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PBMs: Are the rebate chickens coming home to roost?

Friday’s news that Caremark was settling with the Feds over a whistle-blower over rebates at AdvancePCS gave me some pause for thought. For a start, the number is $135m, and for a relatively low margin business like a PBM, that’s not nothing — especially as this was just for Federal employees and there are a hell of a lot more state employees than Federal ones (not to mention private sector employees) waiting in the wings with their lawsuits. AdvancePCS (which Caremark bought after the bad deeds were already done) was taking rebates — or what the rest of us might call bribes — from pharmaceutical companies to move volume from one branded product to another, and then hiding those rebates as administrative charges rather than passing them on to their clients. When the client is the Federal government, that effectively becomes fraudulent in a way that a smart whistle-blower (or in this case three of them) can can file a Qui Tam suit about it and become millionaires. But many similar suits are pending and many private clients of the big PBMs may start wondering how much of the rebates that the PBMs got were they passing along.  And the answer is not much.

It gets worse, in that a recent study by the University of Michigan found that their PBM was not only taking rebates to move market share from one branded product to another, but was working with big pharma to move share to branded products from generics! In other words although they were supposed to be acting as the University’s agent to reduce its drug costs, the PBM was taking money from pharma and the result was that their client ended up paying more.

I’ve been working on a piece that highlights some more of these cases and which has some numbers (all publicly available) to back them up. I’ll let that do most of the talking when it’s out in a few months. However, many of the games that the PBMs have been playing to make money are being found out.  Of course they still have the advantage of being able to buy drugs in great bulk and they still run highly efficient and profitable mail-order facilities, to which their clients are captive (even if their clients don’t understand quite why their that profitable).  Meanwhile the transparent PBM movement is in its infancy, so I’m not exactly sure that their gravy train is running off the tracks. But I think this settlement marks a big change in how PBMs have to behave, especially as come next year they’ll be working for the government a whole lot more.  Watch this space.

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Matthew HoltRon GreinerBobTomHilliard Recent comment authors
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Ron Greiner
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Ron Greiner

Matthew, I’m out of here. It has nothing to do with the way you try and control comments to a particular Point Of View (POV), or how you always label me with some rude comment even in your primary posts. I just don’t have the time anymore. Sure, I will read your stuff, maybe, and possibly throw out a “quick” comment but probably if you say something twisted about the tax free HSA somebody else is going to have to correct the obvious lies. So have at it. Bob is pretty smart but he sells dangerous group health plans without,… Read more »

Matthew Holt
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Ron. New rules. Just post the press release URL if you must. I have no interest in having you reprint Medco’s boiler plate.
As Ezra says I pay the freight here, and I invite commenters from all points of view how ADD something positive to the discussion.
You haven’t done that for some time. Please try harder.

Bob
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Bob

RG –
I am aware of what Fortis does on underwriting. I have their manual and keep up with their bulletins.
What they do now on certain conditions is referred to as lasering in the stop loss business . . . just another way of forcing the client to self insure a portion of their coverage.
You must see only healthy people. I rarely take an application for anyone over 30 who isn’t on some kind of med that is potentially a ratable or exclusionary condition.

Ron Greiner
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Ron Greiner

Bob, Also Bob we just expanded condition specific deductibles nationwide. This simply means instead of an exclusionary rider for a problem it simply has a different deductible. Just more options for consumers. Yes, the country is a mess. Workers who become diagnosed and lose their coverage could pay a lifetime of higher premiums. People should be aware of the problems so they can make informed decisions. Some are saying 10% uninsurables but that’s too low. I think it’s about 20% and another 20% will have underwriting issues and possible rate ups, exclusions or condition specific deductibles. Matthew says Blue Cross… Read more »

Bob
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Bob

RG –
I never indicated 60% are uninsurable. About 60% of applications are either rejected totally, ridered or rated up. Most of the carriers here in GA reject 30 – 40% of submitted applications. Until recently BX made an offer on 96% of submitted applications . . . something unheard of on fully underwritten business. That figure has changed dramatically as their underwriting has become significantly more restrictive.
For a carrier to issue 40% of medically underwritten policies at standard rates without restriction is being very generous.

Ron Greiner
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Ron Greiner

Medco’s press release is right on topic Matthew. They claim to be America’s largest PBM and their adjustment for consumers and HSAs is perfect for this comment thread. Empowered consumers information is a Socialist’s drivel. Go ahead and scream that the truth is distroying your comments, get real. Bob, suggesting that 60% of all Americans are medically uninsurable is hog wash. If a company has 20 employees I won’t find 12 uninsuranbles. More like 4 is reality. But I don’t care if you are correct the healthy 8 should get the good stuff and be safe, instead of insurance that… Read more »

Matthew Holt
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Ron — Please consider my point about short paragraphs. And regarding the one-not tuba issue, this was about PBMs. It had nothing to do with Michigan state employees plan, as the university has its own plan. And it had even les to do with HSAs, CHDP, or anything else. I’m trying to be patient with you but no-one wants to read 20 paragraphs of irrelevant drivel in a comment, so you are destroying my comment threads.
Can you PLEASE limit yourself to one or two paragraphs, and try to stay ON TOPIC RELATED TO THE POST.

Bob
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Bob

RG –
Absent state mandates (which of course vary from state to state), the 60% figure is not out of line.
GA is a “free market” state with no restrictions on medically underwritten business. Most of the carriers, including the one you have fallen in love with, will routinely reject 30%+ of the applications. Another 30 – 40%+ will have rate-ups or exclusionary riders.
On a good day maybe 20% or so can skate with standard rates, no waivers or exclusions.
My guess is your preferred carrier would reject significantly more than 20% in a state where medical underwriting is prohibited.

Ron Greiner
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Ron Greiner

Bob,
If I were to guess the number of uninsurables on fully undwerwritten programs I would say, 20%. It might be a little higher in Michigan because state law requires no exclusionary riders so more are declined. But in Michigan there is “no medical underwriting” with one plan. So many families get four family members on the inexpensive good HSA individual coverage and only the one uninsurable pays too much with the state’s largest carrier, that is non-HSA qualifying.
We call it saving the family.
Saying 60% is way out of line, Bob. You know that.

Bob
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Bob

RG –
How many MI employees & dependents would be left out of the loop on fully underwritten individual health insurance? 10%? 20%? Or how about 60%?

Ron Greiner
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Ron Greiner

The largest PBM is what we use and guide. Breaking news: //FRANKLIN LAKES, N.J., Sept. 12 /PRNewswire-FirstCall/ — Highlighting the importance of preventive medications in reducing overall healthcare costs, Medco Health Solutions, Inc. (NYSE: MHS – News) today announced major additions to its consumer-directed pharmacy plan that promotes the use of preventive and chronic medications by lowering the out-of pocket costs of these drugs to consumers enrolled in high-deductible health plans. The new programs will be available for use in 2006 benefit packages. Medco’s new preventive medication program capitalizes on a recently enacted Internal Revenue Service (IRS) code provision allowing… Read more »

Ron Greiner
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Ron Greiner

Matthew, you wrote//in that a recent study by the University of Michigan found that their PBM was not only taking rebates to move market share from one branded product to another, but was working with big pharma to move share to branded products from generics! In other words although they were supposed to be acting as the University’s agent to reduce its drug costs, the PBM was taking money from pharma and the result was that their client ended up paying more.// This is what happens when the government buys health insurance, like the curruption at the University of Michigan.… Read more »

Bob
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Bob

TH wrote: “They’re no different from insurers who play the same game”
Please cite examples to prove your point.

TomHilliard
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Yes, this settlement does sound like big numbers. So it’s interesting that Caremark’s stock dropped by less than 1%. The investors don’t seem to be rattled. This scandal has been out in public for at least a decade. I recall a colleague at the NYC Office of Public Advocate who nailed several PBMS for steering market share to more expensive drugs, and that was back in 1997. But PBMs are something of a convenient whipping boy. They’re no different from insurers who play the same game. What we need is transparent pricing across the board. Also, there are levels of… Read more »