Over the past few years, pharmacy benefit managers have come under fire for a slew of breaches of contract and state laws, questioning what really goes behind the $ 535.5 billion drug industry.
PBMs are designed to manage prescription drug benefits on behalf of health insurers, saving insurers and consumers money on prescription drugs. However, as the pharmaceutical industry has exploded and drug prices have risen 33% since 2014, questions have been raised as to whether PBMs are acting in the best interests of their customers.
This year alone, states have introduced hundreds of bills to hold PBMs accountable and bring transparency to prescription drug prices. Between Arkansas securing the right to regulate PBMs in a 2020 Supreme Court ruling, with the PBM Centene paying over $ 140 million in settlements to Ohio and Mississippi for overburdening their Medicaid programs, there is a growing demand to investigate PBMs.
Read more: Is the pharmaceutical industry set to change?
Dae Lee, pharmacist-lawyer with the health and life sciences law firm Frier Levitt, represents pharmacies and plan sponsors against PBMs. His firm claims to have recovered millions of dollars on behalf of plan sponsors, revealing price discrepancies and flawed auditing practices. Lee spoke with Employee Benefits News on the intricacies of a PMB lawsuit and how to spot malpractice.
How do PBMs work with independent pharmacies that might sound the alarm bells for you as a lawyer?
An independent pharmacy is audited regularly, perhaps even a few times a month by PBMs. They also conduct the Fraud, Waste and Abuse Investigation which looks for discrepancies in claims, such as incorrect amount of medication or duplicate claims. They take those findings to the pharmacy and try to take the full refund amount paid on a given claim.
For example, a PBM identifies a co-payment discrepancy – which means the pharmacy has not provided proof of co-payment – and the co-payment is $ 3. Logically, the PBM should only recover the $ 3 from the pharmacy. This is not what is happening. Instead, PBMs take back the full refund amount paid on that claim. And it is possible that this prescription request was already issued to the patient a year or two ago.
In addition to the financial burden that these audits place on the pharmacy, if a major PBM terminates or suspends the pharmacy in its network, the pharmacy is likely to close its doors. The selfish tactics of PBMs are driving independent pharmacies out of the industry, but are also driving up drug prices and healthcare costs for Americans.
Read more: How Employers Can Reduce Prescription Drug Spending
Today there are only three PBMs that control almost 80% of the market, namely CVS Caremark, Express Scripts and OptumRx. These three PBMs are already vertically integrated, which means that they are their own plan sponsors and pharmacies. So why wouldn’t PBMs try to do away with independent pharmacies? This means they get more prescriptions and more money.
How do they use these tactics when it comes to their dealings with plan sponsors?
Even though there is contractual language in place to prohibit this from happening, we see the same selfish tactics with plan sponsors through tiered pricing and manufacturer discounts.
Centene, which is a company that has served as a go-between for government-sponsored and private health care programs, has been sued by the state of Ohio for pricing spreads. For example, if a pharmacy paid $ 50 for a drug, Centene would charge the Ohio Medicaid service $ 100. Centene ended up settling $ 88.3 million. Oddly enough, Ohio once again awarded the Medicaid contract to Centene. There is a lot of politics involved.
We also recently settled a case for a Medicare part D sponsor, which deals with voluntary prescription drug coverage. This case was ultimately settled for $ 6.25 million. That $ 6.25 million in PBM’s pocket should have been passed on to the plan sponsor and would have decreased that plan sponsor’s total drug spending, meaning my premium would have gone down. And if that happens in the Medicare Part D space, which is supposed to be heavily regulated, imagine what happens in the private space where there is no disclosure requirement.
How do PBMs cope with these bad practices?
In the private sector, when a self-financed employer signs a contract with a PBM, this contract is managed by the PBM. This PBM is also often featured or recommended by a broker or consultant prompted by PBM. These contracts are going to be pro-PBM.
Read more: As the cost of specialty drugs rises, employees want employers to shoulder the financial burden
In my experience with plan sponsors, they’re not familiar with the PBM industry, so they don’t know the lingo. They just let the PBM write the contract. Even if there is a monitoring or auditing provision, PBM imposes limits on the contract. I have seen many instances where the plan sponsor cannot elect an auditor without the approval of the PBM. In more egregious cases, the PBM does not allow the auditor to share audit notes with the plan sponsor. It all starts with the language of the contract. You can’t let the PBM dictate the terms of the contract.
What needs to change in the relationship between PBMs and their clients in order to avoid falling prey to these tactics?
We would need to see PBMs in a fiduciary model because a fiduciary is legally and ethically obligated to put the best interests of their clients first. PBMs would be forced to seek savings and required to report one hundred percent of the savings to the sponsor. Currently, PBMs are selectively transparent.
Fortunately, there are a number of smaller PBMs that are trying to emphasize transparency. But it has obviously become difficult to break into this market because the three main PBMs control a large part of the market. It’s an uphill battle, but I’m glad there are smaller PBMs leading the effort to fix the industry for the benefit of patients.