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Pharmacy benefit managers operate with lack of transparency, expert finds

PBMs have been dogged by controversy for years, and yet they've become a fixture -- which David Henka sees as a real problem.

Jeff Lagasse, Associate Editor

Pharmacy benefit managers are uniquely an American concept, acting as third-party administrators of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, and state government employee plans.

Some feel that they operate with an alarming lack of transparency.

PBMs ostensibly are tasked with maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.

But they've been dogged by controversy. David Henka, CEO of pharmacy benefit solution company ActiveRADAR, which helps large employers, pensions and unions move the needle on pharma costs, said the root of the problem is the relationship between PBMs and pharmaceutical manufacturers.

"There's a lack of transparency that really is the key thing here," said Henka. "Nobody knows in terms of a plan sponsor what those contracts are, how much those rebates really cost and what is the translation of that back to the sponsor. It's a complete lack of transparency."

The controversies surrounding PBMs are not new. In 1998, PBMs were under investigation by then-Assistant U.S. Attorney James Sheehan of the Department of  Justice. At issue was their effectiveness in reducing prescription costs and saving money for their clients.

State legislatures have been responding. In 2011, the Mississippi Board of Pharmacy formed a new division of PBMs to more effectively license and regulate them. But in 2013 a Centers for Medicare and Medicaid Services study found negotiated prices at mail order pharmacies to be as much as 83 percent higher than the negotiated prices at community pharmacies.

According to Henka, PBMs have constructed contracts that are "skillfully created" to hide the key rebate amounts.

"They're never disclosed to the plan sponsor," Henka said, "so the question is, are they passing along 50 percent of the rebates? Ninety percent? How much are they keeping for themselves? Financially, they're extraordinarily comfortable entities, so they're making money somewhere.

"The actual person who's paying for the benefits does not actually know how much money is being transferred from the little man to their bottom line costs."

Henka suggests a couple of things to combat the issue, including better and more complete contracting with PBMs and large purchasers. The market will correct itself one way or another, he said. Disruptors may come in and shake up the paradigm, or there could be more intervention from the government or regulatory agencies.

He said having a PBM as part of a benefits plan has become a necessary evil.

"You receive a (rebate) check on a quarterly basis and it's like found money," said Henka. "It becomes almost an addiction in a way. You're used to these checks coming in, they're not budgeted for, they're not planned for. It kind of perpetuates itself. You can't get away from this found money, so you become reliant on it, and it becomes part of the industry, which is unfortunate, because it doesn't address the rising costs of drugs."

The ultimate solution may be, for better or for worse, greater regulation of the pharmaceutical industry, and the regulation of prices for pharmaceuticals. Currently in the U.S, there are no regulations for pharma pricing, as there are in other countries.

Henka doubts the current administration will advance a regulatory solution. Instead he pictures it happening at some undefined point in the future, when the pricing situation hits a nexus, or a tipping point, likely economic. A sharp economic downturn, he said, could precipitate such a tipping point.

Henka also doubts that the results of the upcoming election will alter things in any significant way.

"Right now, today, it's below the boiling point," he said. "Until it reaches the boiling point, I don't think there'll be any legislative solution."

Twitter: @JELagasse
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