Posted Apr 29, 2019 at 6:12 AM Updated Apr 29, 2019 at 10:52 AM
They once were the obscure middlemen reaping billions off prescription-drug transactions as they worked behind a veil of secrecy. But a wave of reforms to the $400 billion-a-year industry of pharmacy benefit management is cresting across the United States.
According to the National Academy for State Health Policy, 101 PBM reform bills are being considered in 41 states this year.
PBMs, such as CVS Caremark, OptumRx and Express Scripts, act as the middlemen between health insurers, drug manufacturers and pharmacies. Their contracts typically keep pricing and rebate data secret, leading many people to conclude that they’re partly to blame for the rising price of drugs, which itself is the fastest-rising part of the health-care sector.
“Unfortunately, things were really, really bad in Ohio,” said Anne Cassity, vice president of federal and state affairs for the National Community Pharmacists Association, an industry group representing independent pharmacies.
But things also were bad elsewhere, such as in Kentucky, where a state report determined that the “spread” between what PBMs billed taxpayers for Medicaid drugs and what they paid pharmacies was $123.5 million in 2018, prompting Kentucky Attorney General Andy Beshear to launch an investigation.
Louisiana, New York, and Arkansas each has either passed or is considering measures that would ban such spread pricing. Other states are considering various types of bills, such as ones in California and Oregon intended to increase transparency, while still other states are considering bills that would require PBMs to provide pharmacists with minimum reimbursements.
In West Virginia, rising drug costs in the Medicaid program prompted officials there to carve Medicaid drugs out of its managed-care system. State Medicaid officials have broken up PBM functions, leading to an increased transparency that they say saved $54.4 million a year
Cassity, of the national association of pharmacists, praised that approach and said that states are leading the way in approaches to reform.
Pharmacy benefit managers defend their role, saying that they save money for consumers and arguing that many of the recent legislative initiatives would increase costs.
“Pharmacy benefit managers (PBMs) serve as the only check in the prescription-drug supply chain against drug-makers’ sole power to set and raise prices,” said Greg Lopes, spokesman for the Pharmaceutical Care Management Association, a national organization representing PBMs. “Any new state legislative mandates that undermine PBMs’ cost-savings tools would not reduce prescription-drug prices for consumers; rather they would reduce access and increase prescription-drug costs.”
Lopes cited a 2017 study by the University of Southern California that found that for every $100 spent on branded drugs, PBMs retain about $2, compared with $58 for manufacturers. For generic drugs, PBMs retain $7, compared with $18 for manufacturers.
However, Neeraj Sood, who conducted the study, told The Dispatch in January that it’s incorrect to use his work to evaluate whether that’s a fair split between manufacturers, which develop and produce medicines, and PBMs, which facilitate sales.
“You and I ask, ‘Is (the amount PBMs are getting) a reasonable number, or should PBMs be making less than that?’ My research didn’t address that question,” Sood said. He added that he is working on a study to try to find an answer.
The Montana legislature recently passed a bill meant to attack the PBM problem. Senate Bill 71 would require the Montana Securities & Insurance Commissioner to regulate PBMs that serve private health plans on the individual market. Similar reforms already have been made for state employees through the companies that administer the state’s self-funded insurance plan. The change is intended to require insurers to look out for taxpayer interests and to give state regulators the power to effectively check insurers’ math.
The bill would allow the insurance commissioner access to PBM contracts and require insurers to use a list of drug prices that would be disclosed to regulators, secret, PBM-generated cost lists that prevail in the industry. It would outlaw spread pricing by requiring PBMs to pay pharmacists their costs plus a dispensing fee. It would eliminate after-the-fact fees that PBMs charge to take back part of the reimbursements they’ve already paid pharmacists.
SB71 also would take away health plans’ incentive to steer patients to expensive drugs with big rebates by mandating that all money collected by PBMs from manufacturers be returned to the state, and by forcing open contracts and other records to ensure that happens. That provision would prevent insurers from boosting profits by classifying some portion of rebates as a medical expense, said Derek Oestreicher, an attorney for the Montana insurance commissioner who was involved in developing the measure.
“It’s ultimately important that insurers take back the reins from pharmacy benefit managers,” he said, explaining that he’d seen crazy things as he worked on the bill. One PBM contract he saw defined “rebate” as a number of things — “rebates” not among them.
Marilyn Bartlett was recently named 13th on Fortune magazine’s list of the World’s Greatest Leaders for her work reforming how Montana does business with hospitals, managed-care companies and PBMs. She said it took a hard political fight to pass SB71 over the objections of insurers and PBMs. It remains to be seen whether Democratic Gov. Steve Bullock will sign the bill. His office didn’t respond to a call last week for comment.
Maine lawmakers began hearings this month on a sweeping package of five bills broadly modeled on the Montana legislation.
The role of PBMs “is supposed to be about working on behalf of patients to drive down the cost of prescription drugs and serve as a check against the power of pharmaceutical companies,” said state Sen. Heather Sanborn, D-Portland. “However, more and more evidence has emerged that PBMs have taken advantage of their secrecy and used their position to pad their own investors’ pockets rather than drive down costs for consumers.”
In Ohio, Medicaid managed-care company CareSource earlier this month touted a new contract with Express Scripts that it says will bring new transparency to the system. The contract will be available to state officials, but not the public, however.
Company officials say making the contract public would give an unfair advantage to its competitors.
Montana’s Oestreicher isn’t buying that.
“Let’s be clear, we’re not dealing with the Coca-Cola recipe here,” he said. PBMs “are always coming up with more algorithms to become more profitable and more secretive.”