PBM Resources

The information in this section is intended to summarize controversial PBM practices, provide a record of NCPA's efforts regarding PBMs as well as any bills that have been introduced or any laws that have been passed on a state level regarding their practices. This section also includes information about the ongoing FTC investigation of CVS Caremark.

Don't let the insurance company middlemen inflate costs and reduce the quality of health care. Support Federal and state efforts to regulate PBMs, as well as halt mandatory mail order in its tracks. Model state legislation, a listing of state laws concerning PBMs, a listing of lawsuits involving them and other resources are available for your use.

A Brief History

In the 1970s, coverage for prescription drugs began to emerge as an add-on to health insurance policies. PBMs started out as paper claims adjudicators and by the 1980s began to offer those services online in real time.

From that humble beginning, PBMs have grown into multi-billion middlemen and direct competitors to community pharmacies, beholden to Wall Street and not the people on Main Street and the pharmacies that serve them.

They tell physicians what drugs they can prescribe (a list of approved drugs known as formularies).

They extract money from drug manufacturers for putting their drugs on the formulary (rebates).

They tell patients what pharmacies they can patronize (restricted networks). They tell pharmacies how many pills they can dispense (usually a 30-day supply, while the PBM-owned mail order arm can dispense 90-day supplies).

They also dictate how much pharmacies will be paid for the drugs they dispense regardless of their acquisition costs (take-it-or-leave-it contracts).

Small business community pharmacies receive one-sided, take-it-or-leave-it contracts from major corporations like PBMs. The independent pharmacist may be forced to either dispense drugs at a financial loss or lose access to many longtime patients. Current antitrust laws prevent independent pharmacies from collectively negotiating contracts, as opposed to large pharmacy chains with greater leverage.

"Right now, if I say 'I'd like to negotiate,' the PBM will tell me the customers under their plan can go to the Walgreens down the street," Holly Whitcomb Henry, RPh, owner of Rxtra Care pharmacy in Seattle and past president of NCPA told CNNMoney.com. Brian Caswell, of Wolkar Drug in Baxter Springs, Kan. added, "The contracts have become egregious, with 15 to 20 pages of legal documents and red tape that we can't understand. As the PBM industry has shrunk to a handful of companies, they take more and more and give us less and less."

Some common, controversial PBM contract provisions include:

• Low reimbursement that fails to cover pharmacy costs and overhead, such as through "maximum allowable cost" or MAC provisions.
• It is increasingly common under PBM contracts for community pharmacies to have to dispense some drugs at a financial loss. Sometimes this occurs through the imposition of a Maximum Allowable Cost, or MAC, which acts as a cap on pharmacy reimbursement. Pharmacists are asked to sign PBM contracts without basic information about how MAC-based reimbursement rates are determined and updated. For example, PBMs often lower those MACs arbitrarily or swiftly when drug costs go down but raise MACs belatedly when drug costs increase.
• Restricted pharmacy networks that reduce patient choice.
• Some patients are limited from accessing their pharmacy of choice or are financially punished for having their prescription filled at a community pharmacy rather than a "preferred pharmacy," such as one owned by their health plan's pharmacy benefit manager, in particular a mail order facility. The local, community pharmacy is rarely, if ever, offered an opportunity to match or beat the price in order to remain "in the network" with the same access to those patients.
• Provisions that allegedly allow PBMs to increase their profits by redefining brand-name drugs as generic drugs and vice versa.
• PBMs can reap huge brand drug rebates by manipulating brand and generic drug definitions. For example, in its dispute between pharmacy chain Walgreens, PBM Express Scripts is reportedly seeking the right to unilaterally change the definition of "brands" and "generics." Such contracting schemes can further increase PBM windfall profits. In addition, the practice can greatly impact community pharmacy reimbursement as PBM contracts may pay pharmacies less for one drug than the other.
  

  Experts believe that this practice is very widespread and represents several percentage points in undisclosed PBM revenues, costing payers tens of millions of dollars annually.

  As Linda Cahn of Pharmacy Benefit Consultants writes in Managed Care, "...when it is in PBMs' interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate 'per brand drug claim,' it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates..."

• Egregious audit practices that harshly penalize pharmacies over minor technicalities.
• While legitimate oversight efforts are warranted, the pharmacy audits often set forth in contracts with PBMs and health plans have gone well beyond their intended purpose. Rather than concentrating on true fraud, audits often punish pharmacies severely for trivial issues (e.g., a busy physician misspelling a patient's name or writing the incorrect date).
  

  According to a 2011 survey of 1,850 community pharmacists, excessive PBM audits are decreasing the time pharmacists can devote to patients. Illustrating the compliance burden, 62 percent of respondents considered the audit requirements to be completely inconsistent from one health plan to another; 48 percent of pharmacists report auditors asking them to justify claims that are two years old or older; and, of the pharmacists who report having appealed a PBM audit, 81 percent describe that process as burdensome and unsatisfactory.

  PBMs can retain a significant or all "recoveries" from PBM-conducted retail pharmacy audits. The revenue and profit stream from pharmacy audits is not always shared. For more, read "Community Pharmacists Describe PBM Audit and Reimbursement Practices That Undermine Patient Care, Local Jobs."

• Delaying reimbursement of pharmacy claims to generate additional PBM revenue.
• PBMs sometimes delay reimbursement payments to pharmacies, sometimes referred to as the "float," in order to generate interest income with those funds.
  

  For example, during implementation of the Medicare Part D prescription drug benefit in 2005-2006, independent community pharmacists spent countless, uncompensated hours helping millions of seniors resolve problems utilizing their new prescription drug benefit. Even as pharmacists were helping these seniors, they reported having to wait many weeks for reimbursement for their prescription drug and dispensing costs from the sponsors of the Medicare Part D plans, mainly the major pharmacy benefit managers or PBMs. As a result, during this period hundreds of community pharmacies closed.

  Recognizing this, Congress enacted a bipartisan provision in 2008 to require timely, 14-day reimbursement by Part D plans to keep locally owned pharmacies whole. However, many pharmacists allege that the practice continues today in other health plans.

• "Gag clauses" intended to prevent pharmacists from speaking out.
• In order to deter community pharmacists from speaking out publicly, or to employers or other health plan sponsors, about unfair contract provisions, many PBM contracts include "gag clauses" that threaten a local pharmacy with termination of that contract should they complain about these practices and others.

Plans are often unaware that this is occurring due to a lack of transparency in contracts. That is, the PBM does not disclose to the plan how much they are actually paying the pharmacy nor that the PBM is pocketing the difference, or spread. The spread price is charged in addition to any agreed-upon maintenance fee between the plan sponsor and the PBM.

According to a report produced by the Creighton University School of Pharmacy and Health Professions, spread pricing generally averages $5.00/prescription but has run as high as $200.00. Because this is charged in addition to the maintenance fee covered by the contract, this increases the cost of the pharmacy benefit. Additionally, because plan sponsors are often unaware of how much a drug costs and how much a PBM should be paying, it is difficult for them to detect this practice.

In fact, during his May 10, 2010 presentation to Congressional staff, Mark Riley, Pharm D, Executive Vice President of the Arkansas Pharmacists Association, noted that he has spoken to over 160 employers and could count on one hand the number who knew that the price they were billed was more than what was paid to the pharmacy. This demonstrates that, when it comes to PBMs, ignorance on behalf of plan sponsors is bliss.

Such concerns have been a factor in litigation brought against the major PBMs. The PBMs have paid out $370 million to date to settle such claims.

PBMs operate large mail order facilities that historically have leaned toward dispensing costlier brand-name medications, and fewer lower-cost generic medications, when compared to local pharmacies. In 2010, PBM data indicates that community pharmacies dispensed generics 72.7 percent of the time while the big three PBMs' mail order dispensing facilities' corresponding "generic dispensing rates" ranged from 60.5 to 61.5 percent.

One explanation for this gap may be the big PBMs' pursuit of brand name manufacturer rebates. Industry analyst Linda Cahn has argued in Managed Care Magazine that PBMs reap huge brand drug rebates by manipulating brand and generic drug definitions: "...when it is in PBMs' interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate 'per brand drug claim,' it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates..."

For patients, employers and health plans, that difference adds up quickly. For example, IMS Health concluded that every two percent increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually. More broadly, a one percentage point increase in GDR was associated with a 2.5% reduction in gross pharmacy costs, according to an analysis of plan sponsor data from 2007-2009 for approximately 14 million beneficiaries.

"Besides affecting a client's aggregate drug costs, PBMs' drug misclassification enables them to falsely claim that they are satisfying brand and generic contract guarantees." - "When Is a Brand a Generic? In a Contract With a PBM", Linda Cahn, Managed Care, Sept. 2010

In addition, it is common practice for PBMs to push cost-sharing schemes that encourage patients to use PBM-owned mail order facilities. For example, a PBM may urge an employer or other health plan sponsor to absorb one month of the patient's usual co-payment (or 33 percent of the patients' total cost sharing responsibility) for 90-day supplies of brand-name drugs if the patient uses mail order as opposed to a local pharmacy. When health plan sponsors agree with such recommendations they effectively reduce the financial motivation for mail order patients to move away from expensive brand drugs.

"They aren't loyal customers. They're hostages, and they don't like it." – J.D. Power and Associates official describing patients in mandatory mail order pharmacy plans, Drug Topics article, Mar. 2010.

Study after study has shown that health plans that subsidize patient co-payments for drugs purchased from PBM-owned mail order dispensing to encourage the use of mail order actually pay more for drugs.9, 10, 11 Many pharmacy benefit consultants, the pharmacy cost experts health plan sponsors pay for advice, agree with these studies' findings.13

• Plans offering no mail-service co-payment incentives have a 6.6% - 18.7% lower cost share10
• The study's conclusions were consistent with previous studies and examined plans that utilized co‐payments as an incentive for members to use mail‐service pharmacies.9, 11
• These plans paid more for mail service medications; between 4.5% - 8.3% more overall.10, 11
• Plans promoting mail with co-payment incentives paid 21.4% - 25% more for generic drugs.10
• PBM SEC Reports between 2007 - 2010 state that generic dispensing ratios were lower in the mail-order channel than in the community pharmacy channel by 10.3% - 11.3%
• Over 96% of health plans offer mail order service for maintenance medications, but only about 19% mandate the use of mail order5
• PBMs will not guarantee on a dollar-for-dollar basis mail order promised savings because savings are seldom achieved
• Year-over-year mail order growth as a percentage of total prescriptions remains flat to negative because patients prefer retail channel

MAIL ORDER ADVOCACY RESOURCES

• Waste Not, Want Not - Examples of Mail Order Pharmacy Waste PDF (3M)
• Mail one page August(2)(3) PDF (131)
• NCPA Mail Order Presentation PPT (520k)
• False Savings of Mail Order Pharmacies PDF (108k)

"The health benefit provider, however, often has no idea that a PBM may not be working in its interest. This lack of awareness is the result of the fact that there is little transparency in a PBM's dealings with manufacturers and pharmacies." – First Circuit Court of Appeals, 2005.

Plaintiffs have included the attorneys general of dozens of states, unions, private industry, pharmacists and others. In many ways, the cases are symptomatic of the lack of regulatory oversight of the PBM industry as well as the absence of meaningful transparency for PBM clients into pharmacy benefits management.

The specific charges relating to fraud and deceptive practices have included:

• Switching patients to more expensive drugs to pad profits;
• Shipping or billing for medication that was never ordered;
• Breaching contractual/fiduciary responsibilities;
• Soliciting and receiving kickbacks from pharmaceutical manufacturers;
• Inflating the costs of generic drugs; and
• Cancelling prescriptions.

On-going Fed/State Litigation Regarding PBMs PDF (266k)

For additional resources, see "Federal and State Litigation Regarding Pharmacy Benefit Managers," compiled by the law offices of David A. Balto.

Almost no payers are maximizing potential generic drug savings. Generic drugs saved the health system $824B from 2000—2009 and $140B in 2009 alone. In 2011 & 2012, 6 of the 10 largest‐selling brands in the U.S. will lose their patents, enabling a windfall in generic savings. It is vital that health plan sponsors fully focus their attention on maximizing this savings strategy rather than less effective strategies such as mandatory mail order.

In 2009, Medicaid had $329 million of overspending as a result of underutilizing generics. Today, 7 out of 10 prescriptions are filled with generic drugs. The average price of generic drug is about one quarter of the average brand: $35.22 vs. $137.90. And there are plenty of opportunities to embrace generics savings. Approximately 80% of FDA-approved drugs are available as generic; 2.6B prescriptions are filled with generics annually. Generics account for 69% of all U.S. prescriptions but only 16 percent of all dollars spend on drugs. Step one for health plan sponsors is to challenge pharmacy benefit managers (PBMs) to significantly increase and guarantee generic dispensing rates (GDRs) rather than simply float on the market dynamics or push mail order.

In 2010, retail pharmacies dispensed generics 72.7 percent of the time while the big three PBMs' mail order dispensing facilities had generic dispensing rates of 60.5 to 61.5 percent.

For patients, employers and health plans, that difference adds up quickly. For example, IMS Health concluded that every two percent increase in generic utilization in Medicaid programs saves taxpayers an additional $1 billion annually. More broadly, a one percentage point increase in GDR was associated with a 2.5% reduction in gross pharmacy costs, according to an analysis of plan sponsor data from 2007-2009 for approximately 14 million beneficiaries.

One explanation for this gap between the utilization of generic drugs in community pharmacies vs. mail order facilities may be the big PBMs' pursuit of brand name manufacturer rebates. Industry analyst Linda Cahn has argued in Managed Care Magazine that PBMs reap huge brand drug rebates by manipulating brand and generic drug definitions: "...when it is in PBMs' interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate 'per brand drug claim,' it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates..."

Some PBM allies assert that the reason for this discrepancy in generic drug utilization is that mail order pharmacies dispense maintenance medications that often have no generic alternatives. However, total generic market share has risen significantly over the last five years, according to IMS:

• In 2006, the generic market share was just 63 percent; in 2010, it was 78 percent
• The prescription drug market available for generic substitution rose from just 70 percent in 2006 to 84 percent in 2010
• Twenty-two of the top 25 most-prescribed products in 2010 are generics, versus three brand drugs
• Within six months of brand patent loss, patients received the generic form of the drug 80 percent of the time in 2010. This compares to just 55 percent in 2006
• For patients starting therapy for chronic conditions in 2010, 3.2 million more patients started their therapy with a generic while 6.6 million fewer patients started therapy with a brand

Despite these trends, the difference between community pharmacy and mail order pharmacy generic dispensing rates remain virtually unchanged. Year after year, from 2007 to 2010, community pharmacies dispensed generics 10 to 13 percent more often than mail order.

Clearly, community pharmacies have established a generic dispensing rate that is the "gold standard" for the industry.

It is estimated that non-adherence to a medication regimen costs the healthcare system as much as $290 billion per year due to the need for patients to seek out costlier treatments such as hospitalization or emergency room visits for their condition which could have been prevented if they properly took their medication.

In fact, studies have shown that medication misuse is a significant cause of hospital readmissions and can be prevented in nearly two-thirds of all cases. Patients on complex drug regimens taking multiple prescriptions are at high risk for non-adherence.

Ten percent of cardiovascular patients make 11 or more pharmacy visits in 90 days, and have 23 or more prescriptions. To put this in perspective, the average number of retail prescriptions per capita was 12.6 in 2009.

As former surgeon general C. Everett Koop said "Drugs don't work in patients who don't take them." And independent community pharmacists play a key role in ensuring a patient properly uses their medication.

• A retrospective analysis of data published over 40 years found that in-store face-to-face counseling was the most effective at driving patient adherence followed by nurses talking directly with patients as they were leaving the hospital1
• Face-to-face counseling by a pharmacist is 2 to 3 times more effective at increasing patient adherence.2 This is due to the fact that independent community pharmacists are readily available as a resource to patients and can identify potential harmful drug interactions when a patient is prescribed multiple medications. These multiple prescription regimens have the added effect of complicating patient adherence, particularly if the refill dates for each prescription are different.
• Patient behavior indicates that certain patients prefer to access prescription medications via mail service and others through community pharmacy channels3
• Restrictive benefit designs that incentivize patients to use less preferable pharmacy channels may adversely affect patient convenience, which could have the unintended consequence of reducing medication use and adherence.4
• Fifty-eight percent of employers are using retail pharmacies to dispense 90-day supplies of medications,5 there is no need for any health plan sponsors to implement a mandatory mail plan design.

To further assist pharmacists in their work to maintain patient adherence, NCPA has launched the Simplify My Meds program for its independent community pharmacy members. The innovative adherence program provides pharmacists with the tools to help coordinate patients' prescription refills to a single day of the month among other resources.

"As much as 5% of prescription drug spending is retained by PBMs."—Congressional testimony of Susan A. Hayes, Pharmacy Outcome Specialists, June 24, 2009

Without transparency there is no way to verify a PBM is sharing manufacturer rebates, the amounts of those rebates or that the PBM is negotiating the lowest possible costs for specific drugs.

Current proven savings:

• Texas estimates savings of $265 million by switching to a transparent PBM contract for state employee drug coverage.
• The University of Michigan saved nearly $55 million by administering its own plan.
• TRICARE anticipates savings of $1.67 billion by negotiating its own drug prices and rebates for its 9 million beneficiaries rather than going through a PBM.

FOR MORE SEE

Clarity: Top 10 Ways Secretive PBM Practices Drive Up Health Care Costs

• Presentation PPT (962k)

Demonstrated Savings from PBM Transparency Appendix A

10 Questions Company Benefits Managers Must Ask Their PBM PDF (1M)