I’ve reported before on the suits against Caremark and Medco for all kinds of alleged shenanigans in drug pricing, rebates and other activities kept away from their clients’ eyes. There’s a bumper crop of news this week about the same topics. The latest version of Government Health News reports that the attorney general of Ohio has jumped in with his own suit accusing Medco of slanting drug purchases towards its (former) corporate parent, Merck. Meanwhile 2 unions in New York State are accusing Express Scripts of keeping rebates that it didn’t tell them about. Finally another study in the Journal of the American Pharmacists Association reports that PBMs have been overcharging on the spread between wholesale and customer prices for generic drugs.
It’s been fairly common knowledge around the drug industry for many years that not only are PBMs getting rebates to influence which drugs end up on their formulary, but that much if not most of the rebate money doesn’t go all the way back to the clients, and in fact is a fairly substantial chunk of the PBMs’ bottom lines. As I’ve opined before, whether or not it’s a legitimate business practice as the PBMs claim, when Medicare becomes the client that type of behavior is not going to survive the scrutiny of any even half-hearted Congressional investigation. At that point I find it hard to see how PBMs become little more than claims processors, and I’d expect their PE ratios to fall to match. The question is whether they can increase their revenues enough by adding the volume from Medicare clients to allow their stock prices at least to tread water. I doubt it, but it’ll be an interesting subtext in the implementation of NAIM.