Pharmacy Benefit Managers Cited for Rising Rx Costs
Major health care purchasers, such as large companies and public employers, increasingly say that pharmacy benefit managers have not "done enough" to keep prescription drug prices under control, the New York Times reports. Pharmacy benefit managers operate drug plans for about 200 million Americans and negotiate discounts with pharmaceutical companies in exchange for including a company's drug on a list of preferred medicines. Critics say the deals encourage patients to use more expensive drugs and therefore contribute to the rise in prescription drug costs. While patients are often shielded from such costs, as the formularies are structured to have smaller copayments for preferred drugs than other drugs in the same class, the Times reports that employers, who cover the rest of the cost of a drug, end up paying more. The deals that PBMs reach with pharmaceutical firms -- which "induc[e]" patients to use more expensive drugs -- benefit PBMs and drug companies "more than anyone else," critics say.
In response, a number of consumers and employers have filed suit against pharmacy benefit managers, saying that they "inflate" the cost of prescription drugs and do not act in "the best interest of customers." Two suits have been filed against Merck-Medco Managed Care, the largest pharmacy benefit manager, and other suits were filed in December against AdvancePCS and Express Scripts, two other large PBMs. Each of the suits alleges that the pharmacy benefits managers have failed to meet their responsibilities under the federal Employee Retirement Income Security Act, which requires certain companies to "act in the best interest" of customers. Because the PBMs have included expensive drugs on their formularies, the plaintiffs allege that they have "promoted their own interest" over that of their clients. For example, in one of the cases against Merck-Medco, plaintiffs say the company promoted the use of the cholesterol-lowering drug Zocor over less expensive drugs in its class. The benefit firms, however, say that ERISA is not applicable because the deals were not made by PBMs "as agents of employer drug plans." David Machlowitz, Merck-Medco's general counsel, said, "We are not a fiduciary under ERISA, and we don't claim to be. We are not a public utility. We do help people save money. Otherwise, we would be out of business." Merck-Medco also says that drug costs for its clients have increased at a slower rate than the national average.
The Times reports that a number of companies that use PBMs are "demanding" a better accounting of the terms of any agreement a benefits firm reaches with a drug company. For example, General Motors is now "closely monitoring" Merck-Medco's drug purchasing. Verizon Communications is taking a different approach, encouraging Merck-Medco to "ge[t] the right drug" to patients and pay less attention to making deals with drug companies. Some states are developing strategies to stop using pharmacy benefit managers altogether in favor of managing their own drug plans for state employees or Medicaid beneficiaries. Eight states in the Northeast plan to negotiate directly with pharmaceutical companies for discounts. Other states have "banded together" to get better prices on drugs from pharmacy benefit managers. West Virginia, Missouri, Louisiana, Mississippi, South Carolina, New Mexico, and Maryland are working together and are evaluating proposals from seven benefit firms, which would be paid only for handling claims. Under such proposals, the states would receive discounts from the drug companies directly, the Times reports. At the same time, pharmacists are lobbying state governments to exercise more oversight over PBMs. They say that such firms should be licensed by state pharmacy boards and that state insurance departments should have oversight authority (Freudenheim, New York Times, 1/5).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.