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PBM Transparency May Only Be Skin Deep

November 4, 2007
Related Topics: Benefit Design and Communication, Health and Wellness, Featured Article, Compensation
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Like much else in health care, the pharmacy benefit management industry has taken up the mantle of transparency to regain the trust of wary customers. In recent years, they have viewed the PBM industry as one that made its money in ways that often came at the expense of the employers they were hired to serve.

    But a number of employers and PBMs are beginning to see the focus on transparency as an image game, not a sincere effort.

    For many years, most clients had no idea how PBMs made their money and most didn’t care. The administrative fees were absurdly low and employers were happy with their PBM as long as they were getting rebates from the drugs they were purchasing in bulk. Eventually, however, the buying public came to realize that PBMs made money by keeping most of the rebates they get from pharmaceutical manufacturers, and by buying drugs at a discount and then marking them up significantly to employers. Employers were not getting the bargains they thought they were.

    The move toward transparency has been an effort, to use the language of the industry, "to align the incentives" of both the PBM and the employer so that what’s good for the PBM is good for the employer.

    To create a standard definition of PBM transparency, the HR Policy Association developed its Transparency in Pharmaceutical Purchasing Solutions program in 2005. In 2005, three PBMs were certified. In 2008, 13 PBMs will be certified.

    The program, developed in consultation with Hewitt Associates, details six standards a PBM must meet to be considered transparent. Among them are rules that say certified PBMs must pass on all rebates to the clients and cannot mark up the cost of drugs purchased from the manufacturer.

    This standard has gained wide acceptance and includes the rights of employers to audit the contracts the PBM has with manufacturers and pharmacies, usually with the qualifier that the information not be disclosed.

    But some employers and some PBMs say the HR Policy Association’s standard does not go far enough.

    "It doesn’t hit on some of the things we think are important about transparency," says Cullen Sloan, CFO of Innoviant, a PBM based in Wausau, Wisconsin.

    Sloan says a PBM should state plainly that the only way it makes money is through administrative fees. The PBM should also commit to becoming a fiduciary of the employer. That is, the PBM should commit to having a legal obligation to make financial decisions that are in the best interests of the employer.

    Innoviant also invites its clients to participate in the quarterly meetings in which it decides which drugs will have the lowest co-pays. Clients who send doctors or pharmacists can vote in those meetings.

    "It allows [clients] to understand the rationale for making a decision," Sloan says.

    HR Policy Association spokeswoman Marisa Milton says that is what the certification is intended to do, even if it does not spell it out in those terms.

    "The goal of the standards is to align the incentives of the PBM with their client," she says.

    Part of the problem is that most PBMs do not want to take on the legal liability of being a fiduciary, says Joshua Golden, a senior pharmacy consultant at Hewitt, the consultancy that helped draw up the standards for the HR Policy Association. Though the idea was raised while the group was defining its standards, PBMs opposed the idea of forcing all transparent contracts to include a clause stating that PBMs had a fiduciary responsibility to the employer.

    "They’ve been getting away with not doing it for so long that to assume that responsibility is a major shift," Golden says.

    The Pharmacy Care Management Association, which represents the PBM industry, has stated that it prefers the issues be worked out between individual employers and PBMs, which is one reason why the group has opposed legislation proposed in a number of states that would require all PBMs to become transparent.

    "There is not much appetite in the marketplace to have PBMs act as fiduciaries or to disclose contract information," PCMA spokesman Charles Coté says. "We’re opposed to one-size-fits-all disclosure legislation."

    One of the concerns is that manufacturers would use the information about how much different PBMs pay for drugs and band together to raise their prices.

    These issues have made it difficult to create a simple definition of transparency. And consequently, it’s probably harder for small employers to switch models, Cullen says. They usually can’t afford to hire someone who can specialize in these arcane matters.

    Still, employers that have switched to a more transparent model say they are more comfortable with their relationship with their PBM.

    A year ago, the health and welfare fund of the Hotel Employees and Restaurant Employees International Union local in Las Vegas signed on with Catalyst Rx, a PBM certified by the HR Policy Association.

    "The savings is dramatic," says Jerry Reeves, the plan’s chief medical officer. "It’s not pennies, it’s millions."

    In 2004, the Sergeants Benevolent Union, which represents police sergeants in New York City, began questioning its PBM, Caremark, after it said it discovered that the prices for many drugs were highly inflated and that many of the union’s 33,000 members had prescriptions unnecessarily refilled, which led to wasted dollars and unused medicine.

    The plan, which spends $14 million annually on prescription drugs, switched to Innoviant in 2005, says Errol Ogman, the fund’s administrator and a retired police sergeant.

    "I’ve never caught Innoviant doing anything that was inappropriate," Ogman says. "And believe me, I try to find it."

    Soon after Paul Kaiser became director of health benefits at door and window maker Jeld-Wen in 2003, he made it clear to the company’s PBM, Walgreens, that he wanted a more transparent contact. Walgreens eventually made changes to its program, "but by that point in time I had a trust issue," Kaiser says.

    He said that Jeld-Wen strives to do business with companies that share its adherence to the Golden Rule, which, as he paraphrases slightly, might effectively describe the essence of PBM transparency: "Do unto others as you would want done to you."

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