Pharmacy benefits managers vilified before House panel

Thursday, February 19, 2004
By Bill Toland, Post-Gazette Harrisburg Bureau

HARRISBURG -- Abuses by pharmacy benefits managers -- middleman companies that are supposed to help private health plans bargain for lower-cost prescription drugs -- have cost American consumers nearly $4 billion over the past two years, according to testimony yesterday in Harrisburg.

A hearing before the House Insurance Committee sought to shed light on the inner workings of benefits managers, which use bulk purchasing power to negotiate discount drug rates.

Critics and litigants accuse benefits companies of persuading doctors to switch patients to pricier medications, striking kickback deals with big drug firms, underfilling prescriptions and hiding the value of their bulk discounts.

They have also accused the companies of steering doctors and private health plans toward their own mail-order pharmacies and repackaging pills into smaller, costlier, doses.

At the center of yesterday's hearing was a House bill that would impose stiffer regulations on the benefits companies and force them to register with the state, something required in 44 other states, but not here.

State Rep. Don Walko, D-North Side, introduced the bill last spring. It got a boost last autumn when Medco Health Solutions Inc., a benefits manager from New Jersey, was sued by the U.S. Attorney's office in Philadelphia. The fraud suit accused the company of surreptitiously forcing on its clients drugs made by Medco's old parent firm, Merck & Co.

The new law would require benefits managers to obtain a "certificate of authority" before they could operate in Pennsylvania. It would also ask the managers to divulge relationships with sister or in-house drug distributors, as well as all incentive and rebate arrangements with pharmaceutical firms.

Benefits managers say that would be akin to giving away trade secrets and negotiating strategies.

"We would be treated differently than any other business that buys goods and sells them at a cost," said Allen Horne, a vice president with Caremark Rx Inc., one of the top four benefits managers in the United States.

Collectively, the top four benefits managers control 77 percent of the U.S. mail-order prescription market, and when Caremark's proposed $5.8 billion acquisition of rival firm AdvancePCS is finalized next month, only three benefits firms will remain at the top of the heap.

While focusing on the convoluted arrangements among benefits managers, doctors, pharmacists, drug companies and, eventually, patients, yesterday's hearing also illustrated the complex regulatory atmosphere that makes it difficult to keep watch on benefits managers.

From state to state, the companies and the contracts they negotiate are regulated, to varying degrees, by insurance departments, health departments, pharmacy boards and stand-alone state laws.

Melanie Horvath, executive director of the Pennsylvania Pharmacy Council, said that the layers of regulation are needed to prevent benefits managers from inflating drug costs by steering doctors and patients toward "preferred drug" lists. The lists, often compiled by an outside board, sometimes include generic versions of well-known drugs, but can also include more expensive brand-name drugs.

Prescription benefits managers, Horvath contended, can switch prescriptions on unknowing patients if the contract between a health insurance provider and the benefits managers offers that leeway. "You're once again taking more and more power away from [consumers] to determine their own health care," she said.

Horne said his company always consults with the prescribing doctor before making the switch, and eventually notifies the patient.

Legislators on the insurance committee said that private employers, even when aided by consultants, aren't very savvy when it comes to negotiating prescription contracts, and suggested benefits managers take advantage of contract loopholes.

"Most of them, you can drive a truck through," said state Rep. Steve Nickol, R-York, who has reviewed some of the contracts. "The lack of sophistication has amazed me."

(Bill Toland can be reached at or 717-787-2141.)

Copyright ©1997-2004 PG Publishing Co., Inc. All Rights Reserved.