Attempts to reform drug middlemen surge in nearly every state

Secretive companies that mediate between drug manufacturers, payers and pharmacies have been drawing heavy scrutiny for at least four years. 

Now efforts to change the way those companies do business have resulted in 100 bills introduced in 42 separate states, according to a report published Wednesday by the influential Kaiser Health News.

Ohio has been a leader in trying to change the way pharmacy benefit managers do business. 

The companies, known as PBMs, are hired by insurance companies or government programs such as Medicaid to manage prescription-drug benefits. They leverage their ability to give drugs preferred treatment to get rebates and other discounts from manufacturers. And they use a non-transparent system to bill payers and reimburse pharmacies.

A PBM industry spokesman told Kaiser that it’s the people who make the drugs who are responsible for high costs — not the companies that handle the transactions.

“The main focus for state policymakers should be to examine brand drug manufacturers’ pricing strategies,” said Greg Lopes, of the Pharmaceutical Care Management Association. “Drug manufacturers are solely responsible for setting and raising drug prices.”

But that ignores the opaque system of discounts the PBMs require drugmakers to supply if they want access to the 266 million Americans whose benefits PBMs control.

The result is a crazy system where manufacturers and pharmacists wildly inflate list prices of drugs to cover the discounts they’re giving PBMs, critics say. In one case, 11 generic versions of a brand-name drug flooded onto the market this year and list prices actually went up.

Critics also say that PBMs have unfairly driven community pharmacists out of business by under-reimbursing them and by steering patients to affiliated pharmacies, such as CVS, corporate sibling of PBM giant CVS Caremark. 

The big-three PBMs also have been accused of exploiting a lack of transparency to take huge profits. In Ohio, CVS Caremark and OptumRx marked up the cheapest class of drugs by $244 million in a single year, according to a 2018 analysis.

In response to the complaints, Ohio Attorney General Dave Yost has sued three healthcare giants over prescription drugs and settled with one — Centene — for $88.3 million. It’s part of $1.25 billion the company has set aside to pay out to 22 states.

The Ohio legislature also has undertaken a number of reforms. They include ending the practice of allowing Medicaid managed-care companies to handle drug benefits. 

Instead, a single pharmacy-benefit manager will contract directly with the state starting next year. That will allow Medicaid officials to see pricing, reimbursement and discount data to which they now have limited access.

Centene Chief Financial Officer Drew Asher earlier this month told investors that such “carveouts” in Ohio and California create a “headwind” for the company’s pressing goal of rapidly increasing profits.

Arkansas Attorney General Leslie Rutledge also has been active in attempting to reform the PBM industry. Last year, her office won a case before the U.S. Supreme Court, effectively allowing state governments to regulate PBMs even if they work for insurance plans operating in multiple states.

Kaiser reported that other states are implementing sweeping reforms as well.

Among them, the Montana legislature unanimously passed a bill requiring PBMs to be licensed by the state, publicly report their revenue and disclose certain information during business negotiations.

New York also passed a bill requiring PBM licensure and creating financial reporting requirements, Kaiser reported. And Wisconsin passed one creating new state oversight and requiring pharmacists to tell customers when they could save money on generic versions of brand-name drugs.

However, generic savings can be much bigger if pharmacies opt out of the insurance/PBM system altogether, the people operating such pharmacies say.