoup money later. Clawbacks were legal at the time of the audit but made illegal by a 2019 law.

But CVS objected to both the characterization of the practice and the methodology. Gassaway said the report relied on only one contract and then extrapolated from there. In contrast, CVS Caremark has about 700 contracted pharmacies in Arkansas.

“It’s simply a false assumption, and it’s really a very poor methodology to use one contract to make assumptions about how this is happening in the network,” she said.

She used the word “reconciliation” to describe the process and said it is a normal part of any business that audits payments and seeks reimbursements when it overpays or seeks corrections when it underpays. The 700 pharmacies all have different reconciliation processes including, in some cases, contractual pay-for-performance programs.

“In every contract, we do some type of reconciliation where we will audit a pharmacy to ensure that they are administering and billing correctly, and we will make changes to payment after the fact,” she said.

Vinson said the report is significant because it’s only the second time the state has ordered an independent analysis of PBM compensation practices even though PBMs have existed since the 1960s. He said the report validated what pharmacies were saying was happening in 2019.

He said he is not hearing from his membership that the practices of spread pricing and clawbacks were continuing to happen. However, he said the pricing structure is still problematic because Arkansas, unlike some states, doesn’t require pharmacies to be reimbursed using objective data. Instead, the PBM simply makes that determination. He said the PBMs’ pricing structures lack transparency and accountability.

“I was getting complaints about them in 2019, and I’m not now,” he said. “So I feel like it has improved, but … I still think the compensation is ‘take it or leave it’ by a PBM who owns 85 percent of all the claims, and I don’t think the reimbursement is objective.”

To compile the report, 100 Arkansas pharmacies were requested data from March 2019. Thirty-six of the companies representing 51 pharmacies provided meaningful responses. They submitted 32,257 claims from March 2019. No national chains responded to the request.

Many pharmacies said the PBMs had locked them out of accessing the information, the report said. Only 10 pharmacy companies provided copies of their PBM contract. Several were told the contracts were proprietary and they could not share them with auditors under threat of termination.

Jennifer Bruce, Arkansas Insurance Department public information officer, said the department will advise legislative committees of the report’s findings, and then legislators may decide if additional legislation is warranted.