Rx DRUG COSTS: PBMs Come Under Fire in Medicare Debate
Although supporters of a prescription drug benefit for Medicare patients, including President Clinton, tout the ability of pharmacy benefit management companies (PBMs) to rein in the increased costs of a such a program, PBMs are now coming under heavy scrutiny, the New York Times reports. Justice Department officials are investigating possible illegal kickbacks, and pending lawsuits allege that some PBMs have "violated their duty to act in the best interest of patients." Currently, PBMs, which handle drug benefits for 200 million Americans, arrange discounts from retail drug stores and often run mail-order pharmacies for employer health plans and HMOs -- a role proponents argue they could serve in a new Medicare plan. But at Senate Finance Committee hearings in March, the General Accounting Office questioned whether PBMs could control costs under government disclosure rules, and health care experts added that PBMs "have not been able to put a lid on surging costs," even for private companies. "PBMs or no PBMs, it does not have much effect on the growth trend in pharmaceutical expenses," Henry Aaron, a health care economist at the Washington, D.C.-based Brookings Institution, said.
Unable to Contain Costs?
Although roughly 75% of Americans are enrolled in drug plans, national spending on drugs is growing three times as fast as overall health care spending, numbers which suggest PBMs' inability to keep down drug costs. Judith Cahill, executive director of the Academy of Managed Care Pharmacy, defended PBMs, citing other factors for increased spending. "A third of the increases is from increased utilization. A third is from new, improved products, and a third is from plain old vanilla inflation in the cost of products," she said. PBMs also noted that drug costs would have risen "even faster" without their efforts. But others contend that PBMs have "strong incentives" to increase drug use. "With an increase in utilization, the PBMs get more money," Debbie Stern, vice president of Rxperts Managed Care Consulting, said. Moreover, the Times reports that drugmakers often promote new and highly competitive -- and typically more expensive -- drugs by giving PBMs rebates based on sales. As such, there is a "tension" between the benefits provided by PBMs and "where they make their money," Jim Sheehan, chief of the civil division in the U.S. Attorney's Philadelphia office, said, adding, "The efficiencies in the business are in the claims processing and the mail order services; the money is in the rebates" (Freudenheim, 5/7).