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Settlement May Improve Deals for PBMs

A proposed settlement may lead to renegotiation of contracts with pharmacy benefit managers that could produce gains for health plans, benefit consultants say.

June 12, 2008

First DataBank Inc.’s proposed settlement of pharmaceutical price-fixing charges is not likely to produce any immediate savings for health plan sponsors or insurers if approved, but it may lead to renegotiation of contracts with pharmacy benefit managers that could produce gains for health plans, benefit consultants say.

First DataBank, a unit of Hearst Corp. that publishes price data on thousands of drugs, was accused in a 2005 racketeering suit of conspiring with pharmaceutical wholesaler McKesson Corp. to inflate the average wholesale price of hundreds of prescription drugs by 5 percent.

A federal judge in Boston on May 30 gave preliminary approval to a settlement in which First DataBank would pay $1 million to insurer and health plan plaintiffs and roll back the 5 percent markup it reported on 1,356 drugs. Independently of the settlement, the company announced that it would voluntarily adjust reported average wholesale price markups on other drugs and cease publishing average wholesale price data altogether within two years after the adjustments.

The proposed deal replaces an earlier settlement proposal that was rejected by the court in January.

Though average wholesale price is the basis for calculating reimbursements under most PBM contracts, First DataBank’s planned average wholesale price adjustments won’t likely translate into savings for plan sponsors. Pharmacy benefit manager contracts typically included clauses allowing renegotiation in the event of such average wholesale price changes, and PBMs will likely seek to adjust the terms of their contracts to maintain their profit margins, consultants say.

"The measuring stick is changing, but I don’t get the sense that underlying drug prices are changing," says Joshua Golden, senior pharmacy consultant with Hewitt Associates in Atlanta. "I don’t believe it’s going to drive significant plan savings for any client."

On the other hand, PBM contract renegotiations triggered by the settlement could give plan sponsors a chance to work out better deals for themselves, consultants add. Health plans should demand more information from PBMs if the First DataBank deal is approved, including exactly how much they spent on the roughly 1,356 drugs covered by the settlement, the drugs’ average wholesale prices, and discounts and rebates applied, says Sean Brandle, vice president and national pharmacy practice leader for the Segal Co. in New York.

Health plans that "dive into the data" will be in a better position to negotiate with PBMs, he notes. One tactic, for example, would be for sponsors to seek a cap on any increase in the next year’s costs for certain classes of drugs, such as diabetes medications, Brandle says.

Events such as the average wholesale price shake-up "are going to drive us to more realistic pricing, eventually," he says.