Pharmacy middlemen manipulating the system

Tighter regulation, greater disclosure could save millions

A RECENT FEDERAL LAW allows pharmacists to inform patients when the price of their medication is less than the copayment they would pay using their insurance. This is helpful to some patients using certain low-cost medication. But there are much bigger savings to be realized by limiting payments to pharmacy benefit managers (PBMs) who have gone unregulated and taken advantage of that fact.

Unfortunately, the current system lacks transparency and accountability, allowing for a conflict of interest that results in PBMs reaping excess profits at the expense of all of us – employers, those covered by insurance plans in the private market, and taxpayers for publicly funded insurance programs.

The three largest PBMs (CVSCaremark, ExpressScripts, and OptumRx) control 80 percent of the private insurance market.

Insurance companies –both private and managed Medicaid programs—use pharmacy benefit managers to maintain a network of community pharmacies and pay for medications and services the pharmacies provide. The PBM then bills the insurance company at a higher price and keeps the difference.  The insurer never sees what the pharmacy gets paid for dispensing the medication and the pharmacy doesn’t see what the insurer is billed. Only the PBM has access to this information. The lack of transparency allows them to manipulate the system to overcharge Medicaid managed care programs –-and therefore, taxpayers—for drug costs.

Gov. Charlie Baker and Marylou Sudders, his secretary of health and human services, have both called for saving on Medicaid costs.  If they are serious, they owe it to taxpayers to do a serious deep dive into PBMs.

The difference between what the drugs cost and what the PBM charges the state’s managed Medicaid programs is increasing exponentially. My analysis of the top 20 medications in the Massachusetts Medicaid Managed Care Plans revealed the spread from the 2nd quarter of 2017 to the 1st quarter of 2018 has increased by 160 percent.  For other drugs the spread has jumped at an even higher rate. There is evidence that similar results are occurring in the private insurance market as well.  The pharmacy benefit managers can hide this by attributing the increase to increased drug costs, but we have found that not to be the case.  We could literally save tens of millions of dollars in future Medicaid costs by regulating PBMs.

This is not unique to Massachusetts.  But some other states have been proactive.  Ohio, Texas, and West Virginia have already reduced, or are in the process of reducing or eliminating, the role PBMs have in their Medicaid programs.  An audit by the state of Ohio found PBMs were overcharging taxpayers there by roughly $250 million. Pennsylvania’s auditor general recently started a review of his own.

PBMs also charge insurance companies administrative fees and keep all or a portion of the rebates they collect from the pharmaceutical companies who make the medication.  This results in profits that are inconsistent with the rest of the health care industry and is why these pharmacy benefit managers are Fortune 10 companies. It is unacceptable that we allow this to occur when so many of our residents cannot afford the medications they need.

We can fix this broken system by increasing transparency and accountability through three specific changes:

  • PBMs should be prohibited from charging insurance companies more than they pay for medications and services. In the past they have refused to accept fiduciary responsibility.  That has to change.
  • PBMs should also be required to report to insurance companies any rebates, administrative fees, or any other revenue collected from pharmaceutical companies, as well as the percentage they keep for themselves.
  • Finally, PBMs should be required to submit to financial audits by certified public accounting firms that understand the pharmacy benefit manager business model.
Meet the Author

Todd Brown

Executive director, Massachusetts Independent Pharmacists Association
Without these changes pharmacy benefit managers will continue to reap excessive profits and we will all continue to pay the price.

Todd Brown is the vice chair of the department of pharmacy and health systems sciences at Northeastern University and the executive director of the Massachusetts Independent Pharmacists Association.