States Have ‘Reservations’ About PBMs’ Price Breaks, Practices

President Bush's plan to provide drug discount cards to seniors would be administered by pharmacy benefit managers, but many states have "reservations about how much of a price break these firms really provide their customers" and have developed their own plans to negotiate lower drug prices, Stateline.org reports (Guiden, Stateline.org, 7/31). Under Bush's plan, the federal government would approve discount cards issued by PBMs, which would use the purchasing power of Medicare beneficiaries to negotiate 15% to 25% discounts with pharmacies and drug makers and sell cards to Medicare beneficiaries for up to $25 (Kaiser Daily Health Policy Report, 7/13). The government has not selected the PBMs that would run the program, but participating companies must already serve at least one million patients, agree to serve all Medicare beneficiaries and provide "comparative information about their competitors." According to Stateline.org, AdvancePCS, Merck-Medco and Express Scripts, the nation's top three PBMs, serve about 185 million patients. PBMs also oversee drug benefit programs for state employees' health plans in 37 states and for large companies such as General Motors Co. AdvancePCS and Express-Scripts each administer drug benefits for state employees in nine states, and Merck-Medco also represents a "significant" though undisclosed number of states, Stateline.org reports.

Growing Regulatory Interest
But drug industry experts say that PBMs are "underregulated," which may "potentially ope[n] the doors to problems." Gerry Purcell of Georgia-based Pharmacy Partners, which advises companies on structuring contracts with pharmacy benefits groups, said, "There's very little oversight of (the firms) and few state insurance commissioners even require them to register as a business. The U.S. Department of Labor has some oversight of the industry, but officials there didn't understand what was going on with business practices until the late 1990's." However, he added that PBMs have "come under scrutiny" as drug prices head "through the roof." Vermont Senate President Peter Shumlin said, "Many lawmakers are very skeptical of traditional PBMs. The biggest problem ... [is] real concerns that traditional (prescription drug discount groups) have not provided the kinds of services to Americans that they've promised." Shumlin said that PBMs may promote a company's drug "even though it may not be the cheapest" and receive rebates that they do not fully pass on to patients. Assistant U.S. Attorney Jim Sheehan of Philadelphia has launched a probe into the PBM industry. In addition, officials in California, Florida, Illinois, Massachusetts and Texas have begun to investigate the policies of pharmaceutical firms and PBMs, Carolyn McElroy, a former director of Maryland's Medicaid Fraud Control Unit, said.

Merck-Medco
Meanwhile, Merck-Medco faces an audit in West Virginia, where it manages drug benefits for 200,000 state employees, over "questions about its practices." The company, a subsidiary of drug maker Merck & Co., also faces six separate class action lawsuits in New York alleging that it "switched patients who had been prescribed competing drugs to Merck products to drive up its parent firm's profits" (Stateline.org, 7/31).