Pharmacy Benefit Administrators Drive Up Health Costs
Special to Roll Call
The most trusted professionals in America are pharmacists, according to national polls over the past 20 years. So why has Congress not asked them for input on health care reform? In fact, pharmacists can help eliminate huge costs with three easy steps.
1. Cut Out Middlemen
It is not enough to point out that health care costs increase every year.
Congress should identify what percentage of the increases result from outdated models that need to be reformed. Consider pharmacy benefit administrators, which were a good idea during the expansion of managed care in the 1980s. Insurers retained PBAs when they recognized that the volume of prescription drug claims in their programs would grow rapidly. The PBAs charged a reasonable fee to process the claims and even helped insurers identify the most affordable medications.
Two developments turned this once-good idea into the most wasteful part of the drug delivery system. First, PBAs used their unique positions in the 1990s to exert leverage over drug manufacturers and retailers and expanded to become pharmacy benefit managers. They charged manufacturers for the right to list their drugs on an insurer¹s formulary and dictated prices that insurers would pay pharmacies to dispense them. They then paid pharmacies less for drugs than the actual cost pharmacies paid to acquire them, and pocketed the difference. PBM contracts prevented customers from seeing the manufacturer rebates, pharmacy payments or even drug prices.
Second, the PBMs used Congress in 2006 to expand their new model on a massive scale. In return for campaign contributions and a promise of big savings, Congress made PBMs the centerpiece of the new Medicare drug program. As a result, PBMs now take a cut of virtually every prescription paid for by taxpayers.
What does this mean for taxpayers? They are getting ripped off. A PBM owned by UnitedHealthcare recently made this clear when it shared industry data with labor unions in New York. According to the company, PBMs keep $7 to $9 in profit on average for every brand prescription filled and $22 to $28 for every generic prescription filled. This compares to the average retail pharmacy fee of $1 to $2 to fill a prescription. Keep in mind that PBMs never handle the prescriptions or even take possession of the medications. Also keep in mind that the details on these transactions are never shared with customers ‹ even if the customer is the U.S. government.
How big is the problem? Before Congress created the Medicare drug program, the government paid for 24 percent of all U.S. drug purchases.
Today, the government pays for 36 percent, or 1.3 billion prescriptions, and PBMs are in the middle of every sale.
2. Make Expenditures Transparent
Hidden transaction fees are the biggest obstacle to reducing costs.
Private employers have already figured this out. Nearly 60 large employers that collectively spend $4.9 billion for prescription drugs have recently either dropped their PBMs or forced them to disclose their drug acquisition costs. The University of Michigan started the trend in 2005 and reported that it saved $2.5 million annually when it dropped its PBM in favor of direct purchases. According to the university, ³Most of the savings come from eliminating fees from the university¹s former pharmacy benefit manager and using the claims data of the 80,000 people it provides insurance for ‹ data the PBMs do not share with their clients ‹ to help school officials negotiate better drug prices.² Companies such as Caterpillar are leading the trend away from the PBM model. According to a report in CFO.com, Caterpillar¹s pharmacy benefit manager, Todd Bisping, ³found that there was a great deal of waste inherent in a system that uses PBMs as middlemen.² When a Congressional committee held hearings in June to determine how much the government was paying PBMs to manage federal employee health plans, the inspector general of the Office of Personnel Management told the committee the PBMs structured their contracts with the government to make audits ³almost insurmountable.² The committee concluded that ³the drug pricing program is structured to hide information from the consumer and auditors, and the United States Congress.² The committee also concluded that the ³federal employee plans pay substantially more for drugs than other agency programs,² and that ³Costco and Drugstore.com offer better prices for drugs ... in spite of the fact that the federal program has the buying power of 8 million members.² Of course, the PBM industry issued a media statement after the hearing to say greater transparency by PBMs will ³raise costs for both taxpayers and consumers.² What other health care provider argues that price transparency and open competition will increase prices?
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