Part 2 of 2
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WASHINGTON, Oct. 17 (UPI) -- A final Medicare drug bill, now in a congressional conference committee, will rely heavily on pharmacy benefit management companies but PBMs are waiting to see if the contract and payment details make partnering with the government financially feasible.
"How we're going to evaluate this package is based on totality -- does it make sense?" Phil Blando of the Pharmaceutical Care Management Association in Washington told United Press International. "Medicare should avail itself of the PBM model -- no credible policy proposal omits the PBM model."
Last June, the House and Senate each passed a Medicare bill that would provide a $400-billion drug benefit over 10 years, along with different versions of reforms that would move the program closer to the private sector. The stakes are tantalizing. Some 35-million seniors already use the program and 76-million baby boomers are enroute to join in the coming 20 years. Yet within the PBM sector the keyword is caution until a final piece of legislation is produced by House and Senate conferees.
PBMs negotiate rebates and discounts and use incentive programs to lower drug costs for clients that can include private employers or the government. PBMs also use preferred drug lists, or formularies, and incentives to push members and physicians toward or away from drugs, based on contracts they have. They also pursue savings by using their own mail-order pharmacies.
There is controversy over how much of those negotiated savings should be passed on to employers, however. A government study this year determined PBMs have reduced drug costs for federal workers covered by the Federal Employee Health Benefits Program.
Jackie Koskoff, with the PBM of PacificCare in Cypress, Calif., said PBM techniques work with at-risk plans, which is how participants in the Medicare drug program would be regarded. Serving Medicare would expose the plans to financial risk if the cost of providing the benefit exceeded expectations.
"These techniques are used by PBMs that are supporting fully insured, capitated or at-risk products," she explained. "This works at-risk or non-risk."
PBMs working in Medicare could provide a drug benefit in conjunction with a preferred provider organization or other managed care insurer, which would provide the standard Medicare health benefit. A PBM also could act as a stand-alone insurer, offering only drug coverage for seniors who select to stay in traditional, fee-for-service Medicare.
Critics of the Medicare drug proposals have said the idea will not work because there are no private, drug-only plans in the marketplace. Such plans would have a difficult time because the risk pool would only include seniors -- more likely to be sick and more likely to require multiple prescriptions -- rather than a mix of young and old, healthy and sick, which balances risk in regular insurance plans.
Tom Mahowald, vice president of public affairs for Express Scripts in St. Louis, one of the largest PBMs in the United States, admitted having a PBM act as a provider of a stand-alone drug plan is "not something that is traditionally offered in the market."
However, Mahowald told United Press International, "it is something that would certainly require development to see whether it would work or not. Whether you will get competition in the market certainly is an open question. ... We are not insurance companies, we are not capitalized to take that risk. We would certainly have to change our business practices to conform ... to the bill."
Even private insurers set up to take risk are cautious about jumping on the Medicare drug band wagon as the legislation calls for plans to accept more risk over time.
The Senate bill, for example, calls for plans to be at full risk in 2006-2007 -- the first two years of the program -- within 2.5 percent of a target amount -- total premiums minus administrative costs. If expenditures are between 2.5 percent and 5 percent over the target, plans would be responsible for 25 percent of the overage. They also would be responsible for 10 percent of expenditures greater than 5 percent.
However, as the government shares in the risk, it also shares in any savings by plans that deliver the drug benefit for less than the targeted amount.
From 2008-2011, these risk corridors would be modified so plans would be at full risk up to 5 percent over target, at 50 percent risk between 5 percent and 10 percent, and at 10 percent risk beyond that mark. After 2011, the government would establish new risk corridors that could not be less than those in effect in 2011.
"When you are dealing with drugs -- if you miss by 2.5 percent it could be tens or hundreds of millions of dollars in losses," Mahowald said. "They need to narrow the risk corridors to enable plans to get some experience and encourage plans to enter the market."
Included in the Medicare bill is language that would require "transparency." PBMs would have to report all rebates and discounts to the government. The Senate bill language, however, goes on to require even more detailed disclosure about the deals the PBMs make with pharmacies and drug manufacturers.
Ahaviah Glaser, director of the Prescription Access Litigation, or PAL project, in Boston, said lawmakers are trying to create a law that "forces there to be very clear definitions of what rebates are so you can track whether you are actually getting them or not."
PAL, which in March filed suit against the top four PBMs, alleges the companies keep their deals with pharmaceutical companies and pharmacies so confidential it is very difficult to track the money trail to ensure employers and consumers are getting the lowest prices for prescription drugs.
"There is the whole transparency issue -- it's not clear what the formulary savings is. What our suit alleges is that there are savings garnered through altering the drug formulary that are not given back to the entity," Glaser told UPI. "What ends up being a better system is if PBMs got a straight fee or percentage of the savings instead of contracts done now."
Express Scripts' literature indicates it returns 93 cents of every dollar saved to its clients and lowers drug costs by up to one-third.
Mahowald called the disclosure provisions in the Senate "ill-advised" and said they would harm the competitive environment for prescription drugs and would be a costly add-on to the Medicare benefit. "This would lead to manufacturer awareness of the level of rebates provided by competing organizations and would likely result in reduced rebates being provided to the Medicare program," he said.
Mahowald noted the Congressional Budget Office estimated the cost of the Senate disclosure requirements would add $40 billion over 10 years to the Medicare drug program.
Professor Robert Garis of Creighton University in Omaha has studied the money trail and said there is much confusion because there are two sets of contracts -- one between the PBM and the employer -- potentially Medicare -- and one between the PBM and the pharmacy.
"This is uncharted territory for lawmakers," Garis said. "Yes the government has taken all kinds of measures... but there could very well be some nuances there because we are looking at two sets of contracts. Well-meaning legislators might not be that familiar with that."
Garis said a PBM can say it returns 95 percent of rebates to employers but "there are several different types of rebates, so a plan sponsor might get 95 percent -- but 95 percent of what?
Karen Ignagni, president of the American Association of Health Plans, said members of Congress want to "put a lot of options out of there and encourage a number of players."
"For health plans, what they are looking at very seriously is the opportunity to participate and bring their tools and techniques to the program," Ignagni said.
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