Controlling Health Care Costs: Holding PBMs
Accountable
An August 4, 2004 lawsuit filed by New York State Attorney General
Eliot Spitzer against pharmacy benefit manager Express Scripts has
highlighted the need for health and welfare funds to better monitor
and audit their relationships with pharmacy benefit managers, which
are commonly known as PBMs. Express Scripts is the nation's third
largest pharmacy benefit manager.
PBMs manage prescription drug benefits for health plans by providing,
for example, mail order prescription drugs to plan beneficiaries,
administrative services, and rebate and discount negotiations with
manufacturers and pharmaceutical services.
Over the past two decades PBMs have
evolved from specialized service providers into major players in the
business of healthcare delivery. PBMs now control billions of dollars
in annual spending on pharmaceuticals. Typically, self-insured unions,
Taft-Hartley health & welfare funds and other large third party payors
("TPPs") contract with PBMs to provide prescription drug benefits to
their members. The PBM Industry is in a major state of change. Recent
federal and state lawsuits are forcing a new paradigm on the PBMs,
demanding an unprecedented degree of "transparency" in their dealings
with payors.
PBMs often breach their agreements with
TPPs by, among other things, failing to pass along rebates from drug
manufacturers, paying ineligible claims, overcharging through static
co-pays, and profiting from an artificial "spread" created by
manipulating Average Wholesale Pricing data. Overcharges discovered
through audits typically amount to between 6-15% of total PBM dollars
spent. Stated another way, audits in the past have uncovered
(depending on the PBM, and the contract), an average of $85,000 per
1,000 members per year.
In a press release issued at the time
Attorney General Spitzer filed suit against Express Scripts, the
Attorney General noted that the PBM:
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"Enriched itself at the expense of the
Empire Plan [New York State] and its members by inflating the cost of
generic drugs;
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Diverted to itself millions of dollars in
manufacturer rebates that belonged to the Empire Plan;
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Engaged in fraud and deception to induce
physicians to switch a patient's prescription from one prescribed drug
to another for which Express Scripts received money from the second
drug's manufacturer;
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Sold and licensed data belonging to the
Empire Plan to drug manufacturers, data collection services and others
without the permission of the Empire Plan and in violation of the
State's contract; and
-
Induced the State to enter into the
contract by misrepresenting the discounts the Empire Plan was
receiving for drugs purchased at retail pharmacies."
Express Scripts is yet another example of
where harm done to consumers also impacts shareholders. The company is
currently defending a federal lawsuit alleging that its conduct led to
violations of federal securities laws.
In addition to Express Scripts, a federal lawsuit brought on behalf of
the United States Government under the Federal False Claims Act is
currently pending against PBM Merck-Medco Managed Care, LLC, in the
United States District Court for the Eastern District of Pennsylvania.
The complaint alleges that the defendant overcharged in the course of
services it provided to the United States Government.
The revelations of alleged PBM
improprieties have caused some health and welfare fund trustees to
take a closer look at the relationship with their PBM.
One firm which is in the business of
auditing PBM relationships estimates that overcharges can be
significant. Dave Morgan, of Healthcare Consultants, says that his
firm "to date has completed 20 separate PBM audits and is conducting
15 additional audits. The 20 completed audits have uncovered
overcharges that have ranged from 6-15% of total PBM dollars spent."
