John Forbes was deluged with emails and phone calls early this year as pharmacists across the state contacted him to try to sort out why one of the biggest pharmacy benefit managers — CVS Caremark — was suddenly slashing their prescription reimbursements. In mid-January the company reduced prescription payments to pharmacies across the state, effectively creating a $20 to $30 loss for many prescriptions they were filling.  

“I think CVS Caremark was trying to test the market to see how low they could go,” said Forbes, owner of Medicap Pharmacy in Urbandale, who is also serving a third term in the Iowa House of Representatives. 

Forbes, who has practiced for 38 years as a pharmacist, has been a sounding board for state lawmakers on legislation involving the industry’s complex drug pricing system. As the Legislature’s sole practicing pharmacist in the House, he has become a pivotal voice for change as pressure grows in Iowa and nationally for increased transparency in pharmacy benefit practices as medication costs continue to soar. 

The Urbandale legislator has been working with the House Government Oversight Committee in an investigation of pricing practices by CVS Caremark and other pharmacy benefit management (PBM) companies. The investigation, launched during the past legislative session, was prompted by complaints by an Ottumwa pharmacist that CVS Caremark was pocketing enormous profits by overcharging the county for prescriptions on which it paid far less to the dispensing pharmacies. 

Nationwide, the pharmaceutical industry is undergoing tremendous upheaval amid increasing consolidation among the major players. In January, CVS Caremark announced plans to acquire health insurer Aetna for $69 billion, a combination that was overwhelmingly approved by the companies’ shareholders. Meanwhile, insurer Cigna is poised to buy another of the big three PBM companies — Express Scripts. And the nation’s largest health insurer, UnitedHealthcare, has operated another of the largest PBMs, OptumRx, since 2011. The three largest PBMs — CVS Caremark, Express Scripts and OptumRx — collectively process nearly three-quarters of all pharmacy claims in the United States, each with about one-quarter of the market. 

Where do the discounts go? 
Prescription drug coverage is a relatively recent benefit in the health insurance world, but one that over time has increased tremendously in cost due to a confluence of factors, said Michael Andreski, an associate professor of pharmacy with Drake University. 

As once inexpensive pharmaceutical drug prices exploded over the past 30 years and drug coverage shifted from a rare add-on to a commonly offered health benefit, pharmacy benefit managers emerged as a mechanism to negotiate the lowest possible prices from the pharmaceutical companies on behalf of their customers. 

“For a while it seemed to work pretty well,” said Andreski, who earlier in his career was a practicing pharmacist. “The PBMs negotiated lower prices through confidential contracts — many of them with rebates offered on prices if certain goals were met, with the rebate intended to go back to the consumer or the employer who bought the insurance plan.” 

More recently, however, “there have been questions of how much of those savings have actually been making it back to the primary consumer,” he said. “The PBMs have also used their market power to decrease their reimbursements to pharmacies, which is creating a lot of pressures on the pharmacies to stay open.

“And now we have the complication that one of the major PBMs [CVS Caremark] is part of a major pharmacy chain, and there have been questions of whether they’ve been preferentially treating their pharmacies compared to other pharmacies.” The pharmacy chain operates 35 retail locations across the state. 

Pharmacies, which vary significantly in size and ownership, are limited in actions they can take to counter the PBM industry, Andreski said.  

“The pharmacy industry is not a monolithic block. You have independent pharmacies that are reimbursed differently than pharmacies that might be part of a national chain,” he said. “There are different economics for each, and sometimes what benefits one might push on the other. So there are limitations on what the pharmacies can do to try to band together.” 

Independent pharmacies have meanwhile experienced the brunt of the changing industry. There are fewer than half the number of independent pharmacies as there were in the 1990s, Andreski said.  

Attempts at reform
As both a pharmacy owner and legislator, Forbes is clearly frustrated by the level of secrecy that the pharmacy benefit managers are able to maintain by defending their pricing practices as “proprietary.” 

“So they’ve kind of gotten out of control, and they’re probably the most unregulated industry within the health care system today,” he said. “As a policymaker trying to get the best value for taxpayer dollars, and to get a good positive outcome with good drug therapy, I want to be able to provide that good value to taxpayers so that we know what we’re paying and we’re not overpaying in the marketplace.” 

Iowa legislators have attempted to reform the system, but the industry has fought back. 

In 2015, Iowa legislators unanimously approved a bill that was signed into law by Gov. Terry Branstad that beefed up a statute enacted the previous year to give the Iowa insurance commissioner the authority to investigate pricing practices by the PBMs. However, that law was overturned in January 2017 by a federal appeals court in Minneapolis, which reversed a state district court decision that had upheld the statute. 

Because of that, the state’s Government Oversight Committee is now the sole mechanism for investigating the PBMs’ dealings in Iowa, rather than the insurance commissioner, Forbes said. 

The Urbandale legislator was approached earlier this year by a pharmacist in Ottumwa who had discovered a huge discrepancy between what CVS Caremark was reimbursing him compared with what it was charging Wapello County for prescriptions for jail inmates. That led him to bring the matter to Rep. Bobby Kaufmann, chairman of the House Government Oversight Committee.

“So we got records from both the pharmacy and the county and did an analysis and found that we had a pretty wide range between what was being reimbursed to the pharmacy and what CVS Caremark was charging the county,” Forbes said. “In some cases we were finding that the pharmacies paid $3 for the prescription and the county was getting billed over $120 for the same drug.” 

Forbes is now working with the committee to gather data to conduct an audit of Medicaid prescription claims of customers from his own pharmacy. He plans to compare what his pharmacy was paid for each prescription with what the state Medicaid program was charged by the two major PBMs — OptumRx and Express Scripts — that work with the Medicaid managed care organizations. 

Meanwhile, other states are beginning to uncover what appears to be significant overbilling by PBMs. In Ohio, a study commissioned by that state’s Medicaid program recently concluded that CVS Caremark and OptumRx had billed Ohio’s Medicaid program fees that were three and six times higher than the industry standard, potentially overbilling the state by as much as $187 million between the two companies, according to a Columbus Dispatch article. 

The investigation by the Ohio Department of Medicaid found that the PBMs made $223.7 million to process nearly 40 million prescriptions from April 1, 2017 through March 31, 2018 — a “spread” of 8.78 percent. In a press statement, CVS Caremark officials said the spread of 8.7 percent that it received was reasonable. 

Educating consumers 
There have also been calls for reform at the federal level. In May, President Donald Trump announced what he called “a blueprint for bringing soaring drug prices back down to earth.” Although the plan is short on details, the announcement was favorable in pointing a spotlight on the pharmacy benefit management industry, say pharmacy representatives in Iowa.  

“It is such a complex system, so bringing transparency is a positive piece,” said Kate Gainer, executive director of the Iowa Pharmacy Association. 

Limiting the use of rebates, which tend to artificially inflate the price of drugs, could be one way to improve the system, Gainer said. But with the realities of how pharmacy benefit management companies operate, educating consumers and employer groups about PBMs’ pricing practices and how the “spread” operates is the next best step. The association, in collaboration with the Iowa State Association of Counties, has developed a list of “10 Smart Questions to Ask” about PBMs. (See info box on Page 14.) 

“Pharmacists have the front-line view of these egregious pricing practices,” Gainer said. “So getting the information in the hands of plan sponsors and decision-makers is something that the Iowa Pharmacy Association is very supportive of doing. No employer or plan sponsor knowingly wanted to be enrolled in a plan design that raises prices more than they wanted, but the PBMs have been very good in doing their jobs in a smoke-and-mirrors way.” 

As Forbes explains it, the PBMs use large discounts against the full-cost “average wholesale price” of a drug to justify markups through spread pricing systems that can total hundreds of dollars for a single prescription. 

“So [the PBM] may say, ‘We’ll give you average wholesale price less 60 percent,’ and if you don’t know the business, you say, ‘That’s great — sign me up.’ 

“So if the [average wholesale price or AWP] is $1,000 and the pharmacies are getting it at a 90 percent discount, we’re paying $100 for it, plus a small fee. But they’re going to turn around and bill the insurance company $400 [the average wholesale price less the 60 percent discount]. So in that case, the PBM makes $300 on that one prescription, where they should only have made maybe $10. That’s why prescription drugs are seeing such an increase with this spread pricing.” 

The Pharmaceutical Care Management Association, which represents the pharmacy benefit management companies, contends that drugmakers could address high drug prices simply by lowering drug prices, and defends the use of discounts as  necessary to protect consumers. 

“Simply getting rid of rebates and other price concessions would leave patients and payers, including Medicaid and Medicare, at the mercy of drug manufacturer pricing strategies,” PCMA President and CEO Mark Merritt said in a June statement on reducing prescription drug prices.

The association also released a study in June 2017 which it said proves that pricing strategies are not connected to the rebates and discounts that pharmaceutical companies negotiate with the PBMs. 

Wellmark’s efforts at cost containment
Wellmark Blue Cross and Blue Shield, Iowa’s largest health insurer, has, like all insurers, been challenged in trying to manage the impact of rising drug prices. 

Matt Hosford, chief pharmacy officer with Wellmark, said pharmacy benefit spending by Wellmark has effectively doubled over the past several years, from about 12 cents of every premium dollar to 25 cents of every premium dollar now. 

“We certainly had some good years with [pharmacy cost] trend and had some challenging years,” Hosford said. “We are running right around 6 percent increase in pharmacy costs year over year.” 

Wellmark regularly reviews its pharmacy benefit management contract, Hosford said. Currently, Wellmark contracts with CVS Caremark as its pharmacy benefit manager. The insurer had switched from Caremark 12 years ago to another PBM, Catalyst Rx, after experiencing double-digit increases in pharmacy benefit costs with Caremark.  

Currently, the top 10 classes of pharmaceutical drugs by total cost account for two-thirds of all pharmacy spending by Wellmark, Hosford said. “Five of those top 10 are what we would call specialty class drugs,” he said, such as anti-inflammatory drugs, oral cancer treatments, hepatitis C drugs and multiple sclerosis drugs. Consequently, there hasn’t been much opportunity to direct patients to generic drugs, he said. 

Wellmark was aware of CVS Caremark’s steep cuts to pharmacy reimbursements that the PBM  made earlier this year, but “our ability as a payer to impact price is very limited,” Hosford said. “Certainly we did have conversations with CVS and the pharmacy association, but that was the extent of our involvement.” 

The insurer has been looking for ways to use drug dollars more effectively. For the past two years, Wellmark has been working on a program with the University of Iowa and Drake University to build an incentive model for pharmacies to help patients choose the most effective medications that provide the best result over time, which may not necessarily be the lowest-cost drug. 

“Ultimately our goal is to be able to demonstrate the value these relationships can have to accountable care organizations,” Hosford said, “so eventually the pharmacists can get to a shared savings/shared risk model.”  

Meanwhile, questions remain to be resolved regarding the inner workings of PBMs. Regarding a potential audit of Medicaid claims handled by OptumRx and Express Scripts, Forbes said the PBM companies are so far being “very cooperative.” 

“I will probably audit about 350 prescriptions through our state Medicaid program and make a determination of what this pharmacy was paid, and what the state paid,” he said. “I’m hoping that that will come back good, and that we won’t see the problems they’re having in Ohio. But that remains to be seen.” It’s possible another Government Oversight Committee hearing may be scheduled this fall, especially if CVS Caremark doesn’t respond to the committee’s questions, he said. 

Forbes, who is 61, said he could opt at this point in his career to retire, but he plans to continue practicing as a pharmacist because he enjoys serving his customers. Neither he nor his colleagues at other pharmacies want to have to turn away patients due to pricing issues, but the current system puts them in a tough position.  

“We’re in the business of taking care of patients and helping them stay healthy. When a pharmacist has to tell a patient, ‘I’m sorry, I can’t fill your prescription,’ that doesn’t sit well with us.” 

10 smart questions for consumers to ask about PBMs:

1. How does the PBM define and classify “brand drug,” “generic drug,” and “specialty drug”?

2. For every drug dispensed, does the PBM “pass through” drug pricing or retain a profit spread on any drugs?

3. How much money does the PBM receive in drug manufacturer rebates (and other third-party benefits), and how much of this money received is passed through to the plan sponsor?

4. Does the PBM mandate or incentivize mail order on any drug or drug category or use other restricted pharmacy networks? 

5. Is the PBM contract “transparent,” and even if the answer is yes, what information is not shared by the PBM with the plan sponsor (such as net cost of a prescription drug)? 

6. What are the audit terms of the PBM contract?

7. How often does the PBM change its formulary, and how does the PBM contract address newly available generic drugs and specialty drugs?  

8. How are co-payments, cost-share and out-of-pocket consumer costs set by the PBM? 

9. What is the PBM policy on selling pharmacy data of those covered by this plan? 

10. How can we reduce loopholes and ambiguities in our PBM contract?

Source: Iowa Pharmacy Association

What is a pharmacy benefit manager?

Pharmacy Benefit Managers (PBMs) administer prescription drug plans for more than 266 million Americans who have health insurance from a variety of sponsors including: commercial health plans, self-insured employer plans, union plans, Medicare Part D plans, the Federal Employees Health Benefits Program (FEHBP), state government employee plans, managed Medicaid plans, and others.

PBMs are projected to save employers, unions, government programs, and consumers $654 billion – up to 30 percent – on drug benefit costs over the next decade.

Source: Pharmacy Benefit Manager Association