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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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  1. 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, in my opinion, full and proper disclosure which is a serious ethics violation in my book.
    Bob, I know you are licensed with Fortis. I mean who isn’t? I’m told there are 180,000 licensed agents. I know exactly what you have been sent. If I were to guess you are an appointed GA, unless your production is so worthless that you don’t qualify anymore. My ring does say Fortis which means Steadfast in Latin. I got it in Rome in 1994. But I found out that I had the first MSA in Paris in 1996. The next meeting is in New York, maybe I’ll see you there, fat chance. Only the top 100 agencies are invited and now I go as a spouse. My name tag says, Spouse”. The top agencies also get dedicated underwriting teams so I do feel sorry for you. The difference between you and I Bob is you put people on dangerious group health plans that they lose if they become too sick to work and I have never put anybody on one in my life. If it’s an employer with 20 employees who insists on putting themselves and employees on a dangerious group health plan, I just throw them away. You on the other hand will “sell” them that crap and laugh all the way to the bank.
    Fortis is the largest individual carrier in America that is in 43 states. You know we also have “group plans” and until this year more people were covered by group than “Individual Medical.” Those days are already history. I will admit in the press they are as quiet as church mice as they corner the North American market share. They have been planning this for a while now. Name another carrier that has a dependent conversion priviledge for dependent children where the sick child can move to 43 states and keep their insurance at “Standard Rates,” you can’t. How many sick children have lost their health insurance because of you Bob at a majority age or when they are no longer “Full Time” students (that means 12 credit hours)? You are smart Bob but you just want to make money and play golf and have no problem putting poor little children in danger. But other than that I like you and you should correct Matthew’s propaganda.
    Hey Matthew, do you mean like this? A Republican from Michigan, that doesn’t surprise me, has legislation to open tax free HSAs in Medicaid on a national level. Also Blue Cross of Michigan is bailing on you and the Liberals, big time, that doesn’t surprise me either. Soon you will be the only one left being negative on tax free HSAs and they can print your articles in England where the consumers are so dumb.
    Rep. Mike Rogers (R-Mich.) introduced a bill yesterday that would create health savings accounts for Medicaid recipients nationwide.
    http://www.hillnews.com/thehill/export/TheHill/News/Frontpage/091405/nrcc.html
    Almost half of Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan participating physicians have registered with the Council for Affordable Quality Healthcare
    http://biz.yahoo.com/prnews/050914/dew025.html?.v=22
    When traditional insurance coverage is denied, patients may decide to go ahead with treatment anyway, and pay for it out of health savings accounts.
    Medical News Today (press release), UK – 5 hours ago
    http://www.medicalnewstoday.com/medicalnews.php?newsid=30596
    Also Bob, don’t imply that a rate up is bad. When one of your workers is fired and their COBRA extension is $850 a month, many of them would love to get by with a rate up. If the mother is $80 a month and the husband is $60 a month, on “depression medication”, and the two children are $30 each, the total HSA premium is only $200 a month with the security of individual insurance. If they take your over-priced COBRA for 18 months and the wife gets ovarian cancer what happens to your dangerious COBRA on the last month? A 25% rate up on the husband’s part of $60 a month is only $15 a month or a total premium increase for the family of $215 instead of $200 a month. You can play your games with these other people but that’s a stupid arguement to me. I just wonder if you tell the business owners, that you sell these group health plans to, that if they have a heart attack and want to sell their business and move to Florida, that they will be terminated off the group health plan? If you are disclosing this fact to them and they still purchase from you, then they deserve what you sell them.

  2. 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.

  3. 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.

  4. 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 of CA rated him up over 500% because of his knee. We would rate up 25% in Michigan. But Matthew can now say “500% rate up”. We never do that.
    So our numbers are pretty close Bob.

  5. 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.

  6. 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 they lose if they become too sick to work, like you sell.
    Matthew, print your rules for all to comply with. Some of your regular commentors use many words and stray off topic. Of course if they desire a single payer system then you don’t care. It’s only those who prefer Republican health care reform that are restricted and constantly belittled. Distroying the comment threads, that is simply your opinion Matthew. Why don’t you actually argue against the HSA concept instead of all this crying? You would have really been upset and bad mouthed the MSA back in 1997. I could have told you then it would be passed for all and you would have disagreed. Well, here we are. And you call yourself a futureist. This is ancient history now Matthew.
    You should print this article from Florida and argue against the math Matthew.
    http://www.tallahassee.com/mld/tallahassee/news/local/12621338.htm
    ezra by the way, has e-mailed me and I can come back, like who cares. The rule is I can’t say anything bad about Democrat health care proposals. Censored blogs are boring, he can keep his liberal blog with one point of view. ezra isn’t smart enough to argue his position which you could, I would think.
    Just limit everyone with 200 word comments or something goofy like that.
    Heck Matthew, some of your arguements are so twisted, like your Zombie HSA post, it took more words than I have ever used here. You should keep all your comments to 200 words too, just to be fair.

  7. 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.

  8. 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.

  9. 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.

  10. 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%?

  11. 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 tax-advantaged healthcare savings accounts (HSAs) to waive deductibles for preventive medications — including cholesterol and blood pressure lowering drugs, osteoporosis medications, weight loss and smoking cessation agents, vaccines and immunizations, contraceptives, prenatal vitamins, prescription sunscreens, and fluoride supplements. Medco clients offering HSAs now have a mechanism to encourage use of preventive medications while maintaining compliance with IRS rules for tax-exempt contributions.”//
    It’s always about tax free HSAs Matthew. We need these people to be smart because this is who we use.
    //Medco Health Solutions, Inc. (NYSE: MHS – News) is a leader in managing prescription drug benefit programs that are designed to drive down the cost of pharmacy healthcare for private and public employers, health plans, labor unions and government agencies of all sizes. With its technologically advanced mail-order pharmacies and its award-winning Internet pharmacy, Medco has been recognized for setting new industry benchmarks for pharmacy dispensing quality. Medco serves the needs of patients with complex conditions requiring sophisticated treatment through its specialty pharmacy operation, which became the nation’s largest with the 2005 acquisition of Accredo Health. Medco, the highest-ranked prescription drug benefit manager on Fortune magazine’s list of “America’s Most Admired Companies,” is a Fortune 50 company with 2004 revenues of $35 billion.//
    http://biz.yahoo.com/prnews/050912/nym032.html?.v=24

  12. 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. Your report will be shoved under some rock, trust me. Governor Granholm is paying $1,000 a month for family health insurance for each state employee. That’s 500% more than the cost for individual HSA health insurance, in the free and open market, for a majority of their insured. It’s billions of taxpayers’ dollars waisted.
    The state of Michigan could offer to employees: If employees drop their cost down to the extremely low cost of HSA individual health insurance, that pays 100% on Rx instead of your current never ending co-pays, the state will give you 2 new Dodge Chargers.
    Michigan would save over $200 a month on many families if they took the new cars. That would save a mountain of saved money for the state and people would be busy like beavers making new cars. I would rather the Germans got the tax payer money than Michigan’s most politically connected insurance company.
    Governor Granholm is not up on any ideas to take any money away from the status quo in health care. She didn’t even mention health care in her SOTS speech. Yet everyone says she has the highest unemployment in America becuase of health care. We used to advertise, There’s a storm coming, Reform is coming. Now it’s Reform has begun. Governor Granholm better bone up on health care reform real quick.

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

  14. 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 transparency. At present, PBMs may stipulate that they will return x% of their rebate to the employer, but the employer does not have access to PBM data that would confirm or disprove the accuracy of the PBM’s numbers or rule out the possibility of undisclosed rebates. So it’s probably not sufficient for employers to insist on rebate data. The only reliable and sufficient measure would be to require that all rebates be publicly disclosed. The prescription drug market is an artificial construct, and there’s no reason not to set rules that enable it to function more effectively.

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