How pharmacy benefit managers affect you

COLUMBUS — The East Side pharmacist is ready to shout out the names of his customers before they walk through the door of his spotless and brightly lit pharmacy. Typically, their medication is on the counter before they make their way to the register.

As an independent pharmacist, those close relationships are vital to staying in business.

But what the pharmacist can’t share with customers is the rationale behind the questionable prices they are paying for their prescription drugs.

How under the drug-pricing system he’s effectively forced to use, he winds up charging some customers the maximum allowed by the PBM  to make up for the losses he takes on other prescriptions with lower PBM reimbursements.

That system, and what his customers are charged, is largely controlled and created by pharmacy benefit managers, or PBMs.

Prescription drug costs have been the fastest growing sector of health care costs in America, according to U.S. News and World Report. The Trump administration and pharmacists like the one on the East Side are saying a big reason for that is PBMs.

The Dispatch has spent the past three months uncovering how PBMs are operating in Ohio. In 19 stories, the newspaper has detailed questionable hidden costs in some prescription drugs. It uncovered how PBMs squeeze independent pharmacies by slashing rates pharmacists are paid for drugs, forcing pharmacists to sell some medicine at a loss. Some independent pharmacies have gone out of business.

Meanwhile, PBMs, drug manufacturers and health-care providers make money. Spending on health care in America has increased by $1.2 trillion in a decade, according to the U.S. Centers for Medicare and Medicaid Services.

In response to the allegations about drug pricing, Ohio Medicaid officials have demanded more transparency from PBMs and asked for numbers from the five managed-care companies that oversee the state’s Medicaid system to see if PBMs are charging inappropriate amounts for medications.

Inside the black box

How this all works is difficult to understand.

The layers involved in getting drugs to the marketplace include drug manufacturers, the PBMs, health-care providers, health insurers both in the private sector and government, and pharmacists.

All of them take a cut and thus together determine how much your prescription drugs cost. But the secret pricing formulas of PBMs and their negotiations with drug makers are what need more transparency, according to pharmacists and state legislators.

The drug-pricing system basically works like this: Manufacturers create a drug that they want to get onto an insurer’s formulary — the list of drugs it covers — so it can be prescribed to patients.

The insurers (or their managed-care companies) hire PBMs to decide which of those drugs should be covered under the formulary, based on discounts and rebates they negotiate with drug manufacturers. For instance, if a PBM doesn’t agree with the price, it may not include the drug on its formulary so the insurance company won’t cover it and thus doctors will be less likely to prescribe it.

PBMs also set reimbursement rates paid to pharmacies for filling prescriptions. But that list is different than the one used to bill the insurer.

Insurers use the price from the PBM to help set premiums and copays for the customer.

PBMs won’t make those price lists public, instead calling them “proprietary and confidential.”

The Trump administration has called it a “rigged system” that is controlled by “monopolies.”

The Dispatch is not naming the East Side pharmacist because he fears reprisal from PBMs -- another sign of a dysfunctional setup, critics say. But other pharmacists are willing to speak for him.

“The system is broken,” said Max Peoples, who owns two independent pharmacies in central Ohio. “There is so much money involved with so little oversight abuse of the health care system has occurred and the public and patients have been mistreated.”

Where did PBMs come from?

The role of PBMs has changed since their incarnation. They were created in the 1980s to streamline the prescription filling process and operate as a data processing piece.

Their roles changed significantly under a Medicare overhaul in 2003. Under the Part D Medicare addition that year, older Americans were provided insurance coverage for prescriptions. That process is overseen by PBMs.

The key part of the federal law then was that the government “may not interfere” in the negotiations PBMs have with drug manufacturers to set prices.

Since then PBMs have become powerful players. With 37 percent of Ohioans on either Medicaid or Medicare, the financial stakes are high.

Spending on prescriptions drugs has increased from about $220 billion to more than $320 billion in the past decade, according to the Department of Health and Human Services.

Estimates forecast spending to increase to more than $400 billion within the next year.

The country’s three largest PBMs — CVS Caremark, OptumRx and Express Scripts — control about 85 percent of the prescription drug universe, according to the Food and Drug Administration.

CVS Caremark, formerly Caremark Rx, was purchased by pharmacy giant CVS Health in 2006 for $21 billion. OptumRx, which is owned by United Healthcare, became a powerful PBM when it purchased Catamaran for $12.8 billion in 2015.

Many pharmacists in Ohio, Arkansas and elsewhere have accused CVS of anti-competitive practices.

The corporation, the nation’s seventh-largest, insists that it maintains a “firewall” between its PBM and retail businesses so that the retail pharmacies can’t get an unfair advantage by knowing the competition’s pricing information.

However, The Dispatch has shown that after sharp, sweeping reimbursement cuts by CVS Caremark, CVS Pharmacy sent independent competitors letters acknowledging the dips and offering to buy their pharmacies.

Critics call the practice “squeeze and buy.”

The paper also has reported on a practice known as “patient steering.” CVS Caremark and Silverscript, its Medicaid managed-care plan, have sent elderly patients letters about their prescriptions, suggesting that they can have them filled at CVS storefront and mail-order pharmacies.

CVS Caremark isn’t just the PBM to four of Ohio’s five Medicaid managed-care companies. The corporate giant’s tentacles have reached into the state Medicaid department in other ways.

The Dispatch reported in March that the Medicaid point person for pharmacist complaints about reimbursements, Margaret Scott, also moonlighted at CVS retail pharmacies. Late last year, while she was still hearing complaints about CVS Caremark, she negotiated a new job with the PBM arm. Senior Medicaid officials decline to discuss Scott’s case, which has been referred to state ethics investigators.

In your pocket

Insurance premiums are directly impacted by how much prescription drugs cost the plan provider.

The PBM sets prices of brand name and generic prescription drugs for the insurer. What it doesn’t tell the insurer is what price it negotiated with the drug manufacturer, or the reimbursement price it sets for pharmacies.

Critics, including pharmacists, of PBMs say that the companies are incentivized to drive up the price on drugs with the manufacturers because it makes their discounts greater.

PBMs have used their power in the marketplace as leverage with drug manufacturers to get discounts or rebates. It’s unclear how much of those discounts, if any, are passed onto public or the health-care companies.

Last year, during testimony to Congress about the gigantic price increase of EpiPen, Mylan’s CEO described this practice.

Of the $608 charged to insurers for the drug, middlemen pocketed more than half of that in rebates and discounts. The PBMs even charged money the manufacturer in exchange for putting the EpiPen on their formularies.

Mylan’s profit was $50 per Epipen prescription, according to the testimony.

“Basically you have a profit-driven, non-fiduciary companies that are setting prices for drugs,” said Antonio Ciaccia, lobbyist for the Ohio Pharmacists Association.

All three major PBMs have denied allegations they drive up prices and seek profits on prescription drugs.

“CVS Health is committed to helping both patients and payers with solutions to lower their prescription drug costs,” spokesman Michael DeAngelis said in an emailed statement.

What’s next

The Trump administration has recently said these companies have monopolized the market. Trump said he wants the government to use its buying power to negotiate cheaper prices for drugs, but so far his plan does not reflect that desire.

His health and human services secretary signaled last week it wanted to change the 2003 Medicare provision that the government cannot interfere in the negotiating process..

But officials offered few details on how they plan to force the issue.

In Ohio, and across the nation, lawmakers are pushing for more transparency in prescription drug pricing over concern that the secret dealings of pharmacy benefit managers drive up costs and limit patients’ access to medications.

Ohio Medicaid officials are investigating allegations that PBMs in the tax-funded health insurance program are paying pharmacies far less to fill some prescriptions than they charge the state and pocketing the difference, a practice known as spread pricing. A report is expected by June.

PBMs voluntarily turned over their price lists for the past year and, starting July 1, under new contract provisions with all five Medicaid managed care plans, the insurers must disclose additional drug pricing data to the state, including all drug price lists they use. PBMs regularly use one list when billing their managed care plan and another when reimbursing pharmacies.

State officials say the data will give a clearer picture of where tax dollars are going and the extent of spread pricing.

Meanwhile, the Ohio Department of Insurance in April ordered health insurers and PBMs to cease enforcement of gag orders preventing pharmacists from telling consumers about lowest available drug prices. Regulators also banned them from charging consumers more for their prescription medication than it would cost without insurance, or out of pocket.

In the General Assembly, lawmakers are considering bills to prohibit PBMs from retroactively reducing rates paid to pharmacies, limit patient co-pays, and require pharmacies to inform patients if their co-pay costs more than they would otherwise be charged.

Dispatch reporters Marty Schladen and Catherine Candisky contributed to this story.

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@DispatchSully

CREDIT: LUCAS SULLIVAN