Jan. 26--As prescription drug costs skyrocket, some health care experts question if pharmacy benefit managers contribute to the hike.
Ask the PBMs and they point to the billions of dollars they save taxpayers and consumers as middlemen administering prescription drug programs for private and public health insurers and Medicaid and Medicare programs.
The secrecy in which PBMs operate makes it difficult to determine who is right.
PBMs were established to increase efficiency and use their massive buying power to negotiate lower prices from pharmaceutical manufacturers. The savings were to be passed on to insurance companies to keep premiums down, said Steven Szydlowski, Ph.D., director of the University of Scranton's graduate health administration program.
PBM officials say the industry is living up to that expectation and cite a study from their trade organization, the Pharmaceutical Care Management Association, which estimated PBMs would save the marketplace $654 billion from 2016 to 2025.
The value of PBMs has come under scrutiny, however, as prescription costs continue to rise at astronomical rates.
A March study by the Pew Charitable Trusts found that net spending on prescription medications increased from $250.7 billion in 2012 to $341.0 billion in 2016.
"The intent when PBMs came about was to try to contain costs," Szydlowski said. "We are spending a lot on health care, over $3 trillion a year. A significant portion of that relates to pharmaceuticals. ... Now we are saying, wait a minute, are they actually lowering the cost or are they adding to costs?"
Recent reports from Ohio and other states also raise concerns that PBMs are raking in excess profits.
Shrouded in secrecy
The problem, critics say, is the PBMs' contracts with insurers are complex and shrouded in secrecy. The government has no right to review them, so there is virtually no independent oversight of their practices.
"There are definite benefits to PBMs," said Lovisa Gustafsson, assistant vice president at the New York City-based Commonwealth Fund, a nonprofit health research group. "They manage drug benefits, which is a time-consuming and difficult process that takes expertise. ... They provide more market power to negotiate better prices."
Their actual value is hard to independently confirm, though, because they operate in secrecy, said Erin Taylor, a health policy researcher with the Rand Corp., a nonprofit public research group based in California.
"PBMs would not exist if there was not some benefit," Taylor said. "That being said, there is really a significant lack of transparency."
The most contentious issues include what portion of rebates on brand name drugs PBMs pass through to insurers and their spread pricing fee structure, where PBMs charge more for drugs than they pay pharmacies and pocket the difference.
Drug manufacturers offer rebates and other discounts to encourage PBMs to include their medications on the list of drugs they offer a health plan's enrollees.
The pharmaceutical manufacturing industry is highly critical of the practice, arguing it has been forced to raise the list price on drugs to account for lost revenue from rebates.
PBM officials disagree and stress that rebates play a critical role in controlling costs.
"There is no causal relationship between the prices drug manufacturers set and the rebates they negotiate with pharmacy benefit managers," said Greg Lopes, a spokesman for PCMA.
He cited an August 2018 study PCMA commissioned that shows rebates decreased on some of the most common medications dispensed through Medicare from 2012 to 2017, yet list prices increased.
Cathryn Donaldson, a spokeswoman for America's Health Insurance Plans, a Washington, D.C.-based trade group that represents health insurance companies and PBMs, also cited a report from the Office of Inspector General for the U.S. Department of Health and Human Services that shows rebates negotiated by health insurance providers and PBMs slowed Medicare prescription spending on brand name drugs by 15% from 2011 to 2015.
Federal law requires PBMs pass through all rebates to Medicare. A July report by U.S. General Accounting Office shows PBMs returned 99.6% of rebates in 2016, the most recent data available.
Tracking rebates to nongovernment-based plans is trickier because the industry is not required to report the information, Taylor said.
The Pew Charitable Trusts study said a survey of PBMs and health plan officials revealed 91% of rebates were passed through to the plans. The information is based on self reports so outside researchers cannot independently confirm the data.
"There are estimates of how much PBMs receive back in rebates, but because there is no requirement for disclosure of that information, at least to researchers, ... it's hard to say," Taylor said.
Spread pricing controversy
Spread pricing -- where PBMs charge insurers a set fee for each medication and share a portion of the fee with pharmacies that dispense the drug -- is also controversial because there is no oversight or transparency.
The contracts between the PBMs and managed care organizations, or MCOs, that provide care for Pennsylvania's Medicaid clients are private, so the state cannot review the terms to see what percentage of the fees PBMs keep as profit.
In a 2018 report, state Auditor General Eugene DePasquale raised concerns PBMs were making excessive profits from spread pricing. He believes those excessive profits partly contributed to a huge spike in Medicaid prescription spending, which jumped from $1.41 billion in 2013 to $2.86 billion in 2017. He cited a 2018 report by Ohio's auditor general that found PBMs charged Medicaid $224.8 million more than it paid pharmacies in one year.
Prompted in part by DePasquale's concerns, the state Department of Human Services altered its contracts with MCOs to require them to report the difference in what they paid PBMs and what the PBMs paid to pharmacies for each claim starting in January 2019.
The Sunday Times filed a Right to Know Law request in September for the department's findings.
In its reply this month, the department reported four PBMs had spread pricing contracts with MCOs for at least part of 2019 -- CVS Caremark, OptumRX, Express Scripts and EnvolveRX. The other three MCOs had "pass through" contracts, which means the PBM earned money through an administrative fee charged to the MCO.
Together CVS Caremark, OptumRX, Express Scripts and EnvolveRX charged MCOs $62.55 million more for medications than the PBMs paid to pharmacies. The state human services department did not break out how much each of the PBMs shared in the total billed.
The department also noted the combined amount the four PBMs earned through spread pricing decreased each quarter last year, from $26.92 million in the first quarter to $21.97 million in the second quarter and $13.66 million in the third quarter. That is because all but one changed to a pass-through pricing model during the year. As of January, EnvolveRX is the only PBM still using a spread model.
Advised of the department's findings, DePasquale said he cannot say whether the $62 million in fees is a reasonable charge because he has no prior figures for comparison. The state never gathered that information before.
He also wants to be able to audit the numbers, which the MCOs self-reported, to ensure their accuracy. Proposed legislation that would give him that access is pending.
"I'm glad the numbers are starting to come out, but there is a lot more work that has to be done here," DePasquale said. "Other auditors and agencies are not able to independently verify these numbers. I'm not saying they're not accurate, but there is nothing to compare it to. ... I have to have access to audit the contracts."
He is pleased to see MCOs are moving away from spread pricing contracts. He still advocates for legislation the state House of Representatives passed in November to ban spread pricing in the Medicaid program.
The bills, which are now before the Senate's Health and Human Services Committee, also would give DePasquale the authority to audit the contracts and prohibit PBMs from enforcing a gag clause that prevents pharmacists from advising patients of less expensive options to obtain their prescriptions.
State Rep. Doyle Heffley, R-122, the prime sponsor of one of the House bills, said there has been some pushback from the PBM industry.
"The PBMs like the system as it is now," he said. "They are profitable companies and they don't feel there is a need for any change. Medicaid is not set up to be a profit-maker for any one entity. It's set up to provide services to citizens."
Lopes, the PCMA spokesman, said in an email that the organization "looks forward to continuing to work with Pennsylvania policymakers on the legislation and real solutions to reducing prescription drug costs."
"The core mission for pharmacy benefit managers, PBMs, is to reduce prescription drug costs and improve health care quality for patients," he said.
DePasquale said he is hopeful the Senate will work expeditiously to review the bills, which he believes will address his key concerns with PBMs' practices.
"The main point is the entire system doesn't make sense," DePasquale said. "They are making money hand over fist. I'm not convinced Pennsylvania is benefiting from that."
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Frequently asked questions
What is a pharmacy benefit manager?
Pharmacy benefit managers, or PBMs, act as middlemen who administer prescription programs for private and public health insurance companies and the taxpayer-funded Medicaid and Medicare programs that insure senior citizens, the poor and disabled.
Who are the major players?
There are three major PBMs: CVS Caremark, OptumRx and Express Scripts. Collectively, they cover 76% of the market nationwide.
Who owns the three major PBMs?
Insurance companies own the top three PBMs. Aetna owns CVS Caremark, United Health Care owns OptumRX and Cigna owns Express Scripts.
How much do PBMs earn?
The three top PBMs were on Fortune 500's list of top-earning companies in 2019. United Health Group, which owns OptumRx, ranked sixth with $226.2 billion in revenue. CVS Health, which includes CVS Caremark and its pharmacy operations, ranked eighth with $194.6 billion in revenue. Express Scripts ranked 22nd with $100.3 billion in revenue.
What role do PBMs play in Pennsylvania's Medicaid program?
In 2019, the state Department of Human Services contracted with seven managed care organizations to provide health care to Medicaid patients. The MCOs subcontracted administration of prescription benefits to four PBMs: CVS Caremark, OptumRx, Express Scripts and EnvolveRX
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