In recent years, pharmacy benefit managers have been under fire for a series of contract and state law violations, calling into question what’s really going on behind the $535.5 billion pharmaceutical industry.
PBMs are designed to manage prescription drug benefits on the behalf of health insurers, saving both insurers and consumers money on prescription drugs. However, as the pharmaceutical industry has ballooned and drug prices have increased 33% since 2014, questions have been raised over whether PBMs are acting in the interest of their clients.
This year alone, states have introduced hundreds of bills in an effort to hold PBMs accountable and bring transparency to prescription drug prices. Between Arkansas gaining the right to regulate PBMs in a 2020 Supreme Court ruling, to the PBM Centene paying over $140 million in settlements to Ohio and Mississippi for overcharging their Medicaid programs, there is increasing demand to investigate PBMs.
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Dae Lee, a pharmacist attorney at the healthcare and life sciences law firm Frier Levitt, represents pharmacies and plan sponsors against PBMs. His firm claims to have recovered millions of dollars on the behalf of plan sponsors, uncovering spread pricing and wrongful audit practices. Lee spoke with Employee Benefit News about the intricacies of a PMB lawsuit and how to spot malpractice.
How do PBM’s operate with independent pharmacies that might ring an alarm bell for you as a lawyer?
An independent pharmacy gets audited regularly, maybe even a few times a month by PBMs. They also conduct the fraud, waste and abuse investigation which looks for discrepancies in claims, such as incorrect medication quantity or duplicative claims. They issue those findings to the pharmacy and try to take the entire reimbursement amount paid on a given claim.
For example, a PBM identifies a copay discrepancy — meaning the pharmacy failed to provide proof of copay — and the copay is $3. Logically speaking, the PBM should only collect back the $3 from the pharmacy. That's not what's happening. Instead, PBMs take back the entire amount of the reimbursement paid on that claim. And it’s possible that this prescription claim had already been dispensed to the patient a year or two ago.
Besides the financial burden that these audits put on the pharmacy, if a major PBM terminates or suspends the pharmacy from their network, the pharmacy is likely to go out of business. PBMs’ self-serving tactics are driving the independent pharmacies out of the industry but also driving up drug prices and healthcare costs for Americans.
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Now, there are only three PBMs that control nearly 80% of the market, which are CVS Caremark, Express Scripts and OptumRx. Those three PBMs are already vertically integrated, meaning they are their own plan sponsors and pharmacies. So why wouldn't the PBMs try to drive independent pharmacies out of the picture? It means they receive more prescriptions and more money.
How do they use these tactics when it comes to their relationships with plan sponsors?
Even if there's contract language in place to prohibit this from happening, we see the same self-serving tactics with plan sponsors through spread pricing and manufacturer rebates.
Centene, which is a company that served as an intermediary for government-sponsored and private health care programs, was sued by the state of Ohio for spread pricing. For example, if a pharmacy paid $50 for a drug, Centene would charge Ohio’s Medicaid department $100. Centene ended up settling for $88.3 million. Weirdly enough, Ohio awarded the Medicaid contract to Centene again. There’s a lot of politics involved.
We also recently settled a case for a Medicare part D sponsor, which deals with voluntary prescription drug coverage. That case ultimately settled for $6.25 million. That $6.25 million in PBM’s pocket should have been relayed to the plan sponsor and would have decreased the total drug spending of that plan sponsor, which means that my premium would have gone down. And if this is happening in the Medicare part D space, which is supposedly getting heavily regulated, imagine what’s happening in the private space where there's no disclosure requirements.
How do PBMs get away with these malpractices?
In the private space, when a self-funded employer contracts with a PBM, that contract is driven by the PBM. That PBM is also often introduced or recommended by a PBM-incentivized broker or consultant. These contracts are going to be pro-PBM.
Based on my experience with the plan sponsors, they are not well-versed in the PBM industry, so they don't know the lingo. They just let the PBM draft the contract. Even if there's a monitoring or auditing provision, PBM puts limitations in the contract. There are many cases that I've seen where the plan sponsor cannot elect an auditor without the PBM’s approval. In more egregious cases, the PBM doesn't allow the auditor to share the audit notes with the plan sponsor. It all starts with contract language. You cannot let the PBM dictate the contract terms.
What must change in the relationships between PBMs and their clients in order to avoid falling prey to these tactics?
We would need to see PBMs in a fiduciary model because a fiduciary is legally and ethically bound to place the interest of their clients first. PBMs would be obligated to seek savings and obligated to relate a hundred percent of savings to the sponsor. Right now, PBMs are selectively transparent.
Fortunately, there are a number of smaller PBMs who are trying to put an emphasis on transparency. But it has become obviously difficult to break into that market because the top three PBMs control so much of the market. It's an uphill battle, but I'm glad that there are smaller PBMs that are spearheading the efforts to correct the industry for the benefit of the patients.
