Three pharmacy benefit managers (PBMs) control 80 percent of the third party claims processed for prescription drugs nationally. Employers, insurers, states and federal government agencies and others who pay prescription drug benefits for employees and beneficiaries need to be aware of the PBM industry to be assured they are being charged accurately for this valuable benefit.
This is especially imperative to West Virginia. The West Virginia Public Employees Insurance Agency (PEIA) found it was being charged one-percent more for a prescription drug claim than the PBM was paying the pharmacy. This was discovered after WVPA Executive Director Richard Stevens encouraged the Director of PEIA to have the PBM audited. This illegal practice had gone unnoticed for about a year, and was found to be approximately $10 million. The case was settled in Kanawha County Court.
For the second time, PEIA officials revealed it had been charged a greater amount than it should have been at a December 2017 PEIA Finance Board meeting upon questioning by Stevens. PEIA officials believe this overcharge may be as much as $4 million.
The key for any employer to be charged accurately for prescription drug benefits and save money is to define PBMs in state law and to define them as fiduciaries. It is a fact based on the following evidence in this summary that PBMs drive up the cost of prescription benefits, which in turn drive up healthcare costs.
PBMs are for-profit middlemen working to increase their profits at the expense of payers, i.e,, the state, state employees and teachers, school districts, unions and business.
Changing state law to mandate PBM transparency will give payers across the public and private spectrum access to more informaiton such as, the PBMs actual reimbursement paid to their pharmacy network that will help them make better, more informed decisions. In this time of fiscal peril for the state and it’s economy, enacting PBM transparency into law becomes a clear imperative.
What is a PBM and where would the savings come from?
Intermediary: The PBM is the intermediary hired by a payer (i.e., the state, school district, health plan or private business) to ‘manage’ the pharmacy benefit for covered individuals.
Transparency will shine the light on savings: PMBs created a gap between how much the pharmacy is paid and how much the payer is billed. The difference can be significant and surprising. (Refer to above experience by WV Public Employees Insurance Agency.)
PBMs claim they control costs, but consider this: The three largest PBMs cover more than 80% of beneficiaries enrolled in Medicare Part D. Since 2006, Part D premiums have increased 60%, an average of 12% per year, despite the fact that beneficiaries — not PBM’s — pay the full costs of their medications during the ‘donut hole.’
PBMs generate profits by hiding spreads on generic and branded drugs by using different reimbursement methodologies for ‘reimbursing’ pharmacies versus what they ‘bill’ payers, and multiple contracts allow PBMs to protect information they consider ‘proprietary.’
PBMs have multiple contracts among different entities for the same program. For example:
- Pharmaceutical manufacturers: rebates, which drugs will be ‘preferred’ and under what terms, value of increasing market share, data reports;
- Local pharmacies: criteria for participation, payment policies, quantity limit; co-payments collection and policies;
- Payers generally: billing and payment policies, reports, administrative services, policies for sharing rebates and providing beneficiaries’ benefit cards, describe coverage policies and participating pharmacies, quantity limits at retail, mail order option and/or mandates, copayment amounts and policies.
PBM transparency has never increased costs. In fact, evidence based upon Innoviant’s Book of Business data supports significant savings can be achieved through greater PBM transparency and the use of retail pharmacy versus mail order.
PBMs have wholly-owned mail order and specialty pharmacy subsidiaries and increase their corporate profits by increasing the valume of prescriptions filled through mail order. If mail order programs actually save money for payers, PBMs would not nothing to fear from a new law mandating transparency.
Today, even the most astute buyers of prescription drug benefits do not fully understand their bills from PBMs. Here are some of the ‘tricks of the trade’:
- The use of Multiple Allowable Cost (MAC) lists: Pay the pharmacy according to the PBMs MAC list yet bill the payer according to an AWP Reference Price which allows for hidden ‘spreads’ on generic drugs which means profit for the PBM.
- Manipulate the Average Wholesale Price (AWP): AWP is an industry-wide published benchmark for pricing prescription medications AWPs are established by the manufacturer, and are considered ‘true AWP’. PBMs exploit a loophole in federal law to inflate the AWP value by 25% or more (false AWP). When a PBM offers a deep discount off ‘AWP’, the payer assumes that AWPis a constant value and is thereby deceived. It is important to mnote than when pharmacies purchase their inventory, their benchmark is the manufacturer-established or ‘true’ AWP, and PBMs pay pharmacies at ‘true’ AWP. PBMs use ‘false’ AWPs when they bill payers.
- Manufacturer rebates: Numerous court cases have revealed that as a rule PBMs retain some rebate revenues by re-naming them as ‘administrative fees’. For example, the New York State Attorney General’s lawsuit against Express Scripts on behalf of the state employee’s Empire Plan.