Pharmacy Benefit Management
Encyclopedia
In the United States, a Pharmacy Benefit Manager (PBM) is a third party administrator of prescription drug
programs. They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary
, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs. Fortune 500 employers, and public purchasers (Medicare Part D, the Federal Employees Health Benefits Program) — provide prescription drug benefits to the vast majority of American workers and retirees. There are fewer than 100 major companies in this category in the US.
(FTC). Currently, in the United States, a majority of the huge managed prescription drug benefit expenditures are conducted by about 60 PBMs. While many PBMs are independently owned and operated, some are subsidiaries of managed care plans, major chain drug stores or other retail outlets. PBMs compete to win business by offering their clients a range of sophisticated administrative and clinically based services, enabling them to manage drug spending by enhancing price competition and increasing the cost-effectiveness of medications.
s that treat conditions like Alzheimer's, rheumatoid arthritis
and multiple sclerosis
. So-called biogenerics legislation that does not grant brand name drug manufacturers monopoly pricing power is strongly supported by PBMs, AARP
, AFL-CIO
, the Ford Motor Company
, and dozens of other consumer, labor and employer organizations concerned about runaway health care costs in both the private and public sector. A recent Federal Trade Commission
(FTC) found that patents for biologic products already provide enough incentives for innovation and that additional periods of exclusivity would “not spur the creation of a new biologic drug or indication” and “imperils” the benefits of the approval process.
Prescription drug
A prescription medication is a licensed medicine that is regulated by legislation to require a medical prescription before it can be obtained. The term is used to distinguish it from over-the-counter drugs which can be obtained without a prescription...
programs. They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary
Formulary
The term formulary can refer to:*Formulary , ancient and medieval collections of models for official writings.*Formulary , List of prescription drugs covered by a particular drug benefit plan.*certain modern reference works, e.g.:...
, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs. Fortune 500 employers, and public purchasers (Medicare Part D, the Federal Employees Health Benefits Program) — provide prescription drug benefits to the vast majority of American workers and retirees. There are fewer than 100 major companies in this category in the US.
Issues and Controversies with PBMs
The PBMs have been involved in multiple lawsuits throughout the years:- October 2006: Medco Health Solutions agreed to a $155 million, plus interest, fraud settlement with the Justice Department. The charges included inappropriately canceling government employees' prescriptions, falsely claiming it had called physicians to warn them of potential bad-drug interactions, changing prescriptions without a doctor's consent, taking longer to fill prescriptions than it claimed, and underfilling pill bottles.
- December 2005: An Ohio court in a jury trial ordered Medco Health Solutions to pay $7.8 million for defrauding the State Teachers Retirement System of Ohio (“STRS Ohio”). The jury found that Medco owed a fiduciary duty to STRS Ohio and breached that duty. The court is still hearing arguments on punitive damages in the case.
- September 2005: Caremark/AdvancePCS agreed with the U.S. Attorney’s Office in Philadelphia to pay $137.5 million to resolve civil fraud and kickback allegations involving the Federal Employee Health Benefits Program and Medicare+Choice program. The company also signed an extensive consent order as part of the agreement.
- May 2004: Medco Health Solutions agreed to a $42.5 million settlement in a class action suit that alleged Medco violated its fiduciary duty by promoting more expensive drugs made by Merck and other manufacturers over less costly alternatives.
- April 2004: Medco Health Solutions agreed to pay $29 million and signed an extensive consent order to settle charges of deceptive trade practices filed by 20 state attorneys general.
- June 2003: The New York attorney general subpoenaed the records of Express Scripts after an audit by the state comptroller found repeated overcharges to a state employees’ drug plan. Express Scripts said it repaid $613,000.
- June 1995: Caremark pled guilty and agreed to pay $161 million in criminal fines, civil restitution, and damages for kickbacks, fraud, and the harm it caused to government medical insurance programs, including Medicaid.
Scope of PBMs
PBMs aggregate the buying clout of millions of enrollees through their client health plans, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. PBMs also use clinical tools aimed at reducing inappropriate prescribing by physicians, reducing medication errors, and improving consumer compliance and health outcomes.Competitions Among PBMs
PBMs operate in an extremely demanding marketplace where competition has been described as “vigorous” by the Federal Trade CommissionFederal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC). Currently, in the United States, a majority of the huge managed prescription drug benefit expenditures are conducted by about 60 PBMs. While many PBMs are independently owned and operated, some are subsidiaries of managed care plans, major chain drug stores or other retail outlets. PBMs compete to win business by offering their clients a range of sophisticated administrative and clinically based services, enabling them to manage drug spending by enhancing price competition and increasing the cost-effectiveness of medications.
PBM Strategies and Tools
All PBMs offer a core set of services to manage the cost and utilization of prescription drugs and improve the value of plan sponsors' drug benefits. Some offer additional tools, such as disease management, that can target specific clinical problems for intervention. It is up to the client of the PBM, however, to determine the extent to which these tools will be employed. Such tools include:- Pharmacy networks — PBMs build networks of retail pharmacies to provide consumers convenient access to prescriptions at discounted rates. PBMs monitor prescription safety across all of the network pharmacies, alerting pharmacists to potential drug interactions even if a consumer uses multiple pharmacies.
- Mail service pharmacies — PBMs provide highly efficient mail-service pharmacies that supply home-delivered prescriptions with great accuracy and safety and at a substantial savings. In a 2005 report, the FTC determined that PBM-owned mail-order pharmacies (1) offer lower prices on prescription drugs than retail pharmacies and non-PBM owned mail pharmacies; (2) are very effective at capitalizing on opportunities to dispense generic medications; and (3) have incentives closely aligned with their customers: the third-party payers who fund prescription drug care. The Government Accountability Office (GAO) has also found that mail-order pharmacies in the Federal Employees Health Benefits Program (FEHBP) offer substantial savings, especially when compared to retail pharmacies. According to January 2003 GAO report examining cost savings with mail-order pharmacies under FEHBP, the average mail-order pharmacy price for prescription drugs was 27 percent lower for brand name drugs and 53 percent lower for generic drugs than the price paid to retail pharmacies by cash-paying customers. According to GAO, “enrollees in the plans reviewed had wide access to retail pharmacies, coverage of most drugs, and benefited from cost savings generated by the PBMs. Enrollees typically paid lower out-of-pocket costs for prescriptions filled through mail-order pharmacies and benefited from other savings that reduced plans’ costs and therefore helped to lessen rising premiums.
- The shipment of drugs through the mailMailMail, or post, is a system for transporting letters and other tangible objects: written documents, typically enclosed in envelopes, and also small packages are delivered to destinations around the world. Anything sent through the postal system is called mail or post.In principle, a postal service...
and parcel postParcel postParcel post is a service of a postal administration for sending parcels through the post. It is generally one of the less expensive ways to ship packages that are too heavy to be sent by regular letter post and is usually a slower method of transportation....
is sometimes a concern for temperature-sensitive pharmaceuticals. Uncontrolled shipping conditions can include high and low temperatures outside of the listed storage conditions for some drugs. For example, the US FDA found the temperature in a mail box in the sun could reach 136°F (58°C) while the ambient air temperature was 101°F (38°C). Shipment by express mailExpress mailIn most postal systems express mail refers to an accelerated delivery service for which the customer pays a surcharge and receives faster delivery. Express mail is a service for domestic mail and is governed by a country's own postal administration...
and courierCourierA courier is a person or a company who delivers messages, packages, and mail. Couriers are distinguished from ordinary mail services by features such as speed, security, tracking, signature, specialization and individualization of express services, and swift delivery times, which are optional for...
s reduces transit time and often involves delivery to the door, rather than a mail box. The use of insulated shipping containerInsulated shipping containerInsulated shipping containers are a type of packaging used to ship temperature sensitive products such as foods, pharmaceuticals, and chemicals. They are used as part of a cold chain to help maintain product freshness and efficacy...
s also helps control drug temperatures, reducing risks to drug safety and efficacy.
- Formularies — PBMs use panels of independent physicians, pharmacists, and other clinical experts to develop lists of drugs approved for reimbursement in order to encourage clinically appropriate and cost-effective prescribing; PBM clients always have the final say over what drugs are included on the formulary that they offer to their employees or members.
- Plan design — PBMs advise their clients on ways to structure drug benefits to encourage the use of lower cost drug alternatives — such as generics — when appropriate.This is done by setting plans up with different copay tiers, in this case the client will apply a lower copay for generic drugs than it would for brand drugs. The PBMs’ role is advisory only; the client retains all responsibility for establishing the plan design.
- Electronic prescribing (E-prescribing) — PBMs have pioneered the use of cutting-edge e-prescribing technology, which provides physicians with clinical and cost information on prescription options that allows them to better counsel consumers on which medications—including various lower cost options—will be the safest and most affordable choices. PBMs led the effort to increase the use of e-prescribing in Medicare. Financial incentives for physicians to adopt health information technology (HIT) included in the recent economic stimulus bill will increase the number of prescribers using e-prescribing to more than 75 percent over the next five years—nearly double the rate of use anticipated after passage of last year’s e-prescribing legislation. Research has found that e-prescribing will help prevent 3.5 million harmful medication errors and save the federal government $22 billion in drug and medical costs over the next 10 years, offsetting the projected $19 billion in federal outlays to modernize the nation’s HIT infrastructure under the American Recovery and Reinvestment Act (ARRA).
- Manufacturer discounts — PBMs pool purchasing power to negotiate substantial discounts from pharmaceutical manufacturers in order to lower benefit costs for clients and consumers.
- Clinical management — PBMs use a variety of tools such as drug utilization review and disease management to encourage the best clinical outcomes for patients.
Biogenerics
PBMs have been strong proponents in the creation of an U.S. Food and Drug Administration (FDA) pathway to approve generic versions of expensive drugDrug
A drug, broadly speaking, is any substance that, when absorbed into the body of a living organism, alters normal bodily function. There is no single, precise definition, as there are different meanings in drug control law, government regulations, medicine, and colloquial usage.In pharmacology, a...
s that treat conditions like Alzheimer's, rheumatoid arthritis
Rheumatoid arthritis
Rheumatoid arthritis is a chronic, systemic inflammatory disorder that may affect many tissues and organs, but principally attacks synovial joints. The process produces an inflammatory response of the synovium secondary to hyperplasia of synovial cells, excess synovial fluid, and the development...
and multiple sclerosis
Multiple sclerosis
Multiple sclerosis is an inflammatory disease in which the fatty myelin sheaths around the axons of the brain and spinal cord are damaged, leading to demyelination and scarring as well as a broad spectrum of signs and symptoms...
. So-called biogenerics legislation that does not grant brand name drug manufacturers monopoly pricing power is strongly supported by PBMs, AARP
AARP
AARP, formerly the American Association of Retired Persons, is the United States-based non-governmental organization and interest group, founded in 1958 by Ethel Percy Andrus, PhD, a retired educator from California, and based in Washington, D.C. According to its mission statement, it is "a...
, AFL-CIO
AFL-CIO
The American Federation of Labor and Congress of Industrial Organizations, commonly AFL–CIO, is a national trade union center, the largest federation of unions in the United States, made up of 56 national and international unions, together representing more than 11 million workers...
, the Ford Motor Company
Ford Motor Company
Ford Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
, and dozens of other consumer, labor and employer organizations concerned about runaway health care costs in both the private and public sector. A recent Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC) found that patents for biologic products already provide enough incentives for innovation and that additional periods of exclusivity would “not spur the creation of a new biologic drug or indication” and “imperils” the benefits of the approval process.