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40113 ChoiceRx ePub long (1)

Pharmacy Benefits Managers (PBMs) History The role and clout of PBMs has increased exponentially in recent years. The companies “started by processing prescriptions at pharmacies and evolved into taking over the drug benefit portion of health plans.”4 In an interview with The Wall Street Journal, Adam Fein, president of Pembroke Consulting, explained the evolution of this industry, “Over the last 40 years, prescription drugs have gone from something that people paid for out of their own pocket to something that is paid for by a third party.”5 The Wall Street Journal article goes on to explain, “As part of their evolution, the big PBMs are moving away from being just administrators and working to offer new services that can help save their clients money.”6 Unfortunately for all parties involved, intentions are not always synonymous to actions. The PBMs have grown in size and prescription volume. See addendum (pages 11 and 12) for evidence that PBMs prescription volume has more than doubled since 2000. In fact in TRICARE, mail order drug expenditures doubled from 2005 to 2010. Also, consolidation in the PBM market has left a few dominant players, the most prominent being Express Scripts-Medco with fully one third of the total annual prescriptions. As the companies have grown and their reach in the prescription drug market has increased, many problems have accompanied them. For example during a 2009 committee hearing, Rep. Stephen Lynch, D-Mass., then-chairman of the House Oversight and Reform Subcommittee on the Federal Workforce had this to offer about PBMs: “It’s unbelievable, the needless complexity of this whole system…It’s built to thwart oversight. It’s built to introduce as much complexity as possible. It’s a scam of major proportions.”7 PBMs are middlemen that were originally designed to reduce administrative costs for insurers, validate patient eligibility, and administer plan benefits. Over time, PBMs began negotiating costs between pharmacies and health plans. Today, in fact, PBMs are complex business entities with multiple, extremely profitable, revenue streams. In spite of these facts, PBMs have been largely unregulated at the state or federal level—even though they manage numerous prescription plans funded by taxpayer dollars. PBMs receive payment from pharmaceutical manufacturers for favoring certain drugs (most often brand drugs) because PBMs create lists of drugs that will be covered by the health plan. They negotiate two types of contracts—one with pharmacies—and one with plan sponsors. The PBM reimburses pharmacies one rate for dispensing a medication but charges a higher rate to the plan sponsor for the same medication—and pockets the “spread” between the two prices. In addition, most large PBMs also own their own mail order pharmacy. PBMs at times have even financially penalized patients that choose to use their community pharmacy rather than the PBM-owned mail order pharmacy. The relationship between a PBM and the mail-order prescription companies is a simple one, but the damages this inflicts on taxpayers is complex. 4. “What Is a ‘Pharmacy Benefit Manager?’” The Wall Street Journal; N.p., 21 July 2011. Web. 31 Jan. 2013. <http://online.wsj.com/article/SB10001424053111903554904576460322664055328.html> 5. What Is a ‘Pharmacy Benefit Manager?’” The Wall Street Journal; N.p., 21 July 2011. Web. 31 Jan. 2013. <http://online.wsj.com/article/SB10001424053111903554904576460322664055328.html.> 6. What Is a ‘Pharmacy Benefit Manager?’” The Wall Street Journal; N.p., 21 July 2011. Web. 31 Jan. 2013. <http://online.wsj.com/article/SB10001424053111903554904576460322664055328.html> 7. Parker, Alex M. “Lawmaker Pledges More Oversight of FEHBP Drug Costs.” - Pay & Benefits. Government Executive, 25 June 2009. Web. 01 Feb. 2013. <http://www.govexec.com/pay-benefits/2009/06/lawmaker-pledges-more-oversightof fehbp-drug-costs/29436/> 20


40113 ChoiceRx ePub long (1)
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