State employee pension fund to audit big PBM

The upcoming audit will be the fifth time in 10 years that the pharmacy benefit manager to the Ohio Employees Retirement System has been audited. An earlier version of this story said it had been audited more frequently. It’s been updated.

The Ohio Employees Retirement System is seeking proposals for a firm to audit Express Scripts, the pharmacy benefit manager that in 2020 handled more than $100 million in prescription-drug benefits for 26,000 retirees in the system.

A spokesman for the pension fund, also known as OPERS, said the audit isn’t the product of suspicion that Express Scripts has done something wrong. But in 2020 Ohio Attorney General Dave Yost sued the company, accusing it of ripping off the Ohio Highway Patrol Retirement System. The suit is ongoing.

“This particular (pharmacy benefit manager) egregiously charged for services it didn’t deliver,” Yost said when he filed the suit. “Its repeated breaches cost Ohioans millions, and we want our money back.”

Express Scripts denied wrongdoing in that case, and it didn’t immediately respond to a request for comment for this story.

As a pharmacy benefit manager, or PBM, Express Scripts administers drug benefits on behalf of pension systems, private insurers and government health programs such as Medicare and Medicaid. It negotiates rebates with drugmakers, helps determine which medicines are covered and at what level, and it determines reimbursements to pharmacies that dispense them.

The three largest PBMs — Express Scripts, CVS Caremark and OptumRx — control more than 70% of the marketplace. They say they use their size and sophistication to save health plans money. But critics have accused them of using their size and a lack of transparency to grow their own profits.

In 2018, their business practices made a national splash when investigations revealed that over the previous year CVS and Optum charged the Ohio Department of Medicaid almost a quarter billion dollars more for prescription drugs than they paid the pharmacies that dispensed them. A consultant hired by the state said the PBMs charged at least three times the going rate.

In 2019, Yost announced a lawsuit against OptumRx in which he claimed the company defrauded the Ohio Bureau of Workers Compensation of $16 million. OptumRx denied wrongdoing in the case.

When he announced the suit, Yost said there were many more to come.

“I get the question from time to time, ‘Are there any other shoes to drop?’ Baby, we’re in DSW,” Yost said then, making a reference to the Designer Shoe Warehouse.

The big three PBMs are owned by corporations that by revenue are among the 13 largest in the United States and their transactions can be dizzyingly complex. Yost has since explained that because of those factors, investigating them is time consuming and labor intensive.

But the lawsuit against Express Scripts over its services to the patrolmen’s pension fund says that an investigation uncovered at least five practices that were in violation of the company’s contract. Among them were misclassifying generics as brand-name drugs and charging much more for them, not providing guaranteed discounts and dispensing fees, and hiding outside compensation it was getting as a result of its business with the pension system.

In the case of the Public Employees Retirement System, spokesman Michael Pramik said that under a 2009 rule, his agency audits all health care vendors at least once every three to five years. In  the case of Express Scripts, the upcoming audit will be its fifth in the past 10 years, he said.

“Our intent with any audit is to ensure plan participants are being serviced and pricing, plan design, contract guarantees and administrative functions are being properly applied based on contractual agreements,” he said in an email.

Even so, the request for proposals from possible auditors contains at least two tasks that seem aimed at making sure misconduct alleged by the patrolmen’s pension system isn’t happening at OPERS.

“Evaluate the accuracy of manufacturer rebates received by the Rx administrator and credited to OPERS,” is one of the tasks the pension system is setting for the next auditor. It could be non-disclosure of some rebates that the patrolmen’s pension suit is referring to when it says Express Scripts failed to disclose “remuneration received from any source and in any manner in connection with its performance of the services” as required by its contract.

Another task OPERS is setting for its next auditor: “Determine if pricing guarantees, such as drug-ingredient discounts, dispensing fees, and rebates have been met as per the pricing schedule set forth in the Rx Administrator Agreement.” In his suit on behalf of the patrolmen’s pension fund, Yost alleges that Express Scripts failed to meet those guarantees.

How doggedly these questions are investigated could depend on whom OPERS hires to ask them.

In Kansas, for example, an audit of CVS Caremark’s transactions on behalf of state employees in 2018 and 2019 has been widely panned. The audit firm, PillarRx, even allowed CVS to write the report’s conclusion, public radio station KCUR reported.