WASHINGTON, Feb. 3 (UPI) -- Rising prescription drug costs make it difficult for employers to afford employee health insurance and businesses and states increasingly are questioning the deals made by the middlemen in the supply chain -- pharmacy benefit managers -- with pharmaceutical companies.
PBMs traditionally have been very tight-lipped about their contracts with drugmakers that provide rebates and discounts in exchange for including drugs in formularies drawn up for health plans -- which are sold to U.S. companies for their employees.
PBMs prefer to focus on the documented cost savings and health benefits they can offer to employees through their bulk-buying power, and there is no argument PBMs save money on prescription drugs for health plans. The big issues employers and states want answered, however, are: 1) What are the costs of brand-name and generic drugs? and 2) Do PBMs pass along all the savings from deals they negotiate?
Such information has been considered proprietary by PBMs, but as drug costs continue to rise well above inflation rates, employers have become critical about the lack of transparency in the process.
PBMs may switch one drug for another brand or a generic considered equally effective but less expensive, which helps the health plan save money. The PBM also might include in its formulary, however, an expensive brand-name drug, rather than a cheaper equivalent, if it negotiates a deal with a drugmaker. The result is more costly for the health plan, but it benefits the PBM. The health plan still receives a discount -- possibly higher than it would on the cheaper equivalent -- but the drug is more expensive.
The Maine Legislature's response was to pass the Unfair Prescription Drug Practices Act, the first law in the country that imposes fiduciary duties on PBMs: They must report financial information and conflicts of interest, disclose all savings from special pricing deals, and inform health plans of cost differentials when a more-expensive drug is switched for a cheaper medication.
The law was challenged by the Pharmaceutical Care Management Association and has been going back and forth in the court system. This week, U.S. Magistrate Margaret Kravchuk in Maine recommended the full U.S. District Court there lift an junction won by the PCMA and allow the law to be enforced.
"Whether and how a PBM actually saves an individual benefits provider customer money with respect to the purchase of a particular prescription drug is largely a mystery to the benefits provider," Kravchuk wrote in the opinion.
The association challenged the law on grounds the rebate/discount information falls under the category of trade secrets. The PCMA contended that forcing disclosure of such information would violate the Employee Retirement Income Security Act, the Federal Employee Health Benefits Act and other contract laws.
Sharon Treat, executive director of the National Legislative Association on Prescription Drug Prices -- a group of legislators trying to get laws such as Maine's on the books -- said Kravchuk's rejection of all of the PCMA's claims gives her hope the court will allow Maine to go ahead.
"South Dakota and the District of Columbia also have PBM regulations, and many more states have pending legislation," she said. The District of Columbia law, however, also has been halted by an injunction.
Treat, who sponsored the Maine law as the State Senate's majority leader, told UPI's HealthBiz that, after the injunction put the law on hold, lawmakers revised the statute's language to include protections for PBMs ensuring confidentiality so trade secrets or financial information would not be released to the public under any circumstances.
"This law really addresses ethical behavior by the PBMs," she said. "This is what PBMs need to be doing when they enter into contracts."
The PCMA issued a statement Thursday saying it would ask for a complete review of the recommendation.
"Yesterday's recommended decision conflicts with two prior federal court decisions preliminarily blocking state PBM fiduciary and disclosure laws from taking effect," PCMA attorney John Aromando said in a statement provided to HealthBiz. "PCMA intends to seek a complete review of this non-binding recommendation by a federal district court judge in Maine."
The PCMA statement cited a PricewaterhouseCoopers study that estimated Maine's law would increase prescription drug costs for Maine consumers and employers by 10.2 percent over the next 10 years.
Not all PBMs are keeping their financial deals a secret, however. The human resources firm Towers Perrin on Thursday outlined the RX Collaborative, which has developed in the past year, to a Conference Board health conference in New York City.
RxCollaborative includes some 30 U.S. companies, representing $800 million a year in drug sale, joining to bring transparency to dealings with Medco, the PBM chosen by the group to administer their pharmacy benefits.
RxCollaborative requires Medco, through an independent auditor, to disclose 100 percent of rebates and discounts it receives from drug manufacturers and pass on all of those savings to member companies.
"We've taken rebates out of the game in terms of driving consumption behavior," Tower Perrin's Ron Fontanetta told HealthBiz.
The agreement with Medco also offers the companies the ability combine the purchasing power of the entire group, while still retaining flexibility to control benefits. They can analyze utilization and cost data for better management of their pharmaceutical benefits.
Instead of using rebates and discounts as a revenue stream, group members pay Medco a negotiated administrative fee. Collaborative companies expect to see a 10 percent reduction in pharmaceutical costs by realizing all rebates and discounts.
Tim Wentworth, group president for national accounts at Medco, told HealthBiz that in the past employers have been content to pay no administrative fees and allow Medco to keep a portion of rebates, but now flipping the structure around works as well.
"The structure of the financial arrangement is fully transparent and pass through," Wentworth said. "They see and are provided the information for the purchase prices of brand drugs ... and in exchange for that they now pay Medco an administrative fee."
The program launched a year ago, but most of the companies have signed on recently and Towers Perrin relaunched the collaborative this week.
Aside from the transparency, Medco has agreed to grant auditors working on behalf of the collaborative access to its financial information.
"Regardless of the business model, the road to lower drug prices goes through PBMs," commented Mark Merritt, PCMA's president.
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