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.