PBMs cash in on contract loopholes

Each year, PBMs swindle governments, employers and insurance companies out of big bucks by deliberately misleading clients in their contracts.

Do you know what a “branded generic” is? It’s a clever term invented by PBMs. We all think “generic” means cheaper—right? Well, yes. But, no, not when it’s a branded generic.

Say what? Exactly. It’s an intentionally misleading term in contracts that bilk unsophisticated, trusting clients.

Manipulating the way they categorize drugs enables PBMs to line their wallets by charging higher brand prices for generics, classifying generic drugs as brand drugs in order to keep rebates/kickbacks from drug manufacturers rather than passing them on to employers or insurance companies, and essentially lying about generic drug utilization rates so they can attract more customers.

Most payers are unaware of this issue until after the fact, when they find out through an audit they’ve been bamboozled. At that point, there’s little they can do to resolve it. [We need to point out that too few employers know how to audit a PBM contract. More to come on this problem!]

The large PBMs’ response to this issue is that their manipulative behavior is the industry’s standard.  Well, no kidding, if by industry standard they mean always looking for a profit on the backs of those they are supposed to serve.

PBMs prey on the desperately ill

There is only one drug available to save your child’s life and only one seller. What price would you be willing to pay for it?

PBMs like ExpressScripts actually interviewed pediatric neurologists to determine how much they money they could get by with charging for a specialty drug for which they have exclusive distribution rights. Where’s the Federal Trade Commission? Or an even better question: What ethical compass guides the guys at ExpressScripts?

As reported by the New York Times, ExpressScripts arbitrarily raised the price of a vial of H.P. Acthar Gel, a drug used to treat a rare, severe form of epilepsy from $1,600 a vial to an astonishing $23,000!

The drug in question is part of a category called “specialty drugs,” medicines needed by relatively few people but are critical to the health of those people. So who picks up the tab for this extraordinary cost? Employers and patients, of course.

A PBM is supposed to negotiate with manufacturers to obtain drugs as discounted prices on behalf of employer-sponsored health plans. But when PBMs begin acting as exclusive drug distributors for lifesaving drugs, it’s an obvious conflict of interest. Along with rebates they get from manufacturers, this is just another way PBMs control access to medications, not because it’s actually best for patients, but because it is best for the PBM’s bottom line.

While these profit-mongers claim to keep healthcare costs down for their customers, exclusive drug distribution deals pose an obvious conflict of interest. Since specialty drugs have no generic equivalent and an ever-increasing chunk of PBM revenues comes from the monopolization of specialty drugs, it is hard for these companies to argue that they are looking out for the people they are supposed to serve.

Pity the Poor PBMs: Their Record-Breaking Profits Are at Risk

Medco Health Solutions Inc., (MHS) the nation’s largest pharmacy benefit manager, reports a six-fold jump in first-quarter 2007 earnings. Revenue reached $11.16 billion, up 5.6 percent from $10.56 billion.

Express Scripts (ESRX) is doing so well it announced a two-for-one stock split. Adjusted gross profit for the first quarter increased 21 percent to $417.1 million from $344.6 million last year. Adjusted gross profit per adjusted claim was a record $3.26, a 28 percent increase over $2.55 for the same quarter last year.

CVS/Caremark is both a retailer and a PBM now. They’re now the alpha and omega of PBMs, so other than noting they too had record profits, it’s not exactly comparing apples and oranges.

These strong profits are in some peril, as they note in their “safe harbor” statements to investors. They are afraid of government efforts to demand transparency and auditing rights. These are the same guidelines adopted by the HR Policy Association representing more than 250 of the nation’s largest employers. Medco, CVS/Caremark and Express Scripts all have signed on to these requirements, but the weight of the “white hat” approach may throw them off their horses in the long run. As more employers, both private and government, enter into new contract negotiations, the PBMs can see their profits sinking.

PBMs also face a lawsuit that could subject them to claims under ERISA if they are found to be a fiduciary of a health benefit plan governed by ERISA.

The writing is on the wall for PBMs if they continue to operate in their current fashion. But they’re known for their adaptability and ability to siphon health care dollars. We’ve already seen the CVS/Caremark merger. What do you think their next incarnations will be?

How Do We Disclose the Secret About Pharmacy Benefit Managers?

Try this. Ask the next 10 people you encounter if the know what a pharmacy benefit manager is. Your humble Blogmaster is willing to wager no more than nine will know. Now, don’t cheat and talk to people in the industry! But even that may not be a guarantee they will know what a PBM is.

Last spring we conducted a series of focus groups to determine just this question. Well, out of three groups—one with human resource managers, one with small to medium business owners, and one comprised of seniors—not a single person had heard of a PBM!

What should be done to make people aware that their access to medications is being controlled by a third party with pockets stuffed with our healthcare dollars?