PBM Industry Reforms can Reduce Wasteful Health Care Spending, Protect Patient Choice of Pharmacy


American businessman Victor Kiam best described the small business owners’ mindset by declaring, “An entrepreneur assumes the risk and is dedicated and committed to the success of whatever he or she undertakes.” However, external forces can occasionally constrain even the most astute entrepreneur, as is the case with independent community pharmacy owners. These same forces needlessly inflate prescription drug costs for employers and health plan sponsors, while undermining patient choice and health outcomes.

Pharmacy benefit managers (PBMs) are hired by employers, government agencies, health insurance plans and unions to administer prescription drug plans. They morphed over time from simple claim adjudicators to gigantic drug middlemen operating a byzantine drug delivery system that benefits them at the expense of others. They reap windfall profits simply for processing claims and operating mail order pharmacies. In 2009, the three largest PBMs – CVS Caremark (which includes the CVS pharmacy retail chain), Medco Health Solutions, and Express Scripts – made $6.4 billion, $1.1 billion and $776 million respectively in profits. By contrast, independent pharmacies operate off of slim profit margins that are driven by prescription drug reimbursement. Despite the rising cost of many medicines, these rates have been declining for years.

Local pharmacists have a Hobson’s choice: accept onerous, non-negotiable contract terms dictated by PBMs or lose access to both new and long-term patients. When the contracts are signed community pharmacies are dragged into a profit-draining, bureaucratic abyss. If they have the temerity to complain, PBMs can often freely void the contract. U.S. Representatives Anthony Weiner (D-NY) and Jerry Moran (R-KS) introduced H.R. 5234, the PBM Audit Reform and Transparency Act of 2010; a bipartisan-supported bill designed to tackle some of the most egregious practices of the PBM industry. Its passage is a must. 

Why should patients and health plan sponsors care? This is a case-study of how conflicts-of-interests can distort the free-market as PBMs are both business partners and competitors of community pharmacies. This occurs because PBMs routinely push patients away from community pharmacies to the mail order pharmacies they own, even when it’s more expensive to the PBM’s client, the health plan sponsor. H.R. 5234 would prevent PBMs from mandating patients use a specific pharmacy if they have an ownership stake in it, and from providing patients with incentives that are only available to specific pharmacies they own.

President Ronald Reagan once said, “Trust, but verify.” Plan sponsors should adopt this philosophy when dealing with PBMs who claim to cut costs, but are unwilling or unable to disclose certain financial information to substantiate that assertion. In a breakthrough, thePatient Protection and Affordable Care Act health insurance exchanges that will be operational in 2014 require limited PBM disclosure of certain financial information in annual reports to the Secretary of Health and Human Services. Consequently, plan sponsors will be able to make more informed decisions. PBM transparency models are already being pursued through various public (i.e. U.S. Department of Defense) and private sector (i.e. The Lear Corporation) plans, which have achieved significant savings. H.R. 5234 makes PBM transparency universal, ergo one would expect that more savings can be achieved for everybody.

Clearly, there’s an appropriate role for oversight of pharmacists and other health care providers to guard against waste, fraud and abuse. However, PBMs never miss a chance to exploit an opportunity. They conduct seemingly predatory audits of community pharmacies, penalizing community pharmacies on mere technicalities to recoup the full cost of a drug and the dispensing fee, even when the patient receives their medication properly and as prescribed by a doctor. These overly-aggressive audits generate an additional revenue stream for PBMs, who pocket the money instead of returning or sharing it with plan sponsors. H.R. 5234 also attempts to rein in the runaway PBM audit locomotive.

The PBM industry is resolutely against H.R. 5234. They have been sitting in the catbird’s seat, as their profits have increased fivefold over the past decade, and will jealously guard the status quo. NCPA will not rest until H.R. 5234 becomes the law of land. We owe it to our members, patients, and plan sponsors.


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