Savings Produced by PBMs Not As Great as Previously Experienced

The Philadelphia Inquirer on Feb. 10 examines how the "big savings" pharmacy benefit managers formerly produced have "dwindled." More than 100 PBMs currently operate in the United States, and four "dominate" the industry: Advance PCS, which provides medicines to 75 million people; Medco, with 65 million; Express Scripts, with 40 million; and Caremark Rx, with 20 million (Pugh, Philadelphia Inquirer, 2/10). PBMs help reduce costs for health plans, public health programs and employers by directing doctors toward less expensive brand-name medications and generic treatments through prescription drug formularies. Brand-name pharmaceutical companies provide PBMs with discounts and rebates to have their treatments placed on the formularies, and PBMs share those discounts with their clients. However, in the past few years, competition between PBMs has reduced the rates that they can charge clients to process claims, and some have begun to help brand-name drug companies market more expensive treatments to increase revenue (Kaiser Daily Health Policy Report, 1/21). PBMs at one point reduced drug costs for some health plans by up to 30%, the Inquirer reports. However, Gerry Purcell, a pharmacy benefits consultant in Atlanta and a former PBM executive, said that the "side deals and undisclosed payments" from drug companies to PBMs actually might contribute to increased costs for consumers, the Inquirer reports. He said such deals could account for up to 10% of the $161 billion people in the United States spent on prescription drugs last year. Purcell added, "They're negotiating hidden deals for their own benefit, while at the same time telling employers: 'We're here to represent you.'" Several lawsuits filed by health plans or states seek to force PBMs to repay "millions of dollars" in rebates and incentives that health plans claim should have been passed on to them. Other lawsuits accuse PBMs of "steering" their clients to higher-priced drugs or "failing to act" in the health plans' "best financial interests" (Philadelphia Inquirer, 2/10). For example, West Virginia Attorney General Darrell McGraw (D) last year filed suit against Merck and its PBM, Medco, on allegations that the two companies "steered" state employees to more-expensive treatments -- which included Merck products -- and withheld pharmaceutical company rebates that the state should have received (Kaiser Daily Health Policy Report, 11/14/02). But officials from PBMs argue that rebates and incentives are legal. "We have to make some money. We don't claim to be not-for-profit. ... We're a business. We're not a charity hospital," Medco Senior Vice President and General Counsel David Machlowitz said (Philadelphia Inquirer, 2/10).