Time to rein in pharmacy benefit managers

November 09, 2009

As appeared in Federal Times
Bruce T. Roberts, RPh
Executive Vice President and CEO
National Community Pharmacists Association

Health care reform is dominating the government’s agenda, but is enough being done to improve the federal government’s own health plan? 

When it comes to transparency, our government is the world’s crown jewel. Informing Congress and the public about programs is a high priority. Senior employees even disclose personal financial holdings and recuse themselves from conflicts of interest. 

So imagine a $10 billion program that affects almost 8 million lives. Its costs have soared 69.3 percent in the past eight years and more increases are forecast for 2010, again outpacing overall inflation. The Office of Personnel Management’s inspector general, who is ostensibly in charge of overseeing the program, is denied access to the data to do his job, a complaint that has been lodged repeatedly since 2003. Seems too incredible to be true, right? 

Sadly, federal workers and their dependents don’t have to imagine. They just have to review their pay stubs. 

The Federal Employees Health Benefits Program (FEHBP) prescription drug benefit is valued at $10 billion annually. It’s administered by CVS Caremark and Medco Health Solutions Inc., two of the three largest pharmacy benefit managers (PBMs). 

Billion-dollar middlemen, PBMs have experienced enormous growth, fueled by their ever-increasing share of prescription drug transactions. PBMs pay pharmacies one price for dispensing a drug, then charge the plan sponsor much more. In addition, they pocket large portions of discounts or rebates from drug manufacturers before passing the rest on to plan sponsors and patients. 

Fortunately, Congress is stepping in for what amounts to the largest employee-sponsored health insurance program in the U.S. The Office of Personnel Management’s inspector general, Patrick McFarland, believes cost savings can be achieved through greater transparency of PBM transactions. In fact, during a June hearing he testified: "There’s a good chance we’re not getting a good deal because of the lack of transparency." 

McFarland highlighted concerns about secrecy, fraud and abuse by PBMs, and the need for rethinking the management of prescription services for the federal workforce. He called for further disclosure of pricing data, that payments to PBMs be based on actual administrative and drug costs, not inflated amounts, and in general a greater level of PBM scrutiny. 

The National Community Pharmacists Association (NCPA), which represents nearly 23,000 independently owned pharmacies, has some ideas, too, which we recently offered to the House Oversight and Government Reform subcommittee. 

First, PBMs should be required to provide a full pass-through of manufacturer rebates instead of lining their own pockets. Second, a Pharmacy Benefit Administrator (PBA) should be the "middleman." A plan the size of FEHBP could save millions of dollars in administrative costs if the pharmacy benefit is carved out, and a contract is awarded to a single PBA contractor, similar to the approach used by the Pentagon’s Tricare program. 

Greater incentives for generic drug prescriptions and a movement away from PBM-owned mail-order services would also lower costs. Experience shows that favoring mail order allows PBMs to reimburse themselves at a much higher level than they would compensate a competing retail pharmacy. 

Across the U.S., public and private sponsors of health plans are reducing costs by adopting more transparent pharmacy benefit management models. 

Tricare estimates savings of $1.67 billion are achievable through more transparent drug benefit administration. Starting in January, Medicare is cracking down on "spread pricing," whereby PBMs charge health plan sponsors one amount and pay the pharmacy much less, pocketing the difference. The state of New Jersey projects savings of $559 million over six years from a new transparent PBM contract it insisted on for its 600,000 covered employees, dependents and retirees. Texas estimates cutting costs by $265 million by requiring a transparent PBM contract. 

We commend the work of the House subcommittee on the federal workforce, Postal Service and District of Columbia and OPM’s inspector general. Congress and FEHBP administrators should not let the opportunity to provide quality drug coverage at a lower cost slip away. Greater transparency is the key. 

The original article is available here for viewing.

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