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Sure, They Save Money, But Maybe There is a Better Way

The PBM industry can't seem to shake its unsavory reputation.

May 29, 2004
Related Topics: Benefit Design and Communication, Health and Wellness, Compensation
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Despite government studies showing that pharmacy benefit managers can save employers money on prescription drugs, the PBM industry can’t seem to shake its unsavory reputation. The most recent blow to the troubled industry came in August, when New York State Attorney General Eliot Spitzer sued Express Scripts Inc., alleging that it inflated drug costs to the state’s largest employee health plan. Express Scripts denies the charges, saying it has saved the state $2 billion since 1998. Even before the suit was filed, two other industry leaders, Medco Health Solutions Inc. and Caremark Rx Inc., faced legal troubles of their own. Medco settled two separate suits, requiring it to pay $71.8 million in fines and penalties. Among the accusations by prosecutors: PBMs have inflated the cost of prescription drugs, siphoned off rebates intended for customers and improperly switched patients to more expensive drugs to benefit from manufacturers’ rebates.

    Concerns are filtering down to employers. The HR Policy Association is working with a coalition of 50 large employers on a plan that would bypass benefit managers and set up direct negotiations with manufacturers. A memo outlining their position obtained by Workforce Management cites costly markups and payments made for placement of certain drugs on formularies, the list of approved drugs offered to plan members. These industry practices "can interfere with employers’ and consumers’ right to know the true cost of a drug," the memo says.

    In the industry’s defense, the Pharmaceutical Care Management Association released a study by PricewaterhouseCoopers showing that drug managers save New York consumers an average of 25 percent on prescription drugs, which could translate into savings of $91 billion over the next 10 years. Other studies by the U.S. General Accounting Office, the Congressional Budget Office and the Federal Trade Commission have also found that PBMs help keep the cost of drugs down. "Ultimately, what consumers and purchasers want to know is: What is the bottom-line price?" says Phil Blando, a spokesman for the association.

    Many employers find themselves caught in the middle. One of several drug-purchasing groups put together by Aon Consulting Inc. includes seven large employers that contract with Medco for a group drug plan covering 1 million workers. Pricing must be considered, but so should performance and safety, says Gerald Smith, an Aon vice president. "Companies have due diligence to be effective in the way they manage their programs and not just look at price." A step in the right direction would be to have more openness in the process, Smith says. "We want to make sure all the arrangements are disclosed so we understand everything that is going on."

Workforce Management, October 2004, p. 43 -- Subscribe Now!

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