PBMs Under Pressure to Provide Price Transparency

Monday, May 1, 2017 | 0

Pharmacy benefit managers, which have been little-recognized players in the health care system, are facing growing national scrutiny as their role in rising drug prices is being more closely examined.

In New York, Gov. Andrew Cuomo in January listed greater oversight of PBMs as one piece of a three-pronged approach to reining in drug prices. In his executive budget, Cuomo included requirements for PBMs to register with the state Department of Financial Services and provide information requested by DFS, such as financial incentives PBMs receive for promoting the use of certain drugs.

Those regulations didn’t make it to the final budget signed into law on April 10. But Assembly Bill 2661, which is pending in the New York Legislature, would require PBMs to disclose financial information to their clients.

In California, Assembly Bill 315 would require PBMs to register with the state and disclose to their clients details on drug acquisition costs, rebates and rates negotiated with pharmacies.

“The issue of drug pricing is front and center for policymakers, purchasers, patients and virtually everyone who plays a role in our health care delivery system,” the bill’s sponsor, Assemblyman Jim Wood, D-Healdsburg, said during an April 18 hearing of the Assembly Business and Professions Committee. And all of the players — including PBMs — contribute to the problem, he said.

The legislation in New York and California is in addition to a bevy of bills in other states that would increase oversight of PBMs.

Pharmacy benefit managers are hired by payers to administer prescription drug programs. They have evolved into offering a range of services, such as drug utilization review, development of a client-specific drug formularies and creation of pharmacy networks.

But PBMs have come under fire for their practice of “spread pricing,” in which they pay the pharmacy a certain amount for a drug but then charge their client more than what was paid to the pharmacy. In addition, PBMs may receive payments from drugmakers via rebates when certain medications are purchased. Those rebates are not necessarily passed on to the PBM’s client.

PBMs have been at the center of recent controversies:

• Last month, drugmaker Mylan was hit with a class-action racketeering lawsuit over the dramatic price increase during the past decade of its EpiPen, an anti-allergy device. The suit alleges that the soaring price was the result of Mylan's payments of rebates to pharmacy benefit managers.
• Express Scripts announced last week that Anthem, its largest client, would not renew its contract with the PBM after it expires in 2019, although there’s since been talk of a reconciliation. The news follows a feud of longer than a year between the two companies, with Anthem accusing the PBM of withholding billions of dollars in savings. Last year, Anthem sued Express Scripts, which denied the accusations and countersued.

“If the PBMs are, in fact, negotiating the best pricing and doing right by consumers, they should have no concern with us ‘looking under the hood,’” said Wood, the California Assemblyman.

But Joseph Paduda, president of CompPharma, a consortium of workers’ comp pharmacy benefit managers, said the bills aimed at increasing PBM transparency seem to be inappropriately targeting one industry.

“Why is it appropriate to force PBMs to disclose their prices, margins, costs, etc., when we wouldn’t do that for car companies, furniture manufacturers, smartphone makers (or) broadband companies?” Paduda said.

Pharmacy benefit manager trade groups have noted PBMs' role in reining in drug spending. In workers’ comp, drug costs have fallen 11% over the last six years, according to Paduda. In addition, PBMs have helped reduce inappropriate use of opioids, protected injured workers from dangerous drug combinations and reduced drug costs in the process, Paduda said in a blog post last week.

“Health care payers don’t have to use PBMs, but they choose to use PBMs,” April Alexander, senior director for state affairs at the Pharmaceutical Care Management Association, a PBM trade association, said during a hearing on California’s AB 315 this month.

Trey Gillespie, assistant vice president for workers’ compensation at the Property Casualty Insurers Association of America, said legislation calling for increased oversight of PBMs is generally driven by the pharmacy industry. Gillespie said he hasn’t heard concerns about PBM transparency voiced among workers’ comp payers, who seem to be happy with drug discounts the PBMs obtain, and the additional services they provide. Some carriers do talk about bringing the PBM services in-house, he said.

Court Orsborn, president and company officer at Donn & Co. in San Francisco, a workers’ comp managed care advisory and research firm, said some comp payers are concerned about PBM transparency. “But at the same time they don't know where to start,” as they try to understand the complex system of drug pricing, discount and payment mechanisms.

Although Alexander with PCMA said clients can specify how much transparency they want from their PBM, Orsborn said that may not be as easy as it sounds.

“A lot of PBMs are reluctant to provide pricing ‘transparency,’” Orsborn said. “You may find yourself without many options if that's your selection criteria. And transparency may not equal price or service competitiveness.”

Orsborn said the legislative proposals regarding PBMs are “a good starting point,” although they seem to be geared more toward Medicare and group health systems rather than workers’ comp.

For example, rebates are much less significant in workers’ comp than in group health, because many of the larger rebates are for brand drugs that aren’t prescribed often to injured workers.  

In another example, AB 315 in California would require PBMs to disclose the aggregate acquisition cost for each therapeutic class of drugs. But in workers’ comp, a large piece of drug spend would be in the "analgesics" therapeutic class. A further breakdown by individual drug or National Drug Code would be more informative, Orsborn said.

Legislation regarding pharmacy benefit managers often pertains to commercial health or Medicaid, excluding workers’ comp PBMs, because they’re regulated through work comp systems, said Brian Allen, vice president of government affairs at Optum, which provides workers’ comp PBM services.

In some states, workers’ comp regulators require comp PBMs to register; others require submission of details on networks and network access, Allen said. Some states require reporting of paid claims data, and most states have a process for providers to dispute the payment amounts or the denial of medical or pharmacy bills. Almost every state has timely billing and reimbursement requirements, he said.

Those requirements are in addition to workers’ comp fee schedules in many states that help determine how much is paid for drugs.

A concern is that lawmakers will create regulations that add to, or conflict with, rules for work comp PBMs, Allen said.

“It adds more cost to the system without added benefit,” and could delay the delivery of care to injured workers, he said.

Allen has requested clarification from legislative counsel in California on whether AB 315 would apply to work comp PBMs, which aren’t explicitly included or excluded in the bill. Optum hasn’t weighed in on the legislation, but Allen said he has concerns that some of the requirements would reveal proprietary company information.

Other state legislation addressing PBMs include:

• In Hawaii, House Bill 1444 would require PBMs to register with the insurance commissioner.
• In Oregon, HB 2388 would give the Department of Consumer and Business Services power to deny, revoke or suspend a PBM’s registration under certain circumstances, such as if it is engaged in fraud. DCBS would also establish a process for pharmacies to file complaints against PBMs, in a bill that has been designated an emergency measure and would take effect immediately.
• In Florida, SB 580 would require PBMs to be licensed and regulated by the Office of Insurance Regulation as a third-party administrator. OIR would audit PBMs quarterly, to make sure they are updating maximum allowable cost lists for generic drugs every seven days as required.
• In Alaska, SB 38 would require PBMs to register with the Division of Insurance. It spells out the process by which a PBM can audit a pharmacy.
• Under SB 103 in Georgia, which is awaiting the governor’s signature, PBMs wouldn’t be able to prohibit a pharmacist from telling patients about less expensive drug options. PBMs wouldn’t be allowed to collect a co-payment from a patient that is more than what the pharmacy will charge for the drug, or require the use of a mail-order pharmacy.

Those are in addition to PBM laws that have already been enacted. New PBM licensing requirements recently took effect in Kentucky and New Mexico. A 2014 law in Iowa requires PBMs to disclose their pricing methods for generic drugs to the state insurance commissioner. But in January, the 8th Circuit of the U.S. Court of Appeals ruled that the state law is pre-empted by federal benefits law. The lawsuit challenging the Iowa law was filed by PCMA.

In a news release, PCMA called the court decision “a shot across the bow for other states considering PBM mandates.”

“This federal appeals court decision sends an important signal that states can’t impose a patchwork of costly mandates on employers and unions that offer pharmacy benefits,” PCMA said.