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Rx for Health Care Savings: Rein in the ‘PBM Premium’

“It’s a scam of major proportions. When we’re trying to find billions of dollars to fund health care reform, this is an area that absolutely has to be cleaned up.” — Rep. Stephen Lynch (D-Mass.), June 24, Dow Jones Newswires

A recent Congressional hearing, led by Lynch, highlighted the absurdities of America’s broken drug payment system, as orchestrated by a handful of companies known as pharmacy benefit managers. While the hearing examined whether taxpayers and the federal employees’ health plan are getting ripped off, the broader lessons are unmistakable.

As the long-standing goal of national health reform meets budget reality, applying common sense regulation to PBMs could save patients and employers billions of dollars and reduce the overhead of government-sponsored health care plans like Medicare and Medicaid.

The sale of prescription drugs is tightly controlled by an ever-consolidating number of pharmacy benefit managers. They determine which drugs a plan covers and what the co-payments will be. These companies were originally hired by large employers and other health plan sponsors to rein in soaring drug costs. Instead, they have concocted a complex system that places their robust fees and profits above their clients’ interests, not to mention the patient’s.

As a result, day can be night and black can be white. Patients are sometimes incentivized to buy name-brand drugs over cheaper generics once the PBM arranges for the drugmaker to pay it handsome kickbacks (euphemistically called “rebates”). Or patients are steered to purchase generic medicines from the PBM’s own mail-order program even when a retail pharmacy can do it cheaper for the patient and the plan sponsor.

In addition to the troublesome conflicts of interests, these secretive arrangements are now so prevalent as to represent a fatal flaw in today’s drug market. Wave after wave of these hidden fees are costing employers, unions, the government and patients billions of dollars in higher insurance premiums.

Quantifying exactly how high this “PBM premium” is can be difficult. Why? Employers, unions, governments and others that hire benefit managers are typically required to sign contracts banning them from looking behind the curtain, so to speak.

In few other segments of our economy is such a lack of transparency tolerated. Imagine being asked to fork over a large sum for car repairs or a home renovation — no questions asked and without an itemized bill. Any rational consumer would simply walk away.

States have begun taking steps to address this problem, with 15 enacting new laws. And a coalition of more than 30 state attorneys general in the last five years filed lawsuits alleging PBM abuses, securing $370 million in restitution.

These state actions are important, but this is a nationwide problem requiring a comprehensive, federal solution. Congress should create a federal structure for the regulation of pharmacy benefit managers that includes at least two basic elements. First, PBMs should be required to assume a greater fiduciary responsibility to health plan sponsors. Second, they should be required to be transparent in their financial relationships. This would allow everyone in the health care system — payers, providers and patients — to know what they’re paying for and to make more informed decisions. These are simple steps toward a more market-oriented drug payment system. But they would have a dramatic, positive effect on nearly every health care stakeholder.

Pharmacy benefit managers argue that, for every dollar they receive, they save clients far more. They may have identified some savings, particularly in their early years. However, this system has spun out of control and is now cloaked in darkness. Every quarter brings new reports of PBM profitability while health care costs continue to soar.

Sunlight’s the best disinfectant, as they say. Now Congress can step up and shine a light of transparency to help address the country’s needlessly inflated health care costs. Health reform legislation offers an ideal opportunity to make America’s medicine market work better for everyone, root out wasteful spending and take a step forward for simple fairness. That will only occur when PBMs are required to be accountable and responsible for their actions.

Bruce Roberts is executive vice president and CEO of the National Community Pharmacists Association.

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