Benefit Managers A Growing Force in Medicare
By Joel B. Finkelstein, American Medical News
August 2, 2004
investigate these companies' practices, while PBMs point out the savings
they provide to the health system.
Pharmacy benefit managers are
coming under increasing scrutiny by the states just when the federal
government is expected to turn to them to administer the new Medicare drug
PBMs have arisen as a market force at a time when high
prescription drug costs are increasingly becoming a concern for patients
and physicians. The affordability problem is especially acute among
seniors, who are more likely to have chronic conditions often requiring
multiple medications. These worries helped drive passage last year of the
Medicare outpatient drug benefit.
PBMs design formularies and
pay claims, but the drugs are still distributed to patients by local or
mail-order pharmacies. Pharmacy benefit managers are to drugs what managed
care companies are to doctors and hospitals.
And like managed care
companies, PBMs have generated concern among some consumer advocates that
cost-cutting strategies can go too far, potentially undermining patient
care. Many of the companies have developed strategies to change patients
to alternative drugs, reportedly without the patient's or the physician's
consent in some cases.
Additionally, pharmacists are being bogged
down in the paperwork required by PBMs and have less time to act as
effective liaisons between physicians and patients, said Susan Winckler,
vice president of policy and communications at the American Pharmacists
Nevertheless, pharmacy benefit managers are expected to
administer the Medicare drug benefit when it is launched in 2006. PBMs
have the experience, said a spokesman for the Centers for Medicare &
Even now Medicare is taking advantage of that
experience. In June, CMS announced the launch of a Medicare demonstration
project that gives patients with cancer and chronic diseases early access
to the drug benefit. Caremark Rx, a PBM located in Nashville, Tenn., was
given the contract to administer the demonstration.
Caremark is not only the second-largest PBM in the
country; it is also the second national company to come under
investigation by state attorneys general for its business
The largest pharmacy benefit manager, Medco Health
Solutions, recently agreed to pay close to $30 million to settle charges
brought by 20 state attorneys general that the company switched patients'
medications without their knowledge and then pocketed the
The investigations have spurred lawmakers in some states
to introduce legislation to rein in PBM practices, including changing
patients' medications to lower-cost drugs in the same therapeutic
But PBMs argue that they provide a valuable service by
keeping drug prices in check and improving quality. According to a recent
industry report, state legislation designed to restrict pharmacy benefit
managers' techniques would eliminate billions of dollars in potential
savings to both patients and the Medicare program.
estimated $1.3 trillion in savings over the next decade, PBMs are helping
to free up resources that can be used to enrich existing benefits, cover
the uninsured, create new jobs and fund other priorities," said Mark
Merritt, head of the Pharmaceutical Care Management Assn., the PBM trade
group that sponsored the report by PricewaterhouseCoopers.
example, a nationwide ban on therapeutic interchange, which according to
the report always requires the prescribing physician's approval, would
abolish $6.9 billion in drug savings next year, the report
Another cost-cutting strategy being questioned is the PBM
practice of providing patients incentives to encourage them to get their
prescriptions through mail-order pharmacies. Some lawmakers worry that
this will put small local pharmacies out of business.
benefit managers also have come under fire for refusing to disclose
information on the prices they pay for drugs. Their critics say that the
companies are not passing on savings from rebates and discounts they
receive from pharmaceutical manufacturers. PBMs counter that they need to
keep such pricing information secret to remain competitive in the
Times are changing
State regulatory efforts
aren't the only pressure pharmacy benefit managers face. Their work with
Medicare could force many of their practices into the light, said the
The law mandating the program's drug benefit has
certain transparency requirements that will force participating PBMs to
provide some of the now-proprietary pricing information to the secretary
of the Dept. of Health and Human Services, she said.
The design and
structure of formularies also will come under increased oversight by the
department, which has plans to compare them against a model in development
by the U.S. Pharmacopoeia.
Other concerns were raised in a recent
Kaiser Family Foundation analysis highlighting potential problems with the
Medicare drug benefit. Will there be a set process for adding newly
approved drugs to the formularies in a timely manner? Will patients with
chronic diseases, such as AIDS, have access to off-formulary drugs when
they need them? And will PBMs limit off-label use of drugs?
sure there will be bumps in the road," Winckler said. To be successful,
the program will require diligent oversight by both CMS and Congress, she
Pharmacy benefit managers make use of several
cost-control techniques, some of which have come under increasing scrutiny
from state governments. A recent report sponsored by the industry
estimates the amount of money these sometimes controversial strategies
could save for 2005:
therapeutically equivalent drugs
Incentives for use of mail-order pharmacies
contract terms and pricing data proprietary
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