From John Curry, September 3, 2008
From Sharon Treat to John Curry, September 3, 2008
Subject: Special Report: Texas Auditor Shows the Way on PBM Oversight
IS IT TIME TO AUDIT THOSE PBMS?
Texas Auditor Shows the Way in Report; Identifies Opportunities for Savings to State, Protection of Patient Privacy
Texas Report Identifies Many Opportunities for Greater Regulation, Transparency and Recovery of Savings in State Programs that Use Pharmacy Benefit Managers
In a move that can only benefit consumers, Texas last month became the latest state to take action to curb possible abuses by Pharmacy Benefit Managers (PBM), the middlemen who administer and negotiate drug benefits for health plans, businesses and government programs.
The Texas auditor's report issued in August recommended that state agencies including the state employees and teachers' retirement and state university systems have greater power to audit PBM contractors to verify drug plan costs, ensure compliance with contracts, protect consumer privacy and address what it calls other "high-risk areas."
, "An Audit Report on Pharmacy Benefit Manager Contracts at Selected State Agencies and Higher Education Institutions" recommends that contract provisions should be strengthened to:
• Insure audit rights in order to verify prescription drug plan costs and PBM contractors' compliance with their contracts;
• Reveal the true costs discounts associated with the plans;
• Regulate drug substitution practices;
• Protect confidential data and regulate PBM sales of plan data; and
• Insure contract monitoring for compliance with requirements and to disclose any policies, practices, or business relationships that could conflict with their obligations under PBM contracts.
The report also recommended that additional guidance and expertise be provided to agencies and higher education institutions to strengthen their PBM contracts to insure greater consistency of the provisions and state access to key information including rebate amounts. In general, the Auditor recommended that agencies and higher education institutions adopt specific practices to insure that contract provisions clearly recognize and benefit the interests of their plans and members.
Texas thus joins efforts by an increasing number of states to regulate an industry targeted in numerous fraud cases and other litigation. In 2003, Maine became the first state in the country to pass legislation aimed at ensuring transparency, reducing conflict of interest and applying other ethical standards to the PBMs. In the past few years, at least 13 states have passed laws addressing PBM practices and transparency, including Kansas, Vermont, Iowa, Louisiana, North and South Dakota, Mississippi, District of Columbia, and, earlier this year, Maryland.
The battle to rein in PBMs has been led by the National Legislative Association on Prescription Drug Prices (NLARx), a non-partisan organization of state legislators working to reduce prescription drug costs and increase access to medicines. NLARx has developed model legislation to insure that PBM contracts serve the interests of their clients, not those of PBMs and drug companies.
NLARx Executive Director Sharon Treat lauded the Texas report as a road map for other states. "There is no doubt in my mind that the vast majority, if not all, of the 50 states have similarly flawed contracts with PBMs, or lack the audit skills and authority necessary to insure that their citizens are getting the full value of these pharmacy contracts," Treat said.
Treat stated: "This report should be read by every state auditor and higher education and retirement system financial manager. Not only do new regulations need to be adopted, but states need to exercise their audit rights to find out what's really going on in these contracts." She added, "To do otherwise is to abdicate responsibility and hand over to these middlemen literally millions of dollars of taxpayer money that could be buying needed medications and balancing already precarious state budgets."
The Texas report follows a flurry of state activity aimed at PBMs this year. Treat noted that even in Maine, which has a PBM law on the books, PBMs hired by state agencies are not fully complying with the state's rebate pass-through and transparency standards. This year Maine legislators passed a bill to require the state's Department of Corrections to renegotiate its pharmacy contract to recoup a greater share of rebate money and to insure compliance with the law.
In West Virginia, legislators discovered that a PBM administering the Medicaid pharmacy benefit was selling patient data, a problem also identified in the Texas report. The state moved promptly to end the practice.
Also this year, Maryland enacted a comprehensive package
of legislation to regulate PBMs. It includes registration with the state to allow tracking and evaluation, and far-reaching disclosure requirements. The provisions cover conflicts of interest, disclosure of fee schedules and other information during the contracting process and instances when a prescription switch or "therapeutic interchange" is made. Of the comprehensive nature of the law, Attorney General Douglas Gansler said, "It is crucial to regulate this previously unregulated business".
The Texas report could lead to both administrative and legislative action in the next legislative session. The Legislature has previously considered adopting PBM regulations but opted for the study that resulted in the Auditor's report.
According to NLARx director Sharon Treat and other advocates for PBM regulation, the kind of changes recommended in the Texas Auditor's report are necessary to lower prescription drug costs and ensure that PBMs do what in fact they are paid to do: serve their clients' interest by getting them the lowest price for drugs, rather than serving the interests of the PBMs or those of drug companies.
When the Maine law was upheld by the federal courts, the decision noted that whether or how a PBM actually saves an individual benefits provider money "is largely a mystery" and "This lack of transparency (introduces) a layer of fog to the market that prevents benefits providers from fully understanding how to best minimize their net prescription drug costs."
Above all, Treat says, stricter transparency, conflict of interest and audit standards will remove the "layer of fog" cited in Maine's court case, making the marketplace more competitive and ultimately effective. That, in turn, will protect patients' health, the optimum medical outcome.
About the National Legislative Association on Prescription Drug Prices:
NLARX is a nonpartisan, nonprofit organization of state legislators from across the country working to lower prescription drug costs and improve access to affordable medicines. Members include legislators from Alaska, Arizona, Colorado, New York, Maryland, Pennsylvania, Texas, Oklahoma, Hawaii, South Carolina, the District of Columbia and all the New England states. For more information and to sign up for our bi-weekly newsletter, visit our website at www.reducedrugprices.org