PBM Transparency is Key to Lowering Costs in Health Reform

September 29, 2009

as appeared on RollCall.com
By Bruce T. Roberts, RPh
National Community Pharmacists Association

"Why do these drugs cost so much?" 

It's a question community pharmacists hear from patients on a regular basis - and more frequently with the economic downturn. While community pharmacists can help some patients manage their prescription drug portfolio more economically, there is no easy answer. 

Some of the cost of medicine is tied up in research and development, clinical trials, and other costs related to bringing new medicines to market. Cuts in these areas can't be made without a commensurate reduction in health outcomes for patients. 

Other cost factors are ripe for savings and carry no downside for patients. Such is the case with the hidden fees and other costs imposed by the pharmacy benefit manager (PBM) industry. PBMs are the middlemen hired to administer drug benefits on behalf of health plan sponsors, such as employers, unions, and the government. These companies have swelled from sleepy claims processors to billion-dollar corporations, such as CVS Caremark, Medco Health Solutions, Inc. and Express Scripts, Inc., that reported a 20 percent increase in profits last year. 

A coalition of consumer groups, including the Consumer Federation of America, the U.S. Public Interest Research Group (PIRG) and the National Legislative Association on Prescription Drug Prices, put it this way: "PBMs represent the most rapidly growing segment of health care spending, and yet they are the only part of the health care market that is still unregulated. Because of the lack of regulation PBMs engage in fraudulent and deceptive practices, resulting in several enforcement actions by a coalition of state attorneys general that have secured over $371 million in fines and penalties." 

The growth of PBMs has been fueled by the ever-growing share of prescription drug transactions that they are allowed to retain. PBMs pay pharmacies one price for dispensing a drug, then charge the plan sponsor much more. Or they pocket large portions of discounts or rebates from drug manufacturers before passing the rest on to plan sponsors and patients. These and other practices inflate the health insurance premiums paid by patients and sponsors of health plans. 

These PBM clients are informed about very few, if any, of these arrangements, much less their massive scope. Without that transparency, it's impossible to judge the return on the premium paid to pharmacy benefit managers. 

Fortunately, there are encouraging signs that such data could become more available. On Friday, the Senate Finance Committee voted unanimously to add to the health care reform bill an amendment authored by Sen. Maria Cantwell (D-WA). NCPA is grateful for Senator Cantwell's leadership, Chairman Max Baucus' (D-MT) strong support and the votes of their colleagues. 

The Cantwell amendment would require PBMs to provide basic aggregate information in three key areas to facilitate educated decisions about which PBM, if any, offers the best value for health plans and patients:

  • First, a breakdown of those prescriptions provided through retail pharmacies as well as mail-order pharmacies and the generic drug dispensing and substitution rates of each.
  • Second, the average aggregate amount and characterization of rebates and other discounts paid by manufacturers, and the aggregate amount kept by PBMs.
  • Third, the average aggregate difference between the amount the PBM is paid by the plan and the average aggregate amount the retail and mail-order pharmacies are paid, respectively, for dispensing a prescription.
These requirements only apply to PBMs operating in the health insurance exchanges created by the bill. But enacting even these modest requirements would still represent an important step toward a more efficient prescription drug marketplace - part of a growing national trend.
  • In July, the House Energy and Commerce Committee approved a similar amendment, authored by Rep. Anthony Weiner (D-NY), to its health reform plan (H.R. 3200). The Congressional Budget Office confirmed that the disclosure provision would not increase federal spending.
  • The Pentagon anticipates $1.67 billion in savings by negotiating drug discounts on its own—instead of using a PBM—for the 9 million individuals covered by the TRICARE program.
  • Texas estimates reducing costs by $265 million by requiring a transparent PBM contract for state government and university employees.
  • Next year Medicare will implement "pass through" pricing to crack down on "spread pricing", whereby PBMs charge health plan sponsors one amount and pay the pharmacy a much lower amount, pocketing the difference.
Community pharmacists are grateful for Senator Cantwell's leadership and urge all Members of Congress to support such PBM transparency provisions in health reform to deliver real savings to patients and plan sponsors.

Organizations Supporting PBM Transparency

Consumer Federation of America
Change to Win 
US Public Interest Research Group
AARP (filed amicus in support of Washington DC PBM transparency law)
Prescription Access Litigation Project (PAL)
National Alliance of State Pharmacy Associations (NASPA)
National Legislative Association on Prescription Drug Prices (NLaRx)
National Community Pharmacists Association (NCPA) 

Major Employers with PBM Transparency
Lear Corporation 
Government Programs Using Transparent PBMs
Medicare Part D

States with PBM Transparency Laws/Contracts
North Dakota
South Dakota

The full article is available online.

NCPA Media Contacts

Kevin Schweers
Senior Vice President, Public Affairs

John Norton
Director, Public Relations

NCPA new release rss feed NCPA News Release Feed
What is RSS?

Our Experts

B. Douglas Hoey, RPh, MBA

Mark Riley, PD
NCPA President

Donnie Calhoun, P.D.
Immediate Past NCPA President

Lonny Wilson DPh
NCPA Past President

Ask Your Family Pharmacist TM