Impact on Plan Sponsors

Plan sponsors, or payers, contract with PBMs to administer prescription drug benefits for their plan’s beneficiaries. Yet, even large plan sponsors can have a tough time determining whether they are being overcharged as the non-transparent nature of many PBMs makes it difficult to ascertain whether rebates are being properly shared, whether the PBM is charging the plan a higher cost for a medication than it paid the pharmacy, known as spread pricing, or whether the PBM is classifying a brand as a generic or vice versa to benefit the PBM. As Robert Restivo, Director of Benefit Strategy of General Dynamics, noted in testimony before the Employee Income Retirement Security Act (ERISA) Advisory Council in 2014. "PBM contracts tend to be one-sided and include sharp limitations on client access to data."

The Fortune magazine bombshell "Painful prescription: Pharmacy benefit managers make out better than their customers," highlighted the practice of spread pricing, or the PBM charging the plan sponsor a higher amount than what was paid to the pharmacy. The article notes that according to Susan Hayes, who has audited more than 100 PBM contracts for her auditing and consulting firm Pharmacy Outcomes Specialists, "PBMs effectively pad bills by $8 to $10 a prescription."

While PBMs claim their clients have extensive audit ability to ensure contract compliance, Kenneth Bruhnsen, Assistant Director of Benefits Administration, speaking on behalf of the University of Michigan before the ERISA advisory council in 2014, highlighted some problems with verifying PBM revenue to evaluate whether they are truly receiving the best value. He testified that while his organization did audit a large PBM on rebates there were roadblocks "we selected a national auditing firm and found it took two years to negotiate (with the PBM) the agreement to audit."

Such difficulties for plan sponsors to audit their PBM make transparency principles all the more crucial.

View the following articles for more information on how the lack of PBM transparency affects plan sponsors