Several states are probing pharmacy-benefit managers’ business practices in government-sponsored health programs, adding to the scrutiny the middlemen face in Washington for their role in the cost of drugs.
At least three state attorneys general are investigating PBMs, in addition to other state probes looking into how the companies contract with Medicaid and other programs. CVS Health Corp., Cigna Corp.’s Express Scripts unit and UnitedHealth Group Inc., which dominate the PBM market, appeared before the Senate Finance Committee in Washington Tuesday to discuss their role as the nation grapples with soaring drug prices.
“I am concerned about the complexity of the system,” said Attorney General Dave Yost of Ohio, one of the states probing PBMs. “I am concerned that it is internally complex and that it may be for the purposes of deception.”
The appearance of the PBM executives on Capitol Hill marks the second major Senate hearing on drug prices this year. In February, seven big pharmaceutical companies testified before the finance panel. Sounding a familiar refrain, they put much of the blame for high drug prices on the middlemen.
“This lack of transparency for the consumer is concerning,” Senator John Cornyn, a Texas Republican and member of the committee, said in a statement. “It should not take an advanced degree to figure out where your money is going when you buy your prescription drugs.”
PBMs, which administer drug claims for big employers and insurance companies, negotiate prices with both retail drugstores and pharmaceutical manufacturers. A trade association for the industry said PBM bargaining power helps lower costs by an average of $941 per patient annually. Numerous competing benefit managers allow clients to negotiate a desired level of transparency, the group said.
While PBMs say their profit margins are low, they’ve been criticized for enigmatic pricing arrangements. Among other tactics, PBMs sometimes take hidden markups, or “spreads,” on generic drugs. For brand-name drugs, they sometimes retain a small portion of the rebates they negotiate with manufacturers.
In Kentucky, the state attorney general launched an investigation into drug middlemen in March after a state report showed that PBMs took $123.5 million in fees from insurance plans that cover the state’s poor.
Also last month, Ohio’s Yost sued UnitedHealth in state court, alleging it overcharged the state by more than $15 million over several years in the state’s workers’ compensation plan. Yost said he’s now looking into other drug plans the state operates, include its Medicaid program.
“We believe these allegations are without merit and are working with the state to resolve the bureau’s concerns in accordance with the terms of our contract,” said Andrew Krejci, a spokesman for UnitedHealth.
Connecticut’s comptroller in December announced plans to eliminate opaque fees in the state employee plan, contending that PBMs “operate in the shadows.”
At the national level, scrutiny has been mostly on rebates, the discounts that drug companies pay to PBMs to have their medicines included on lists of covered drugs. In January, Secretary of Health and Human Services Alex Azar blasted rebates as “a hidden system of kickbacks” and announced a plan to eliminate them in Medicare.
Among the states, much of the focus has been on spread pricing, in which pharmacy-benefit managers pay drugstores one price for a treatment while charging a higher one to their health-plan clients. The difference is used to stabilize drug costs, PBMs say — or add to PBM profits, according to critics.
PBMs “are hired to reduce prescription drug costs and improve the quality of benefits for consumers, employers and public programs, including Medicaid,” the Pharmaceutical Care Management Association, an industry group for PBMs, said in a statement. “The plan hiring a PBM always has the final say on contract terms, and some prefer spread-pricing arrangements.”
In Georgia, a recent report to state legislators showed that markups in Medicaid managed-care programs varied enormously among plans, according to the report. Three of the plans used CVS to manage drug benefits, while a fourth used Express Scripts. While some plans appeared to be getting a good deal, two had markups of $6 per prescription or more.
The biggest differential was in the Peach State Health Plan, which is run by Centene Corp. and used CVS as a pharmacy-benefit manager. In the fiscal year ended June 30, CVS paid pharmacies $90 million for drugs, or $39.07 per prescription. But CVS was paid $120 million for the same drugs by the plan, or $52 per prescription, according to the report.
Exactly what the $30 million differential was used for wasn’t explained in the report.
“There is a total lack of transparency in the whole system,” says David Knight, a Georgia state representative. “It begs the question as to whom and where is the money going.”
CVS said it could not comment on contracts with specific clients. Generally speaking, some clients choose spread pricing because it provides predictability and stability to drug costs, the company said. Centene said it does “not believe that the report fairly characterized all savings and costs, including key technical details, such as risk adjustment, claim credits passed through to members, and cost accounting details.”
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