Fleecing you and me: PBMs accused of driving up drug prices

Tues., Nov. 8, 2005

Experts: Pharmacy benefit companies can drive up drug prices

"I think the (pharmacy benefit management) industry has done a lot to increase the cost of drugs, and I challenge the PBM industry to say that isn't true" -- Gary Gustafson

DALE WETZEL
Associated Press

BISMARCK, N.D. - Many companies that manage employee prescription drug benefit plans overcharge businesses for drugs, and may be responsible for escalating prices, say experts who advocate greater industry regulation and disclosure.

Pharmacy benefit managers have "enabled (drug) manufacturers to raise their prices more rapidly, and higher," said Gary Gustafson, an account manager for ClearScript, a pharmacy benefit manager that is part of Fairview Health Services of Minneapolis.

ClearScript is more open in its operations than the industry's biggest companies, Gustafson told members of the Legislature's interim Industry, Business and Labor Committee on Tuesday.

"I think the (pharmacy benefit management) industry has done a lot to increase the cost of drugs, and I challenge the PBM industry to say that isn't true," he said.

Spokesmen for Medco Health Solutions Inc. of Franklin Lakes, N.J., and Caremark Rx Inc. of Nashville, Tenn., said additional state regulation of the industry is not needed. Medco, Caremark and Express Scripts Inc. of Maryland Heights, Mo., are the nation's three largest pharmacy benefit managers.

A Federal Trade Commission report in September and a separate federal Government Accountability Office report published in January 2003 concluded that pharmacy benefit managers provide less expensive drugs to beneficiaries, said Peter Harty, a Medco vice president. The industry also has more than 50 companies, he said.

"Do you need more law? Do you need more regulation? The answer, from our point of view, is clearly 'No,'" Harty said. "The marketplace is working. We're saving money for employees, for employers, for health plans, and the marketplace has addressed the issues that need to be addressed."

Harty and Allen Horne, a Caremark Rx vice president, said forced disclosure of managers' rebate agreements with drug companies would prompt them to offer smaller discounts, which would mean costlier drugs for customers.

Harty said no other industry is required to disclose similar financial information, and compared the suggestion to requiring car dealers to openly post the details of every sale.

"If everybody knows the deal that the best PBM out there gets, those deals are going to dry up," he said.

Pushed by North Dakota pharmacists, the Legislature approved a new law this year requiring the state Insurance Department to license pharmacy benefit managers. It gives the department authority to audit PBM contracts.

The law also requested an interim legislative study of pharmacy benefit managers' operations, which the Industry, Business and Labor Committee will be doing over the next year.

Pharmacists had wanted a stronger measure, which would have required PBMs to disclose audits of their operations, and terms of their rebate agreements with drug manufacturers. Patricia Hill, director of the North Dakota Pharmacists Association, said it was patterned after a law the South Dakota Legislature approved last year.

Gustafson and Robert Garis, a Creighton University pharmacy professor and management consultant, said benefit managers should disclose more information about discounts and rebates they obtain from drug makers, and the reimbursements they pay to pharmacies.

Gustafson said ClearScript pays the same reimbursement to pharmacies and an employer's drug benefit plan for worker prescriptions, maintains a single pricing list for generic drugs, and discloses manufacturers' rebates to the companies it works for.

Other pharmacy benefit managers decline to share rebate information, keep dozens of different price lists for the same drugs, and charge companies more for an employee's prescription than they pay to the pharmacy that fills it, Gustafson said.

Harty said companies that hire pharmacy benefit managers negotiate contracts with them, and can insist on as much disclosure as they please while the contract is being drawn.

Imposing the same disclosure requirements on all companies would turn pharmacy benefit management into a commodity business, with companies unable to differentiate among themselves, he said.

The industry's biggest companies have been targets for a number of lawsuits, according to Securities and Exchange Commission disclosure filings. In the filings, the companies say they believe they are complying with state and federal laws.

New York Attorney General Eliot Spitzer sued Express Scripts in August 2004, claiming it inflated generic drug costs for the health plan that covers New York state workers, and kept drug manufacturer rebates that should have been paid to the plan. The case is pending.

The U.S. Department of Health and Human Services is investigating Medco for allegedly inflating drug prices charged to Medicare and Medicaid, the company says.

In April 2004, Medco agreed to pay $29.3 million to settle consumer protection allegations raised by 20 state attorneys general. The company did not concede any wrongdoing.