opportunities for pricing reform through pharmacy benefit manager regulation prepared by david balto...
TRANSCRIPT
Opportunities for Pricing Reform through Pharmacy Benefit
Manager Regulation
Prepared by David Balto1350 I St. NW Suite 850
(202) [email protected]
The Role of Pharmacy Benefit Managers (PBMs)
• PBMs act as middlemen between individuals, plan sponsors and drug manufacturers.
• They have the potential to achieve significant savings by using the purchasing power of enrollees to bargain for lower prices and larger rebates from manufacturers.
The Role of Transparency
• Plan sponsors and their enrollees don’t necessarily see these savings, though, thanks to a lack of transparency:– PBMs “play the spread,” charging plan sponsors
more per prescription than what they reimburse the pharmacy for it.
– PBMs do not necessarily pass on rebates to plan sponsors in the form of savings.
• Without transparency, plan sponsors have no idea if their PBM is really saving them money.
PBM Profits are Skyrocketing
• Between 2003 and 2007, the profits of the “Big Three” PBMS, ExpressScripts, Medco and Caremark, nearly tripled:
Over $900 million …to
over $2.7 billion
• “The Big Three” hold over 80% of the market.
Transparency is Growing in Popularity
• Plan sponsors across the country have chosen to negotiate transparent PBM contracts:– Corporations like 3M and McDonalds– States like Texas, Maryland and New Jersey– The University of Michigan– Huge federal plans like TRICARE– Unions like New York’s DC-37
These Plan Sponsors Enjoy Huge Savings
• New Jersey anticipates savings of over $550 million over six years by enacting transparency on their plan, which covers 600,000 employees, retirees and dependents.
These Plan Sponsors Enjoy Huge Savings
• TRICARE saved nearly $1 billion in 2007 by negotiating their own drug prices and rebates with manufacturers.
Without Transparency, a “Layer of Fog”
• The First Circuit court of appeals observed, in support of Maine’s PBM transparency legislation:– “Although PBMs afford a valuable bundle of
services to benefit providers, they also introduce a layer of fog to the market that prevents benefits providers from fully understanding how to best minimize their net prescription drug costs.”
Behind the Fog, Fraudulent and Deceptive Conduct
• Between 2004 and 2008, the “Big Three” have paid over $370 million damages to states, plans and patients in six major court cases.
Charges Include…• Government fraud• Secret rebates• Drug switching • Failure to meet state quality of care standards• Kickbacks• Submission of false claims• Deceptive trade practices• Repackaging• …and more
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PBM REFORM• United States v. Merck & Co., Inc., et.al – $184.1 million in
damages for fraud, secret rebates, drug switching, and failure to meet state quality of care standards.
• United States v. AdvancePCS (now part of CVS/Caremark) – $137.5 million in damages for kickbacks, submission of false claims, and other rebate issues.
• United States v. Caremark, Inc. – pending suit alleging submission of reverse false claims to government-funded programs.
• State Attorneys General v. Caremark, Inc. – $41 million in damages for deceptive trade practices, drug switching, and repackaging.
• State Attorneys General v. Express Scripts – $9.5 million
An Model for Transparency in Texas
• 2006 hearing on PBMs led to an audit report• Audit report found significant discrepancies:
Two separate Employee Retirement System plans– Plan managed by Medco cost $994 per enrollee– Plan managed by Caremark cost $2737 per enrollee
• Found other inefficiencies: – State could not conduct regular, meaningful audits– Unclear pricing structures
Texas Enacts Transparency
• In response to the audit’s findings, Texas enacted legislation requiring transparency for state plans.
• Texas anticipates savings of over $260 million.
What Does This Mean?
• These plan sponsors chose transparency because it leads to greater savings.
• Smaller plan sponsors do not have the bargaining power to demand transparency.
The bottom line:
• There is no evidence that transparency leads to higher drug prices.
• Mounting evidence shows that transparency leads to lower costs and greater accountability.
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• Applies to plans in the state-operated exchanges (private and FEHBP administered plans) and Part D plans
• NAIC to develop model legislation (model policies) to provide to the states for the exchanges.
• Need to meet with OPM because will sponsor 2 multi-state plans in each state
• NAIC also charged with developing uniform enrollment form for use by all exchanges
PPACA Healthcare Reform: PBM Transparency
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PPACA Health Reform: PBM Transparency
• PBMs to report to the Secretary and contracting plans on:– Retail vs mail; generic dispensing rates;– Aggregate manufacturer rebates earned and
passed through to the plan– Aggregate payments from plans to PBMs and
subsequent payments to pharmacies
Ongoing developments in PBM Transparency
PCMA v. DC• 2004- DC passed a law mandating PBM
transparency• PCMA filed suit seeking to block enforcement
of the law– ERISA, Commerce Clause, Unconstitutional Taking
• Court found in favor of PCMA• DC filed appeal, DC Circuit affirmed
Department of Labor Regulations
• DOL is currently considering extending ERISA fee disclose to welfare benefit plans to PBMs
• They should use broad definition of “fee”– Discounts received by a PBM with respect to its acquisition
of goods and services for resale or in connection with service to be rendered by the PBM and any related profits;
– Income earned by a service provider with respect to the provision of plan benefits; and
– Fees received by a service provider for services performed for or on behalf of a third party, provided that the services performed are part of an independent fee for a service relationship.
