Reigning in PBM Mischief after Health Care Reform

1. Reigning in PBM Mischief after Health Care Reform David Balto david.balto@yahoo.com

2. The Role of Pharmacy Benefit Managers (PBMs) PBMs act as middlemen between individuals, plan sponsors and drug manufacturers. They have the potential to achieve significant savings by using the purchasing power of enrollees to bargain for lower prices and larger rebates from manufacturers.

3. The Role of Transparency • Plan sponsors and their enrollees don’t necessarily see these savings, though, thanks to a lack of transparency: • PBMs “play the spread,” charging plan sponsors more per prescription than what they reimburse the pharmacy for it. • PBMs do not necessarily pass on rebates to plan sponsors in the form of savings. • Without transparency, plan sponsors have no idea if their PBM is really saving them money.

4. Without Transparency, a “Layer of Fog” • The First Circuit court of appeals observed, in support of Maine’s PBM transparency legislation: • “Although PBMs afford a valuable bundle of services to benefit providers, they also introduce a layer of fog to the market that prevents benefits providers from fully understanding how to best minimize their net prescription drug costs.”

5. Behind the Fog, Fraudulent and Deceptive Conduct Between 2004 and 2008, the “Big Three” have paid over $370 million damages to states, plans and patients in five major court cases.

6. The Cases • United States v. Merck & Co., Inc., et.al – over $184 million in damages • United States v. AdvancePCS (now part of CVS/Caremark) – over $137 million in damages • United States v. Caremark, Inc. – pending • State Attorneys General v. Caremark, Inc. – over $40 million in damages • State Attorneys General v. Express Scripts – over $9 million in damages

7. Charges Include… Government fraud Secret rebates Drug switching Failure to meet state quality of care standards Kickbacks Submission of false claims Deceptive trade practices Repackaging …and more

8. Transparency is Growing in Popularity • Plan sponsors across the country have chosen to negotiate transparent PBM contracts to save money and shed light on these practices. • Corporations like Starbucks • The University of Michigan • Huge federal plans like TRICARE • Unions like New York’s DC-37

9. More States are Choosing Transparency… • Arkansas • Maryland • Maine • Texas

10. …and Achieving Significant Savings • An audit of the state plans in Arkansas found that the state had been overcharged $500,000 in just three months. • After enacting transparency legislation, the state saved $13 million.

11. An Model for Transparency in Texas • 2006 hearing on PBMs led to an audit report • Audit report found significant discrepancies: Two separate Employee Retirement System plans • Plan managed by Medco cost $994 per enrollee • Plan managed by Caremark cost $2737 per enrollee • Found other inefficiencies: • State could not conduct regular, meaningful audits • Unclear pricing structures

12. Texas Enacts Transparency In response to the audit’s findings, Texas enacted legislation requiring transparency for state plans. Texas anticipates savings of over $260 million.

13. The House Health Care Bill • PBMs must disclose to the health plan and to the Commissioner… An estimate of aggregate average payments under the contract, per prescription (weighted by prescription volume), made to mail order and retail pharmacies, and the average amount, per prescription, that the PBM was paid by the plan for prescriptions filled at mail order and retail pharmacists. • i.e., an estimate of “the spread”

14. An estimate of the aggregate average payment per prescription (weighted by prescription volume) under the contract received from all pharmaceutical manufacturers, including all rebates, discounts, price concessions, or administrative, and other payments from pharmaceutical manufacturers, and a description of the types of payments, and the amount of these payments that were shared with the plan. • i.e., rebate information that is not tied to specific drugs • The percentage of cases in which a generic drug is dispensed when available. • Percentage and number of cases in which individuals were switched from a prescribed drug that had a lower cost for the plan to a drug that had a higher cost for the plan, the rationale for these switches, and a description of the PBM policies governing such switches.

15. Model Transparency Legislation • A PBM shall provide all financial and utilization information requested by the covered entity relating to the provision of benefits to covered individuals through that covered entity. • A PBM shall disclose all financial terms and arrangements for remuneration of any kid that apply between the PBM and any prescription drug manufacturer or labeler, • This includes, “without limitation, rebates, formulary management and drug-switch (substitution programs, educational support, claims processing and pharmacy network fees that are charged from retail pharmacies and data sales fees.”

16. A PBM shall disclose to the covered entity whether there is a difference between the price paid to retail pharmacy and the amount billed to the covered entity for said purchase. • The covered entity may audit the PBM’s books and records. Source: NCPA

17. After Health Care Reform… • Use federal transparency legislation as a foundation. • Enact stronger legislation on the state level. • Encourage large public and private payers to look beyond the traditional PBM model.

18. Contact David Balto david.balto@yahoo.com (202) 789-5424