Unions Question Pharmaceutical Firm’s Charges

COBA, State Groups Assert Savings Aren’t Shared


February 13, 2004
By Diedre McFadyen

Struggling to contain spiraling drug costs, some public-employee unions in New York State are starting to take on the pharmacy benefit management companies whose profits have swelled even as workers pay ever-higher process for prescription drugs.

Correction Officer’s Benevolent Association President Norman Seabrook, who switched management companies last month, accused the union’s former providers of illegally pocketing the deep discounts and rebates that they wrest from pharmacies and drug manufacturers.

Suing on ‘Overcharges’

COBA is preparing a lawsuit against General Prescription Planners, which managed pharmaceutical benefits for the union’s 10,000 active members, and Express Scripts which played the same role for the union’s 3,500 retirees, in an attempt to recoup some of the $500,000 that Mr. Seabrook estimates the two companies overcharged his members each year.

Mr. Seabrook complained that St. Louis, Mo.-based Express Scripts was also the administrator of the benefit program for psychotropic, injectable, cancer and asthma drugs for city employees.

“The city is also being overcharged,” he said. “Why not use the savings to give us a fair wage increase?”

The city, in consultation with the Municipal Labor Committee, awarded a five-year contract to manage the so-called PICA benefits to New Jersey-based National Prescription Administrators in 2001. Express Scripts, which absorbed NPA into its operation two years ago, offered more attractive price schedules for the PICA drugs this December, when the Bloomberg administration and the unions reconfigured the popular program to cut costs, officials said.

Bloomberg spokesman Jordan Barowitz said the Mayor’s Office was not aware of any complaints. “The contract was competitively bid and awarded by a joint management-labor committee,” he said.

One union official privy to internal union discussions said that Mr. Seabrook’s opinion of Express Scripts was not widely shared by municipal union leaders.

Targeted by State Unions

But Express Scripts, the nation’s third-largest pharmacy benefit manager and the leading administrator of drug benefits for government employees in New York State, is the target of several other union lawsuits.

United University Professions, which represents 28,000 faculty and professional staff at the State University of New York, and the New York State Organization of Managerial Confidential Employees filed a joint lawsuit in Manhattan Supreme Court last month against the company, which is the sole manager of pharmaceutical benefits for 1.1 million state employees and retirees.

“The savings that Express Scripts negotiates should be passed along to the working men and women of the state work force, but that’s not happening,” said UUP President William E. Scheuerman.

District Council 37’s national parent, the American Federation of State, County and Municipal Employees, is also suing Express Scripts.

Leading the charge against the company, the Patrolmen’s Benevolent Association terminated its contract with NPA a year ago and also filed suit against the company.

Firm Defends Work

Express Scripts spokesman Steve Littlejohn defended the company’s business practices, saying that it has delivered lower costs on prescriptions drugs to its clients.

“We align our interests with our clients and members, never recommend switching a member to a higher-cost drug, disclose our financial relationships with drug manufacturers, and promote the use of lower-cost generic drugs,” Mr. Littlejohn said.

In its most recent annual report, Express Scripts reported net income of $202.8 million for 2002, a 63-percent increase over the previous year.

New York State Attorney General Eliot Spitzer subpoenaed Express Scripts last June for documents on its discount pricing policies and rebates. Spokesman Brad Maione said Mr. Spitzer’s investigation into the company continues.

Hiding Some Profits?

The union lawsuits question the legality of the business model that Express Scripts, like other large pharmacy benefit managers, has profitable employed for years.

The unions pay the company a flat management fee for its services. The firm, in turn, uses its buying power to negotiate favorable process and prescription-fulfillment fees from pharmacies and drug manufactures that result in lower retail process for members. But the union lawsuits contend that the firm secures additional undisclosed discounts and rebates from pharmacies and drug manufactures that it quietly absorbs as profit.

UUP and the advocacy group for state managers also charge that Express Scripts assists drug manufactures in artificially inflating the wholesale price of the drugs.

“As the process of prescription drugs continue to rise and the state demanded that its employees pay more of the health care costs. It became more important for us to scrutinize the practices of Express Scripts and other health care providers,” said OCME President Barbara Zaron, whose organization represents 2,000 state managers.

COBA: We’ll Save $500G

COBA has recently signed a contract with SUNRx, which Mr. Seabrook said would save the union $500,000 a year without reducing services to members. The new firm fully discloses all of the discounts that it receives along the pharmacy supply chain, he said.

Mr. Seabrook said that he was enraged that Express Scripts offered to cut its rates only after finding out that it was about to lose the union as a customer.

“What the hell have they been doing all these years?” he said.

DC 37, by contrast, decided to stay with the firm three years ago after it lowered its rates in the face of new competition for the union’s business.

NPA beat out two other bidders in 1987 to become the pharmacy benefit manager for the DC 37 welfare fund, a contract worth $125 million annually. On 2001, after a corruption scandal led to a thorough housecleaning at the union, then-DC 37 Administrator Lee Saunders put the contract up for bids for the first time in 14 years.

NPA, whose founder has close ties to AFSCME President Gerald McEntee and hired his ex-wife and daughter at one time to run the company’s Philadelphia office, retained the DC 37 contract by cutting its own bid by $7 million.