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DrugBenefit Home Page Now Someone Else is "Telling You So", Too Tom Curb, R.Ph.
For several years I have made it my "mission" to keep plan Sponsors, potential Sponsors, benefit plan members, and other interested parties (even some in the media) informed about what I consider to be illegitimate practices occurring in the prescription benefits management (PBM) marketplace. Doubtless some may have concluded that I am just a suspicious old man. Because of this possibility, it was refreshing to find that someone else has reached conclusions that support my criticisms. Following is a summary of the findings of Richard Nicholas, "a veteran industry expert", who conducted a comprehensive study of the overall PBM industry. While this summary only touches on some of the more common deceptions, it provides a concise description of unfair, deceptive, and unethical policies and practices that are being engaged in by numerous PBMs. We allow none of these "sneaky" practices to be imposed against our Clients, and although I have exposed and condemned them in previous commentaries, (elements of which I include in italics at the end of each of his points) Mr. Nicholas’ revelations seem worthy of a revisit. Some of the more nefarious schemes he addresses are: (1) "Redefining Average Wholesale Price - PBMs deliberately use a variation of Average Wholesale Price (AWP) to create an artificial "spread" between the price charged to their clients and that paid to pharmacies. To appear as if they are offering a deal, PBMs often charge payors AWP less a specified discount even though this amount has no relationship to what they pay pharmacies. By example, a PBM may charge a client AWP-12% yet pay the pharmacy AWP-17%, generating an undisclosed 5% spread for the PBM ranging from $3 - $6 per script." PBMs often market their services by promoting large discounts from (generic) AWPs. But it's an open secret in the industry that (generic) AWPs often are severely inflated…meaning that (the seemingly large) discounts from generic AWPs often aren't as favorable as they sound. Since PBMs are middlemen between insurers and the retail pharmacy network (with little chance of communication between the two); and the PBM controls all the Rx pricing information for both (which these PBMs maintain to be confidential); and they also handle both the insurer and retailer monies – such PBMs have a situation ripe for a little hocus pocus. The "magic" is to charge the insurer "a little" more for a prescription; pay the retail pharmacy "a little" less for the same prescription; and keep the difference – thus was born "SPREAD PRICING". ("A little" can be as much as $100.) By quoting insurers one level of ingredient pricing and paying retailers based on a lesser one (the "spread"), these PBMs can create a more competitive image with spread-subsidized "reductions" of the insurers’ AWP discounts on brand-name drugs, pharmacy dispensing fees, and the PBMs’ administrative/processing fees – with the true net result being increased overall cost to the insurer. In contrast, we believe that if the pharmacy is willing to charge less for a prescription, the Client should benefit, or conversely, if the Client is willing to pay more for a prescription, the pharmacy should benefit. (2) "Rebates, Rebate Disguising and Rebate Pumping - Rebates are a very significant source of PBM income: as much as $3.50 per script…. Most PBMs earn and use rebates to increase and hide revenues at the expense of their clients through a variety of means. PBMs promote newer, brand name drugs that pay the highest rebates, but that may not be the most effective option, or the one in the patient's best interest. If they agree to share some of the rebates…they often…reclassify some of their rebates as "administrative fees" in order to share less with you. Aggravating rebate disguising is "rebate pumping": (Which is) when a PBM creates a formulary that substitutes low cost drugs (with) newer, high cost drugs that pay larger rebates (and create greater spreads), even though they are often not the best drug in a therapeutic class. Rebate pumping can increase certain prescription costs as much as 400%." The dramatic success of drug manufacturers’ direct-to-consumer advertising has displaced PBMs’ value as "market drivers". However, drug companies will continue giving rebates to PBMs that will replace a less costly drug with the manufacturers’ more expensive ones. (We refused to play this drug industry "game", which we knew would be detrimental to our Clients’ plans, and in 2002, when the value of rebates to our Clients disappeared, we cancelled all manufacturers’ rebate agreements.) (3) "Formulary Steering - Formulary steering is when a PBM influences a doctor to change their prescription to maximize their (PBM) profits. It occurs with multi-tiered plans and open formulary plans (when there should be no steerage at all). Formulary steering is a serious, costly practice with an enormous financial impact." Formulary steering is a tool of PBMs that receive rebates and/or "preferential product" discount incentives from drug manufacturers for moving patients toward products that may have less-costly alternatives – despite potential for increased cost to their Clients Recently, a consumer group and a union…sued the nation's four largest PBMs, alleging that their "secret dealings" with drug companies forced consumers and public employees to pay more for prescription drugs. One mechanism was to shift customers onto brand name drugs that generate rebates and/or administrative fees for the PBM – but that generally cost the member and/or plan more money. The suit alleged that the PBMs "reaped billions of dollars in illegal profits by steering (health plans and consumers) into reliance on more costly drugs. The PBMs - AdvancePCS, Merck & Co.'s Medco Health unit, Express Scripts Inc., and Caremark Rx Inc. - say they manage the drug benefits of about 200 million Americans." (Wall Street Journal, March 2003) (4) "Over-Promoting Mail Order and Specialty Pharmacy Dispenses - (Mail-order-affiliated) PBMs promote the use of mail order services on the premise that this…, results in more cost effective pharmaceutical purchases. They boast that mail order discounts are higher and that the dispensing fees and administration fees charged are less than for retail dispenses. While this might appear on the surface to be logical, the fact is that in actuality over-promoting the use of mail order services can significantly increase plan costs." For more than 15 years, I have contended that traditional U.S. mail-order pharmacy was obsolete, and that it cannot compete with an aggressively-managed retail network. However, mail-order business has been highly profitable for PBMs that own or that have a financial relationship with mail-order pharmacies. They are always looking for new ways to increase the mail-order business. One insidious way to accomplish this has been by increasing the price spread in the retail network. By doing this, not only can these PBMs make more money on a prescription that is filled in a retail pharmacy, the PBM’s mail-order element can be made to look more cost-effective – thereby encouraging movement of more prescriptions from retailers to the mail-order pharmacy. Sometimes they are so successful with this deception that a Sponsor may mandate that members use the mail-order pharmacy. (5) "Profiting on Zero-Cost Scripts, Refunds, Reversals and Returns - A significant number of prescription payments are eligible for refunds and reversals due to pharmacy errors and changes, returned prescriptions, patients not picking up scripts, etc. However, audits of many PBMs have shown them to be "sloppy" with regard to properly crediting refunds and reversals." This practice, like spread pricing and rebate pumping is only employed by PBMs that are vendors of medications or that maintain a less-than-arms-length relationship with the vendors of medications. Because of this – as a "fair middleman" - we have always avoided situations that would encourage us to promote the use of one drug over another to our Clients’ detriment and/or situations that would allow us to directly profit from drug sales. To assure this, from inception to date, we have remained "pure" administrator/managers that operate and charge on a fee-for-service basis. As I have always said: "When the administrator of the benefit is also the vendor of product, there is an inherent conflict of interest."
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