Pharmacy Benefit Companies Won't Disclose Fees January 10, 2003

The companies that provide discounts on prescription drugs for about 200 million Americans have refused to tell Congressional investigators how much they are paid by drug makers to promote sales of their favorite drugs.

The General Accounting Office said the companies, which are called pharmacy benefit managers, obtained reduced prices for eight million members of the Federal Employees Health Benefits Program. But the keys to profit for two of the largest pharmacy benefit companies, Medco Health Solutions and AdvancePCS, were rebates and fees from the drug makers, the G.A.O. said in a report it planned to release today.

A draft copy of the report was obtained yesterday from a Washington trade group that is critical of the pharmacy benefit management companies.

Officials of Medco and Advance did not dispute the importance of rebates and fees from manufacturers, but they insisted that the amounts were proprietary information and would not disclose them. The companies said they were pleased that the report found that they were producing savings.

"We disclose the fact that we are receiving those fees to the federal employees plan," said Leslie Simmons, a spokeswoman for AdvancePCS. Advance does not disclose the amounts, she said.

The pharmacy benefit companies are expected to manage drug benefits for 30 million elderly and disabled Americans under most proposals for the Medicare drug benefit that Congress is expected to debate again this year. Proponents of comprehensive changes in Medicare often argue that the federal employees program, the nation's largest employer-sponsored health plan, should be the model for financing more Medicare services through private insurers.

In statements in lawsuits and filings with the Securities and Exchange Commission, officials of Medco, for example, have said they have made deals with manufacturers like Pfizer and Merck, which owns Medco, to push prescriptions of some of their most expensive drugs. Medco has said that even so, such arrangements benefited customers because prices were reduced on a group of drugs, including the manufacturers' favorites.

Critics say the system results in higher overall costs. Federal actuaries said this week that prescription drugs were the fastest-growing component of health care spending in 2001, the most recent available year, rising 15.7 percent, to $140.6 billion.

"Do these rebates have the perverse incentive of actually pushing higher-cost medicine onto the patient?" asked Senator Byron L. Dorgan, Democrat of North Dakota, who requested the G.A.O. study 18 months ago, when he was chairman of a consumer affairs subcommittee of the Senate Commerce Committee.

A number of states, including New York, all six New England states, Pennsylvania, Hawaii and West Virginia, are trying to find ways around the rebates for state drug programs for Medicaid and state employees.

West Virginia, for example, now requires Express Scripts, another large pharmacy benefit manager, to turn over to the state 100 percent of all rebates from drug makers.

AdvancePCS is a principal manager for drug purchases in retail stores by federal employees. Medco handles mail-order prescriptions for the program. The G.A.O. looked at costs, prices and rebates at Blue Cross and Blue Shield plans, as well as at PacifiCare, a commercial insurer that has its own pharmacy management unit, and the Government Employees Hospital Association. The study included members of the federal employees program in California, the Washington metropolitan area, and North Dakota.

Officials of trade groups for pharmacists and chain drug stores, which lose sales to mail-order competitors, criticized the report. "If no one can say how many of the rebate dollars the pharmacy benefit managers are keeping, how do you know whether they are effectively reducing overall spending on drugs?" said Crystal Wright, a spokeswoman for the National Association of Chain Drug Stores.

She said the report was "a disservice to policymakers who are about to embrace various Medicare prescription drug bills that are all centered around pharmacy benefit managers."

John Rector, senior vice president of the National Community Pharmacists Association, which represents independent pharmacies, said the pharmacy benefit managers, or P.B.M.'s, "obviously do not want Congress to know the true character of their business. But the G.A.O. should not be their pawn."

Ann Smith, a spokeswoman for Medco, praised the report. "The crux of the report is that P.B.M.'s do save money on behalf of the health plans," she said. "We are very pleased."

John D. Jones, a vice president of Prescription Solutions, said that all rebates it received were "passed back to our parent company." He said that health plans, large employers and their consultants were "big boys," using their buying power to "pin down the P.B.M. as to any other fees" these companies receive from manufacturers.

Copyright 2002 The New York Times Company