End Medically Dangerous, Price-Gouging Practices by PBMs

Samantha, a 30-year-old Wisconsin woman with severe psoriasis, was prescribed a new, but expensive drug to control her autoimmune disease, only to be denied coverage. Instead, she and her doctor were told to try less expensive steroid creams. She endured years of unnecessary pain and was left with ongoing scarring before she was able to get the more effective medication.

How could this happen? All too many patients are denied drugs they need because of “utilization management” practices—a euphemism if there ever was one—by one of the lesser known players in America’s tangled health-care system—pharmacy benefit managers (PBMs).

PBMs are middlemen between drug companies and employer-provided health-insurance plans, Medicare and Medicaid, and pharmacies. They process drug claims for health-plan members, ostensibly lowering prices that patients pay. They do this by negotiating price “rebates” from drug makers that are passed on to insurers and employee health plans, who say that they pass on savings to patients, and by determining reimbursement rates for pharmacies. According to the Pharmaceutical Care Managers Association (PCMA), the industry trade association: “PBMs are the primary advocates for consumers and health plans in the fight to keep prescription drugs accessible and affordable.”

While Big Pharma is primarily responsible for America’s exorbitant drug prices growing numbers of doctors, advocates, and policy makers say that PBMs deserve a prominent place in this pantheon of culprits.

Three giant PBMs—CVS Caremark, Express Scripts Inc., and OptumRx—control about 80 percent of the $350-billion industry, and operate their own mail-order pharmacies. In the name of cost-saving, PBMs, which manage pharmacy benefits for at least 266 million Americans, employ several utilization management techniques that often prevent patients from getting critically needed drugs.

Samantha’s case is an example of one method called “fail first” or “step therapy,” which can limit coverage for medicines for cancer, autoimmune diseases, mental health, and other conditions. PBMs, on behalf of employee health plans, often make patients try medications that yield higher profit margins before the one actually prescribed. If this treatment fails, doctors have to prove it doesn’t work to get coverage for the originally prescribed drug, ”forcing patients to undergo months of pain and suffering and risking that chronic conditions worsen in the meantime,” the Doctor-Patient Rights Project (DRPA) reported.

Another utilization management technique—the requirement that doctors get prior authorization from insurers before particular drugs can be prescribed—had a deadly outcome for James, a 73-year old Pennsylvania man. He was battling metastatic non-small cell lung cancer, when his oncologist prescribed a new FDA-approved medication. When the request was denied, the doctor was told to provide results of James’ blood tests for jaundice. He did so, resubmitting a request for authorization, but weeks went by. Having called repeatedly to try to learn the status of the request, the doctor was on hold with the company when James’ family called to say that he had died.

An American Medical Association survey this year found that 91 percent of doctors reported prior authorization delayed care, and 28 percent said that it led to “a serious adverse event.”

Similarly, PBMs and health plans can direct pharmacists to dispense different medications in the same therapeutic class, despite the doctor’s orders. This “non-medical switching” also means that PBMs and insurers sometimes foist less expensive—but not necessarily equally efficacious—drugs on patients in order to increase their profit margins. Switching can cause a “significant risk of disease flares, organ damage, and adverse drug reactions,” and increase emergency-room visits and long-terms costs for taxpayer-funded Medicare, according to the DRPA.

In a related practice, known as “formulary exclusion and adverse tiering,” insurers and PBMs each year list drugs they will cover for particular conditions and the ones they will exclude, as well as the co-pays for different “tiers” of drugs. Although CVS Caremark calls this “hyperinflation management,” when most medications to treat illnesses like HIV or hepatitis C are put in a tier with the highest out-of-pocket costs, it can make the most effective treatment unaffordable.

As PBMs play off different parts of the health-care industrial complex, they use “spread pricing” to bill health plans one amount for drugs and reimburse pharmacies at lower rates, including “gag clauses” requiring that pharmacies not reveal what they have paid. By making the costs to pharmacies opaque, patients actually may spend more on co-pays than if they paid out of pocket, with PBMs taking the difference between the lower, actual cost of a drug and the co-pay, a practice with the appropriately ugly name of “clawbacks.” With these policies, PBMs have also driven many independent, rural pharmacies out of business.

At least 33 statesWisconsinVirginiaave outlawed aspects of step therapy, gag clauses, and other PBM practices, and several have investigated this practice of “spread pricing.” Ohio Attorney General Dave Yost has charged PBMs with using spread pricing to overcharge Medicaid, which receives both federal and state funds.

After an investigation initiated by New York State Sen. James Skoufis, who accused PBMs of “self-dealing to the detriment of consumers,” the Legislature recently passed a bill that would regulate spread pricing, require PBMs to pass all “rebate” discounts from drug makers on to Medicaid managed-care patients, and ensure transparent, fair financial dealings with pharmacies. Although the Legislature unanimously passed and Gov. Andrew Cuomo signed earlier legislation to expedite the process for getting exceptions to step therapy, the new bill is awaiting signature by the governor.

However, states’ power to rein in PBMs is limited by an obscure provision of a 1974 federal law primarily designed to protect pensions of workers whose employers go out of business. This law, the Employee Retirement Income Security Act (ERISA), gives the U.S. Department of Labor oversight of “employee welfare benefit plans,” which include health plans. PCMA “has launched a barrage of litigation across the country ”to invalidate laws in Washington, DC, Arkansas, and elsewhere regulating PBMs, Arkansas’ Attorney General Leslie Rutledge said. She has petitioned the Supreme Court to challenge ERISA’s preemption of state laws regarding health plans.

Several bills have been introduced in Congress to address the lack of transparency in PBM operations, including how they siphon taxpayer money in their dealings with Medicare, Medicaid, and the veterans’ Tricare program. These are important, but the big problem is how ERISA protects PBMs from state regulation and oversight. It is essential for Congress to amend the federal statute so that it doesn’t preempt and prevent states from enacting laws to protect residents from practices that deny or delay patients’ access to the drugs they need.

Andrew L. Yarrow, a senior fellow at several Washington think tanks and the author of Man Out: Men on the Sidelines of American Life, writes frequently on health-care issues.