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Medicare and the Cost of Prescription Drugs - HMOs and Pharmacy Benefits Managers (PBMs) --Part III of a VII Part Article

(5/10/17)- Express Scripts, the largest prescription benefits manager (PBM) announced that it would begin offering a lower rate for about 40 frequently used medications to people without health insurance, or to those who are in health-plans with high deductibles. We do not know at this time what the term “high deductibles” is being defined at..

The program, which is known as InsideRx, a subsidiary of Express Script will allow consumers to sign up for the plan, which will be free,  so that they can present a discount card or a mobile app at their neighborhood pharmacy to get the discounts, which average about one-third of the list price.

InsideRx will partner with GoodRx, a company that has been offering similar discounts on mostly generic drugs, through deals it has struck with other PBMs.

Patients who are covered by Medicare or Medicaid will not be able to use it since that may violate kickback laws. Payments may not count towards the consumer’s deductible.

(3/10/17)- A nonprofit group formed last year by more than 3 dozen of the largest companies in the U.S. announced its first plans aimed at helping reduce the drug costs of its members. The plans include group contracts to buy prescription drugs through UnitedHealth Group Inc.’s Optum unit, and CVS Health Corp.’s Caremark subsidiary. These are two of the three largest prescription benefits managers in this country.

The plans include the usage of IBM’s Watson software to analyze health care data.

The nonprofit group called Health Transformation Alliance (HTA). The 38 members of the group hope to combine their negotiating power to lower the cost for their employees prescription drugs. HTA members provide health insurance for a combined 6 million employees, mainly in the U.S.

Starting in 2018, HTA will contract with doctors and other health care professionals in Phoenix, Chicago and Dallas-Fort Worth to care for employees with diabetes, hip and knee replacements and lower back pain. The contracts will be negotiated and administered by Cigna and UnitedHealth to pay doctors based on how well they meet certain targets rather than for each procedure and test they perform

(1/14/17)- The 3 largest prescription benefits managers,-Express Scripts, CVS-Caremark and Optum, which is owned by UnitedHealth Group, handle about 75% of all prescription drug claims, according to Adam Fein, a drug-distribution consultant.

UnitedHealth Group recently announced that it would buy Surgical Care Affiliates, a chain of outpatient surgery centers for about $2.3 billion. The deal is expected to close in the 2nd quarter of 2017.

(11/10/16)- CVS Health Inc., the largest U.S. drugstore chain, with about 9,700 pharmacies recently announced that it would lose about 40 million prescriptions in 2017, because of the deals signed by Walgreen Boots Alliance Inc. and 2 health plans that excluded them from filling their prescriptions.

CVS filled 1.03 billion prescriptions in 2015, up from 722 million in 2014. It is the preferred pharmacy under its Maintenance Choice program for UnitedHealthcare Inc.’s OptumRX, and for Prime Therapeutics, which is the pharmacy benefits manager for 14 Blue Cross and Blue Shield health plans

(10/6/16)- Is it any wonder that with all the mergers and consolidations that have taken place in the last few years in the Prescription Benefits Managers (PBM) field, that the 3 top companies in this area now account for 75% of the business in the U.S., versus the 46% in 2011, according to Jeffries LLC.

The combined operating profit of the 3 rose to $10.1 billion, last year, up 30% from 2013

(5/12/16)- The U.S. attorney’s office for the Southern District of New York has sent demands to at least 3 drug companies, Johnson& Johnson, Merck & Co. and Endo International PLC, according to recent company filings with the Securities and Exchange Commission (SEC)

The civil investigation seeks information about the companies contracts with prescription-benefits managers (PBMs) In its SEC filing, J&J stated that the demand sought information about contractual relationships between its Jansen Pharmaceuticals subsidiary and PBMs since 2006, for certain Jansen products.

J&J said the demand was issued in connection with an investigation under the False Claims Act, that prohibits people and companies from defrauding the federal government.

Pharmaceutical companies often agree to pay rebates or offer other forms of discounts to PBMs in exchange  for them to pay their members inducements to use certain drugs.

(3/28/16)- Health insurer Anthem Inc. sued its prescriptions benefits manager (PBM) Express Scripts Holding Corp, the largest PBM, for about $15 billion in damages, alleging that Express violated its contract with Anthem through excessive charges and failures in its operation.

Express Scripts has handled Anthem’s pharmacy services under a 10-year contract signed in 2009, when it bought Anthem’s in-house PBM for about $4.68 billion.

The lawsuit was filed in the U.S. District Court for the Southern District of New York. Anthem also asked for a judgment that it could terminate the contract with Express, which is due to end in 2019. Anthem has said that it has not determined yet if it would actually terminate the contract.

(2/3/15)- Are the pharmacy benefits managers (PBMs), in effect rationing their members drug choices when they leave certain more expensive drugs off their formularies? This matter has come to the forefront of our attention when Express Script excluded Gilead’s hepatitis-C medication, which cost about $88,000 for a full curative treatment in favor of AbbVie’s medication which cost about $77,000 for a full treatment of the same disease.

This is just one example of the restricted choices for pharmaceuticals by the health-insurers and PBMs as they hope to rein in costs for drugs, so that premiums for beneficiaries do not soar to higher levels. Many of the formularies set by the insurers allow a restricted numbers of medications for the treatment of certain diseases.

This is a very complicated matter that will be coming out in the news in the coming weeks and months.

(9/23/12)- As of Saturday, September 24, Express Script members will be covered by their insurance if they purchase their prescription drugs at any of Walgreen Co., or its subsidiary Duane Reade pharmacies.

Dianne Leone, a health care analyst at Macquire Capital, estimated that some 60 million one-time Walgreen prescriptions have migrated to other drug stores.

To try and win these customers back, Walgreen is offering $25 gift cards to Express Script members who transfer their prescriptions back to their pharmacies. Rival stores hope to retain these new customers by offering deeper discounts on many of their non-prescription and other consumer items, and a barrage of ads will be all over the media in the coming months.

(7/23/12)- Walgreen Co., which is the parent organization for Duane Reade, and the pharmacy benefits manager Express Scripts Holdings Co. ended a seven month impasse that forced millions of customers to buy their drugs elsewhere. The exact terms of the agreement were not revealed.

The agreement will take effect starting September 15th. Walgreen has about 7,900 stores and the Express Script network covers about 56,000 pharmacies in the Untied States. Express Script and Medco Health Solutions Inc. recently completed their merger. For more info on this merger, please see our item dated 4/10/12 below.

For more information on the battle that went on between Express Script and Walgreen, please see our item dated 1/15/12 below.

(4/23/12)- Mergers and consolidations continue to be the big story among the pharmacy benefits managers, with the latest one being SXC Health Solutions agreeing to buy Catalyst Health Solutions for about $4.4 billion in cash and stock. The two companies had held merger talks off and on for several years, but the recently completed merger of Medco Health Solutions Inc., and Express Scripts Inc., increased the urgency of doing the deal now.

Under the terms of the deal, SXC will pay $28 in cash and 0.6606 of a share, valuing Catalyst at about $81.42 a share. SXC is based in Lisle, Ill., and it will be the surviving company's name.

UntiedHealthcare, the health insurance company recently announced it would be setting up its own in-house prescription benefits management operation.

Several major employers have announced that they are contracting with alternative PBMs for their employees, so that they will be able to utilize Walgreen and Duane Reade pharmacies to fill their prescription drug orders. Express Script and Walgreen still have not settled their ongoing dispute, so that Express Script members still will not be reimbursed if they use Walgreen or Duane Reade pharmacies.

(4/10/12)- The Federal Trade Commission, by a 3 to 1 vote, agreed to allow the $29.1 billion merger of Express Scripts Inc., and Medco Health Solutions Inc. The review of the proposed merger took the commission 8 months, and no limitations were put on the merged outfit.

The combined company had $116 billion in revenues in 2011, with CVS Caremark, which now becomes the number 2 company in the field, having $107 billion in revenue in 2011.

The combined Medco and Express Script would account for about 45% of the market and CVS has about 28% of the market. With the number one and number two companies in this business, Commissioner Julie Brill, who voted against the merger stated: "I have reason to believe that this merger is, in fact, a merger to duopoly with few efficiencies in a market with high entry barriers-something no court has ever approved."

Atlantic Information Services Inc., a health-care information company estimated that the combined companies handled more than 1.4 billion prescriptions in the first quarter of the year.

The combined company will also be the nation's third-largest pharmacy operator, trailing only CVS Caremark and Walgreen Co., according to Pembroke Consulting Inc. because of their mail-order facilities.

(1/15/12)- Gregory W. Watson, the chief-executive officer of Walgreen Company, speaking at the company's annual meeting in Chicago, defended the company's position in its battle with the prescription benefits manager (PBM) Express Script after being dropped from the Express Script network as of December 31, 2011.

Analysts estimate that Walgreen could lose more than $4 billion in annual revenue as a result of no longer being in the PBM's network. Walgreen filled more than 80 million prescriptions through Express Script, which represents about 11% of the 819 million prescriptions filled by the chain in 2011.

Walgreen, which is headquartered in Deerfield, Ill., is the nation's largest pharmacy chain store, operating over 8,200 outlets in the United States.

To counter the loss of the Express Script business, Walgreen lowered its discount drug club's price to $5 a year for individuals, and $10 for families. Normally the membership fee is $20 for individuals and $35 for families.

(1/3/12)- Back in June, Walgreen Co., which is also the parent organization for the Duane-Reade drug store chain, said that it would no longer be part of the Express Scripts pharmacy-benefits manager's (PBM) network when the current contract expires on December 31, 2011. According to the latest news on this matter, the parties still have not reached agreement on a new contract.

With no agreement having been arrived at, this means that members of the Express Script program would be buying their prescription drugs at an out-of-network site if they made the purchase at a Walgreen or Duane-Reade pharmacy. As an employee of a firm in which Express Script is our PBM, I have received notification that if I purchase a drug at a Walgreen or Duane- Reade pharmacy, I will have to pay the cost for the drug in full, and then I would be reimbursed by Express Script at the non-network price.

It is an issue of money between these two parties. Walgreen feels that it should be compensated for prescriptions at a higher rate that other pharmacies because of the additional health-care services that it offers to its customers. These customer advisory services cost the drug store money and in the long run benefit Express Script members. For additional information on the Walgreen health care plan, please see our article "The New Wal-Mart Stores Inc. Health-Care Clinic and Drug Coverage Plans"

Express Scripts argues that Walgreen is asking for higher payments than other drug stores are requesting when, in fact it is not helping to reduce the cost of the drugs being used by its customers.

Express Script accounts for about 88 million prescriptions filled at Walgreen in the year ended August 31, and represents about $5.3 billion of Walgreen's annual revenue of $72.2 billion in fiscal 2011.

Rival pharmacies are trying to benefit from this dispute by having posters in their front windows advising customers that they can have their prescriptions filled in their stores which are covered by Express Script as the PBM.

(12/22/11)- Governor Andrew M. Cuomo signed a bill that barred pharmacy benefits managers (PBMs) or employers from forcing patients to use mail-order plans for prescription drugs, except for plans negotiated by unions.

Under this new law a member of a plan will have the choice of filling a prescription through mail order with the PBM or at any other drug store of his/her choice, without any added co-payments or fees.

In signing the bill the governor set the condition that the Legislature would retroactively amend the law to require retail pharmacies to accept the same reimbursement rates for drugs as mail-order pharmacies.

The staff of the Federal Trade Commission has warned that similar laws in Maryland raised the prices for consumers. If fewer consumers use mail order, the commission staff said, the mail-order companies are less likely to provide discounts for volume.

(12/9/11)- A Senate panel is currently holding hearings to determine if the Express Scripts and Medco Health Solutions proposed merger, which we discussed in our item dated 7/24/11 would stifle competition.

Here are a couple of facts about the combination, if allowed to take place:

(11/27/11)- CVS Caremark Corp. is recommending that customers of its pharmacy-benefit business stop covering 34 drugs starting January 1, 2012 in order to combat pharmaceutical companies that issue coupons for brand name drug usage over cheaper alternatives.

PBMs have higher profit margins from generic drugs than branded ones, and they do not approve of manufacturer discounts that can negate co-pay levels set by health plans to steer its members toward cheaper drugs.

CVS Caremark's health-plan clients can accept the list, or opt for a customized drug plan that consultants said could mean clients get a smaller share of the rebates CVS Caremark secures.

The biggest drugs knocked off the list are Eli Lilly & Co.'s insulin products Humulin and Hamalog, and Bayer AG's Levitra, which is sold in the U.S. by GlaxoSmithKline PLC.

(7/24/11)- Express Scripts and Medco Health Solutions announced plans to merge the nation's number 1 and number 2 pharmacy benefits managers in a $29.1 billion combination. If the merger is allowed to go through, that would mean that this country would have only one other major independent PBM, namely CVS Caremark.

CVS Caremark is the product of a merger that took place 4 years ago between CVS the large pharmacy and Caremark, which at that time was strictly a PBM in a $27 billion combination. If the combination between Express and Medco is allowed, the combined company would have over $100 billion in sales.

It is estimated that there are about 60 companies in the pharmacy benefits management field, the combination of Express and Medco would hold about 40% of the market, with Caremark holding about 16% of the business.

(1/2/11)- CVS Caremark has agreed to buy Universal American's Medicare Part D unit, which focuses on the federal prescription benefits program. When the purchase is consummated CVS will have a total of 3.1 million members, up from its present 1.2 million members.

According to the latest data available from the Centers for Medicare and Medicaid Services there are over 28 million Medicare beneficiaries enrolled in Part D plan coverage.

(8/19/10)- Is there a conflict of interest when a pharmacy benefits manager (PBM) owns a company that checks on the safety of a drug after it has gained Federal Drug Administration approval?

Medco Health Solution Inc, one of the largest PBMs. said it would buy closely held United BioSource Corp. for $730 million.

United BioSource, based in Bethesda, Md., does research on the safety and effectiveness of drugs and medical equipment, after they have won approval from the FDA. The company also does research on the interaction of different medications and classes of medications.

Medco stated that United would operate entirely independently from its parent and firewalls would be created so that there could not be any conflict of interest between the two entities.

Many of us are aware that the so-called firewalls do not work in the real life world of intra-actions within the corporatative umbrella.

(11/17/09)- Express Scripts Inc., the St. Louis based PBM has joined with Greatwater Software Inc. to install self-service kiosks that allow patients to check in at office visits, make co-payments and receive real-time customized information on their medications. The information will include possible generic substitutes for brand name medications.

The company is initially deploying 50 of the kiosks, and it aims to install another 50 of them early next year. The cities receiving the first kiosks are Orlando, St. Louis and Boston

(4/26/09)- In a deal valued at over $4.7 billion, Express Scripts will acquire the NextRx pharmacy benefits management business of WellPoint Health. NextRx was founded in 1993 and services more than 32 million people. WellPoint had put the business up for sale several months ago.

Medco Health Solutions is the largest of the PBMs, followed by CVS Caremark, with Express Script being in 3rd place and NextRx being the fourth largest of the PBMs.

It was a little over 2 1/2 years ago that CVS beat out Express Script in a battle for Caremark Pharmacy Services. Many legal experts felt that a merger between Caremark and Express Script would have run into anti-trust problems, but most of these same experts do not feel that this problem would arise in the case of an Express Script-NextRx merger.

All that we at therubins can say is that the less PBMs around, the more the public will have to pay for their drugs.

(1/30/09)- The Centers for Medicare and Medicaid Services has temporarily banned WellPoint Inc, the country's largest health insurer, and fourth largest provider of Medicare Part D prescription drug plans from marketing or selling Medicare health or drug plans after the company erroneously denied thousands of seniors coverage for vital medications and cancelled their benefits.

The ban is effective immediately, even though the company has 1.9 million members in its prescription Part D plans, as well as 472,000 members in private Medicare insurance plans.

The company had been faced with computer glitches for many months, but the problems surged at the beginning of this year when its systems failed to process some of the new data for the 2009 plans.

As a result, thousands of seniors found that they could not fill or renew prescriptions for drugs to treat chronic heart failure, seizures, asthma and other medications. The company mistakenly dropped coverage for many beneficiaries and overcharged for others.

(1/1709)- The Centers for Medicare and Medicaid Services has promulgated a new rule that is intended to curb pharmacy benefits managers (PBMs) from pushing Medicare Part D beneficiaries more quickly to the "doughnut" level.

The questionable practice is known as lock-in pricing in the industry. Under this practice the insurer pays a set amount to the PBM for certain drugs even though that price may be higher than the actual price paid by the PBM to the pharmacy.

Under the new rule, plans can still use lock-in pricing, but the amount paid to the pharmacy will be the cost used to arrive at the "doughnut" under Part D, prescription drug coverage. The rule will go into effect on January 1, 2010.

(11/1/08)- The Office of Personnel Management announced that federal employees in 2009 will have to pay on average about 8% more for their health insurance premiums, the Washington Post reports. The projected increase is significantly higher than the 2.9% increase in 2008 and the 2.3% increase in 2007.

The firm that I work for just distributed our benefit choices booklet. The premium costs are up by almost 9%, and the amount of the deductible for the health insurance has increased substantially also. For those willing to take the risk, there is a choice of a Health Savings Plan, which or course has a lower premium but a much higher deductible, this really is not a choice for an older individual and his or her family.

(6/5/08)- ExpressScripts Inc., one of the nation's largest PBMs agreed to pay $9.5 million to settle allegations that it asked doctors to switch drugs so it could get bigger rebates from pharmaceutical companies.

Medco Health Solutions Inc. and CVS Caremark have previously reached similar agreements with the states on the same allegations. These settlements resulted from a 4-year investigation of practices at PBMs, and effectively ends the investigations.

The settlement avoids a potential lawsuit by 29 states and the District of Columbia. The agreement states that ExpressScripts "engaged in deceptive business practices by encouraging doctors to switch patients to different brand name prescription drugs and representing that the patients and/or health plans would save money," according to Vermont Attorney General William Sorrell.

The agreement further prohibits ExpressScripts from asking for a switch to a higher-priced drug, asking for a switch when the patent on the original drug is to expire, or asking for a switch if a patient already has been shifted from a similar drug in the past two years.

(3/21/08)- In 2006, when Wal-Mart first announced it would be selling hundreds of generic prescription drugs for $4, the plan was aimed at people who did not have drug coverage plans. The company currently offers more than 350 generic prescriptions for $4. Other retailers were forced to match Wal-Mart's offer.

In a speech before 7,000 Wal-Mart store managers, Chief Executive Lee Scott indicated that the company was initiating a pilot program to help "select employers…manage how they process and pay prescription claims."

It seems therefore that Wal-Mart is putting its toes gently into the prescription benefits management (PBM) business. According to an analyst at Morgan Stanley CVS Caremark Corp., Medco Health Solutions, and Express Scripts Inc., combined to process or fill 387 million prescriptions in the third quarter of 2007. Just last year, in a landmark deal, CVS purchased Caremark, on of the largest PBMs, showing that this is a new direction it would pursue in expanding in the drug care business.

Wal-Mart has become the third-largest pharmacy in the U.S. in terms of sales, behind CVA and Walgreen. The company operates over 4,000 stores throughout the U.S.

Mr. Scott did not specifically say that the company was going into the PBM business, but he did say that Wal-Mart could save employers more than $100 million in costs this year alone. A company spokesman, Nick Agarwal, said "We know the ways we operate help customers save money and we think we can do that for employers. This is an opportunity to be in that space,"

Mr. Scott in his speech said that the company also would seek partnerships with doctors and other providers to increase the number of electronic prescriptions Wal-Mart fills to eight million from 1.6 million by the end of 2008

The company also plans to provide electronic health records to all its employees and their family members, including retirees by the end of 2010.

In September of last year, Walgreen completed its $850 million purchase of OptionCare, which specializes in infusion drugs, such as certain cancer treatments. It was the largest deal in Walgreen's 107-year history, and it made Walgreen the nation's largest independent specialty-pharmacy company. Some specialty drugs can cost as much as $1,000 or more per prescription, compared with $75, according to the National Association of Chain Drug Stores, a trade group.

Prescription drug sales grew by just 3.8% last year, to $286.5 billion, marking it the slowest growth rate since 1981, according to IMS Health, a health care and drug data and consulting firm.

To see more on this topic please see our articles: The New Wal-Mart Stores Inc., Employee Health Care and Drug Coverage Plan and also Drug Store's Low Cost Prescription Drug Coverage Plans

(9/2/07)- Medco Health Solutions, Inc., the Franklin Lakes, NJ pharmacy-benefits-manager (PBM), announced that it would pay $1.29 billion to acquire PolyMedica Corp., which is the largest diabetes products supplier in the world. This deal continues the trend for PBMs to enter the treatment for chronic diseases field, as the industry attempts to expand its scope into other areas connected to the medical field.

Caremark Rx Inc., which is now part of CVS Caremark Corp., acquired Accordant Health Services, a company that manages chronic diseases such as multiple sclerosis and hemophilia, when it bought AdvancePCS in 2004. Express Scripts Inc. bought Priority Healthcare Corp., a distributor of biotechnology drugs to patients with chronic illnesses in 2005.

With one million patients as members, PolyMedica is the country's biggest supplier of blood-glucose testing supplies sold under the brand name Liberty. Last year Medco garnered over $42,5 billion in sales.

(12/30/06)- Express Scripts has entered the battle with CVS as it made an offer to Caremark Rx. According to some leading financial experts, other parties may be putting in bids also. What with Wall Street awash with money it would not surprise us to see either a private equity or combination of hedge funds to enter this fray.

The four largest prescription benefits managers, i.e., Caremark, Medco Health Solutions, Wellpoint and Express Scripts, handle about 75% of the $235 billion spent on prescription drugs every year.

(11/05/06)- CVS, which is based in Woonsocket, R.I., and is the nation's second-largest pharmacy chain agreed to purchase Caremark Rx of Nashville, Tenn. a leading pharmacy benefits manager (PBM) for more than $21 billion. The transaction would make CVS the nation's largest PBM, supplanting Wellpoint Inc. Walgreen as the nation's largest drug chain.

CVS has operated its own PBM business, PharmaCare, which had become an increasingly important source of business for the drug chain. It is estimated that the nation's PBMs handle about 75% of the $235 billion spent on prescription drugs every year. Caremark currently has the contract to handle pharmacy benefits services for 4.5 million federal employees, retirees and dependents.

CVS has about 60,000 pharmacies around the country and seven mail-order pharmacies. Last year it processed more than 530 million prescriptions.

One of the driving forces behind this merger is the recent announcement from Walmart for its program to sell a limited number of generic drugs for $4 in some states.

Richard M. Scrushy, the former Health-South chief executive founded MedPartners in 1993, which in 1993 bought Caremark, a company that at the time managed the practices of 1,000 doctors and provided pharmacy benefits management. Edwin Crawford, a former Auburn football player became chief executive in 1998. He moved the company from Birmingham, Ala., to Nashville and changed the name of the company to Caremark Rx. Mr. Scrushy left the company's board in 2001.

(10/9/06)- Wellpoint Inc., the nation's largest health insurer unveiled its online tool that aims to show what dozens of hospital procedure really cost. The initial project was unveiled in the Dayton, Ohio area, and was done at the request of GM Inc., which has 70,000 employees in that area who are Wellpoint customers.

The tool lets the plan's enrollees compare the total estimated cost of about 40 common procedures at Dayton area hospitals. The database was arrived at after examining the medical records of 300,000 Wellpoint members in the area. Included in the database is the total cost for the medical care, covering everything from lab tests to recovery room charges.

Consumers can click to another part of the Wellpoint site that shows how hospitals rate quality-wise, according to data from outside health-information companies.

Aetna Inc., which was the first major insurer to disclose the actual fees, it negotiates with doctors for certain services last year in the Cincinnati area said that it has not seen much evidence of change in the way patients choose doctors or treatments.

(7/28/06)- Ten of the prescription benefits managers (PBMs), including two of largest, Medco Health Solutions Inc. and Caremark Rx Inc. have agreed to a program of increased transparency in conjunction with the companies that employ their services.

The PBMs will provide more information to employers about the way they price and administer employee drug purchases. Not only will they reveal rebates that they receive from the drug and medical equipment companies, but they will pass along those rebates to the employers who use their services.

This new transparency is a direct result of a coalition of 56 of the largest employers in this country, who banded together to try and reduce their burgeoning health care costs. IBM, Caterpillar Inc., Starbucks and Ford Motor Co. are a few if the companies who are involved with the coalition.

The coalition set down criteria for the PBMs to meet in order to become certified by the organization. Only certified PBMs would be allowed to handle the drugs needed by the employees of the coalition. Medco and Caremark both started the process to become certified by the coalition last year, but they soon dropped out of the process. After prolonged negotiations between the coalition and these two PBMs the parameters were set to meet the certification requirements.

In addition to Medco and Caremark, the other PBMs who have agreed to seek certification for 2007 from the coalition are: Catalyst Rx, a unit of HealthExtras Inc.; HealthTrans LLC;, RESTAT a unit of F. Dohmen Co.; and the PBM units of Cigna Corp.,BlueCross BlueShield Alabama and Aetna; Walgreen Health Initiatives; and MedImpact Healthcare Systems Inc.

(7/1/06)- U.S. District Judge Federico A. Moreno of the Southern District of Florida granted summary judgment in favor of UnitedHealth Group in an action brought by 700,000 U.S. physicians who claimed the company had unfairly cut their reimbursements. The suit had been pending for 7 years against almost all of the major health insurers who previously had settled the claims against them for several hundreds of millions of dollars.

The physicians who brought the suit claimed that the insurers claims-reimbursement system, which often automatically reduced doctors' bills to what the insurer thought they should be rather than what the doctors charged.

UnitedHealth argued that it never used the particular claims-reimbursement software system that had become the basis for the physicians suit.

(5/27/06)- Medco Health Solutions Inc., the nation's largest PBM with about 60 million members announced that it had agreed in principle to settle fraud allegation with the U.S. Justice Department, and that it would take a pretax charge of $163 million to cover the costs of the settlement. Medco said that a final agreement is dependent on the two sides working out a corporate-integrity agreement.

Two former employees of the company's Las Vegas pharmacy had first filed the complaint several years ago. The government joined in the lawsuit under the False Claims Act in 2003, and then later added charges that Medco had paid kickbacks to major clients to win their business. The settlement would also resolve two other federal litigation matters.

Medco lost the government contract in February 2004, after having been the PBM for the federal government for over 15 years.

The complaint alleged that the company had inappropriately cancelled government employees prescriptions, falsely claiming it had called physicians to warn them of potential bad-drug interactions, changed prescriptions without a doctor's consent, took longer to fill prescriptions than it claimed and under-filled pill bottle count.

(5/21/06)- Strange as it may seem, generic drugs, which cost less than brand name drugs account for a disproportionate amount of the profits at the pharmacy benefit managers. More than half of Medco Health Solutions Inc.'s, the largest of the PBMs, net profits come from generic drugs, even though they represent about 37% of the company's revenue.

The PBM's clients, the employers, oftentimes do not realize that there is a higher profit margin being made by the PBMs on this aspect of the business. Two years ago, the state of Maine passed legislation that required the PBMs to inform their clients of where their profits came from. The Pharmaceutical Care Management Association, which represents PBMs, has appealed a lower court ruling in Maine that upheld the law.

The basis for the appeal is that states can't impose their own laws in regards to health benefits, and that such a law violates the Fifth Amendment of the Constitution, which bars the government from taking private property except for public use and with just compensation.

(1/2/06)- A jury in the Court of Common Pleas in Hamilton County, Ohio awarded the State Teachers Retirement System of Oho a total of $7.8 million because Medco Health Solutions Inc.breached its fiduciary duty and for fraud involving the system's drug coverage plan. "The verdict is the first time a U.S. jury has recognized that a company managing pharmacy benefits has a legal duty to act in the best interest of retirees and pensioners, " said Jim Petro, Ohio's attorney general.

The jury could not reach a verdict on punitive damages nor on the issue of whether Medco inappropriately kept rebates that it should have passed on to the client. The judge threw out the claim of generic drug markup before the case went to the jury.

The retirement system sought $153 million in damages, saying Medco's administration of the pharmacy benefits plan from 1981 through 2002, resulted in Ohio paying more for prescription drugs than it should have. The jury also found Merck & Co. liable, since Merck owned Medco until 2003. The jury deliberated for three days.

The jury found that Medco owed a fiduciary duty to the retired teachers' plan and that it breached that duty in the amount of $915,000. The jury also found that Medco was liable for "constructive fraud" in the amount of $6.9 million. The constructive fraud was awarded because Medco had a special confidential or fiduciary relationship which afforded it the power and means to take undue advantage of, or exercise undue influence over the teacher's retirement plan.

The Centers for Medicaid and Medicare Services (CMS) reports that the the following ten states had the largest enrollment in managed care organizations, as of June 30, 2004 (does not include enrollment in primary care management): 1. California (2,650,700); 2. New York (2,295,200); Tennessee (1,345,100); 4. Pennsylvania (1,130,900); 5. Michigan (888,000); 6. Arizonia (806,200); 7. Texas (792,900); 8. Florida (707,200); 9. New Jersey (541,800); 10. Ohio (507,300).

(11/18/05)- As of October 2005 where were 458 Medicare Advantage policies available nationwide compared with just 300 last December, according to Mathematica Policy Research, a research firm. Under traditional Medicare, beneficiaries starting in 2006 will pay a $110 annual deductible and 20% of the bill for each doctor visit. For a hospital stay there is a $952 deductible starting in January 2006 before coverage begins to pay for a beneficiary's stay. Buying one of the new prescription drug plans costs an average of about $32 per month.

With the government subsidizing the HMOs it may pay for many of the Medicare beneficiaries to join one of the new Medicare Advantage plans in your area. Many of the health-insurance companies are adding extras like vision benefits and gym memberships in an effort to sigh up new members. Included in this group are Humana Inc., PacifiCare Health Systems, UnitedHealth Group Inc. and Aetna Inc.

Please keep in mind that the HMOs are notorious for having dropped out of the Medicare program for beneficiaries in certain areas because they feel they are not profitable enough for them to continue being part of the system. For articles on this topic please see our articles about Medicare Droppage

(11/10/05)- The U.S. Court of Appeals for the First Circuit in Boston affirmed a lower court's ruling that the Maine law that requires greater transparency in business dealings by the pharmacy-benefits managers (PBMs) in the state was constitutional. The Maine law, that was passed in 2003, requires the PBMs to disclose to their clients any payments they receive from drug manufactures. The PBMs have a fiduciary responsibility to pass any discounts and rebates that they receive from the pharmaceutical companies onto their clients.

The law went on to state that these disclosures by the PBMs to their clients would not be made public. The PBMs had argued that the state had no authority to regulate the private business relationships that were being conducted by the PBMs and the drug companies. The law in effect was saying that the fiduciary obligation of the PBM to extract the best prices for the drugs of its clients outweighed their corporate duty to make as much money as possible for the company.

Many other states have been awaiting this decision before enacting similar legislation in their own locality. Pharmaceutical Care Management Association has indicated that it would appeal the ruling to the Supreme Court.

At this point we will repeat the text from the item we wrote about the case in 2003. It is highlighted in red in the article below if you want to read it in the context as written back then:

"The PBM's trade organization, the Pharmaceutical Care Management Association (PCMA) was granted a temporary injunction that prevents the state of Maine from enforcing legislation that the state recently passed requiring the PBMs to disclose certain information to its clients. The law required the PBMs to disclose any secret deals they had with the drug manufacturers.

As a general rule the amount of fees and rebates that a manufacturer pays to a PBM has been kept "secret". These fees and rebates improve the chances of a particular drug to be sold by a PBM. Maine was the first state to introduce legislation to force the PBMs to disclose these payments. Several other states have now followed Maine in enacting similar legislation. The law became effective in Maine in September 2003. In granting the temporary injunction against compliance with the law, the judge said that PCMA "has demonstrated substantial likelihood of success" in its argument that the Maine law is preempted by the federal benefits law, the Employee Retirement Income Security Act of 1974.

The Maine law also requires the PBMs to pass along to their clients the volume-based discounts they get from a drug maker. The law also requires the PBM to get the physician's approval if a prescribed medication is to be switched. It also requires the PBM to tell the individual and the health-insurance provider the cost of the prescribed drug and the drug that the PBM wants the patient to be switched to. Violations would be punishable by a fine for as much as a $10,000 per violation."

(9/14/05)- Caremark Rx Inc. , one of the largest PBMs has agreed to a $137.5 million settlement with the Justice Department over the practices of AdvancePCS, the PBM that they acquired last year. This marks the end of the matter which has been pending for 6 years.

The investigation by the department found that Advance had paid and accepted kickbacks, and failed to pass rebates and other payments from drug manufacturers to its health-plan customers when they paid for prescription drugs.

This is the first settlement that the Justice Department has made with the PBMs, and may be a precursor of more to come, since the department has brought actions of a similar nature against all the leading companies in the field. James Sheehan, associate U.S. attorney in Philadelphia has been leading the investigation of the industry for several years.

(9/12/05)- The report from the Federal Trade Commission that had been mandated by the new Medicare law concluded that PBMs that own their own pharmacies provide "generally" cost effective prescription-drug plans. In its 240-page report, the FTC said that for "large PBMs", average total prices in 2002 and 2003 at PBM-owned mail-order pharmacies, typically were lower than at mail-order not owned by PBMs, such as retail stores that own mail-service pharmacies.

The report went on to say that the study does "not answer weather each plan sponsor has negotiated the best deal possible or whether each PBM has fulfilled it contractual obligations due to each of its plan sponsor clients." The report than went on to say that "the data also do not indicate whether, in individual instances, a PBM might have favored its mail-order pharmacy in ways contrary to a plan sponsor's interests."

(8/15/05)- Medco, Express Scripts and Caremark handle the drug benefits for more than 100 million Americans. The way they do business may be changing dramatically in the next few years. A coalition of employers that are part of a group that belongs to the HR Policy Association, a public policy group that represents about 250 large employers announced that they are changing the way that they do business with their prescription benefits managers (PBMs).

52 of the members of the group announced that they are endorsing a new purchasing model that would require their PBMs to disclose and pass on to their clients their acquisition costs for retail and mail-order prescriptions. Any and all rebates that the PBMs receive would have to be passed on to their clients. Fulll transparency standards would be required for both mail order and generic prescriptions.

The group of 52 employers spent about $3.7 billion on prescription and generic drugs for their employees last year. The coalition has certified 3 small PBMs to handle their business under the greater transparency rules. In effect what this means is that the PBMs would be paid a straight administration fee along with a management fee for clinical services that they perform for its members.

HR Policy opened the bidding to all PBMs who were willing to operate under the greater transparency rules last year, but only 3 small PBMs were willing to go along with the new rules. Tower Perrins, an employer benefits consulting firm launched a similar employer group called Rx Collaborative last year. For more information on this group please see our article dated 2/12/05.

(8/6/05)- Wellpoint Health, the nation's largest health insurer, announced that it had settled in connection with a suit brought against the company by 700,000 doctors who had accused the company of interfering in medical decisions and of routinely underpaying hospitals and physicians.

Under the settlement, the company will pay $198 million in cash and invest $250 million in information technology and procedural changes to resolve disputes with doctors and pay claims more promptly. Judge Federico Moreno must approve the settlement, in Federal District Court in Miami.
Eighteen state medical societies joined in the suit, including group0s in Connecticut, NJ Florida, Texas and Georgia. This agreement brings to 6 the number of health insurance companies who have settled class-action suits filed by medical societies five years ago. Four other defendants-the UnitedHealth Group and Pacificare which have announced a pending merger, Coventry Health Care and Humana, are scheduled for trial in January before Judge Moreno

(6/1/05)- Medco Health Solutions Inc., the nation's largest PBM is refusing to comply with a federal subpoena by the Health and Human Services Office of the Inspector General, until the agency promises that it won't share the documents with a Justice Department office that has sued the company on another matter.

The IG's subpoena was issued in January that required Medco to turn over documents related to its investigation of the company's favoring certain medications from certain drug companies over the drugs of other companies. The IG is also looking into certain agreements that Medco had with certain drug companies that could violate federal false claims and antikickback provisions.

In a letter that Medco sent to the OIG it requested that it did not want any of the documents shared with James Sheehan, the assistant U.S. Attorney in Boston, who is alleging that the company committed criminal fraud against the federal government. That lawsuit alleges that Medco inappropriately canceled governemnt employees prescriptions; falsely claimed it had called physicians to warn them of potential adverse drug reactions; shorted pill bottle counts and changed prescriptions without the doctor's consent.

The Justice Department has petitioned the federal court in Philadelphia to enforce the OIG subpoena.

In a separate action four states (Texas, Fl, Ark. And Tenn..) have joined with the Justice Department in a whistle-blower's suit against Caremark, of Nashville, Tenn. wherein it is alleged that the PBM unlawfully failed to reimburse Medcaid payments for prescription drugs for individuals who had Caremark as their PBM.

(5/28/05)- The Wall Street Journal reported in a recent article that the Justice Department and Caremark Rx are close to settling the legal proceedings that were brought against the company by the department for its illegal practices in connection with the pricing of various drugs bought by the card holders to its plan. The two other major PBMs, Medco Health Solutions Inc. and Express Script Inc. are also under federal and local governmental investigations for the way they accept payments from drug manufacturers for favoring certain drugs over other medications. The three major PBMs service over 100 million card holding members to their plans. The rumored settlement according to the Journal article is for over $100 million.

The Caremark settlement involves the practices of AdvancePCS, another PBM that Caremark acquired last year. The action was brought by U.S. Attorney James Sheehan of Philadelphia, who has also brought a similar action against Medco. New York Attorney General Eliot has brought an action against Express Scripts which accuses the company of defrauding the state of tens of millions of dollars by using schemes that inflated the cost of prescription drugs.

Mr. Sheehan has suggested in speeches that many of the agreements between the drug companies and the PBMs were in fact shams that rewarded the PBMs for promoting one company's drug over another. At the same time as they were receiving these payments they concealed these payments from the employers who used their services for their employees as to what the true cost of the drugs really were. Federal, state and municipal employees were part of these plans as were Medicare and Medicaid users, so in fact the governments were being defrauded by the PBMs also.

(5/10/05)- Rite Aid Corp, Camp Hill, Pa., one of the nation's largest retail pharmacy chains announced that it will partner with ProCare Rx, Duluth, Ga., to run its new PBM's back office operation, and that it also plans to provide mail-order services for clients requiring them. Thus the battle between the pharmacies and the PBMs continue to escalate.

Two other big drugstore chains-Walgreen Co. and CVS Corp- already own PBMs that include mail-order operations. Blue Cross and Blue Shield of Minnesota recently began to allow its members to buy three-month supplies of maintenance drugs from local retail pharmacies as an alternative to requiring purchase of these drugs only from mail-order operations.

At the same time Rite Aid also announced that is will provide PBM services to employers, health plans and insurance companies, and offer competitively priced 90-day supplies of maintenance drugs to its customers.

(4/16/05)-Blue Cross and Blue Shield of Minnesota announced that it would allow its members to purchase their 90-day supply of repeat medications at local pharmacies rather than require them to purchase the medications through mail-order PBMs. The local pharmacies will discount the medications for the 90-day supplies so that they will cost just about the same amount as if purchased through the PBMs.

This represents a significant shift in this area, since most large health organizations and employers have been requiring their members and employees to use the mail order prescription plans managed by the PBMs. Blue Cross officials said that the members could pay a slightly higher copayment in return for the convenience of being able to shop in a local store.

A return to in-store prescriptions "is the beginning of a trend, " said Al Heaton, director of pharmacy for Minnesota Blue Cross. Many health care professionals feel that most of the new prescription drug card plans that are being formed in connection with the new drug law that will go into effect in January 2006 will allow their members to purchase their recurring drug orders in local pharmacies.

(3/23/05)-UnitedHealthGroup Inc., the country second largest health insurance company, announced that it would team up with Walgreen Co. to provide prescription-drug coverage to Medicare beneficiaries nationwide when the new prescription-drug plan goes into effect in January 2006. Walgreen has over 4,200 stores nationwide where the Medicare beneficiaries can pick up their medications. Walgreen will promote and educate consumers about the plan in the coming months.

UnitedHealth will use Walgreen's own pharmacy-benefit manager, Walgreen's Health Initiatives, instead of one of the independent PBMs to administer its plan. This arrangement is quite unusual because UnitedHealth, in fact, contracts with Medco Health Solutions, Inc., the nation's largest PBM to administer the drug benefits for its employer group plan business. This partnership represents a victory by Walgreen in its battle with the large PBMs who administer the prescription-drug plans for many large employers who require their employees to order renewal drugs only through the mail.

(3/2//05)- GM Corporation's decision to drop Walgreen Co. from its pharmacy network is setting off an interesting battle between large corporations that require its employees to buy their maintenance drugs through their PBMs, and the retail pharmacy industry. GM's employees who belong to HMOs will still be allowed to purchase their drug's through the HMO drug network.

Mail-order pharmacies dispense 90-day supplies of medications instead of the traditional 30-day supply dispensed by the pharmacies. A survey by Hewitt Associates found that 22% of employers will have mandatory mail plans in effect this year. GM and Walgreen say they are in continuing discussions on this topic so that there may be some changes made in GMs decision at a later date. GM accounts for a large portion of Walgreen's drug sales, and also usually result in an additional purchase of other items when the shopper picks up the medication.

Last year Walgreen started offering 90-day supplies of some medications. In addition Walgreen has signed up over 100 large employers to participate in its plan. The company also points out the fact that it undersells the PBMs on many of the drug items. Please keep in mind that if you are on a maintenance drug, it is cheaper to buy a 90-day supply per pill then it is to buy a 30-day supply. Make sure your prescribing physician indicates a 90-day supply for these types of medications.

GM spent $1.5 billion on prescription drugs for it employees and retirees and their families in 2004, up from $1.3 billion in 2003.

(2/12/05)- A group of 30 large employers has banded together to monitor the business practices of the PBMs so that they can achieve prescription drug cost savings for both the employers and employees. The new group, called Rx Collaborative consists of companies such as Eastman Chemical, Mattel, Unocal, and ING Americas that use Medco Health Solutions, which is the largest of the PBMs.

Towers Perrin, a benefits consulting firm organized Rx Collaborative. National spending on prescription drugs rose to an estimated cost of $199 billion in 2004. The companies in the group will pay Medco a flat monthly fee for each employee in the program, plus a dispensing fee for mail-order drugs, instead of allowing Medco to earn the discount from the drug company. Medco will also be restricted from earning any rebates from the drug manufacturers.

Medco has agreed to allow the group to monitor its revenues and to examine its sales practices. The company will allow an independent auditor to monitor its books to see where its revenues are coming from. The companies in the group expect to save at least 6%, or $50 million per year initially, from the collaborative's total spending of $800 million a year on drugs.

Under the new Medicare prescription drug program that will begin in January 2006 the inspector general of the Health and Human Services Department "will be able to investigate whether any misrepresentation of overall rebates and costs has been reported to us", said Mark B. McClellan, head of the CMS.

(12/11/04)-In a document that has been filed in the U.S. District Court in Philadelphia, the Justice Department alleges that the PBM Medco Health Services offered a kickback of more than $200 million to a major health insurer in exchange for its business. Medco has about 60 million members, and is the largest mail-order pharmacy in the U.S.

The Justice Department had previously accused Medco of paying an $87.4 million kickback to Oxford Health Plans Inc. The latest kickback was first reported in the Newark Star Ledger. In September 2003, the Justice Department had accused Medco of defrauding the government's employee pharmacy program by shorting federal employees' prescriptions, canceling prescriptions and changing prescriptions without a doctor's consent. As a result of these charges Medco lost the 5-year U.S. government PBM contract.

(8/21/04)-New York state attorney general Elliot Spitfire has instituted a lawsuit against Express Script Inc. one of the countries largest PBMs in which he alleges that the company defrauded the state and its residents by inflating the cost of prescription drugs. According to aprevious audit made public in September 2002, the company had overcharged the New York State employees under its contract with the state to the extent of over $613,000. The difference in rates involved some 37,000 claims over a 15-month period of time.

The fraud involved in this suit resulted from the failure to include rebates that the company received from the drug manufacturers in determining the price for the particular drugs purchased by state members of the plan. At least 19 other states, including Vermont, are expected to bring similar actions against the company. In April, 2004 Medco Health Solutions Inc., the country's largest PBM agreed to a $29 million settlement with the U.S. government and 20 states over its business practices. Medco was also have alleged to paying off doctors for having switched their patients from one drug to another one because of special deals that Medco had with the companies that paid more for usage of these other drugs.

The Justice Department, the attorney generals for 20 states and Medco Health Services, the largest PBM announced the settlement of the complaints that accused Medco of violating consumer protection and mail fraud laws. The allegations involved the switching of patients to drugs that were said to add to costs for the patients and their health plans. As part of the settlement Medco will start telling patients, doctors and employers about billions of dollars in annual rebates that the company has received from drug companies for promoting its products.

New York City has filed a lawsuit in the Federal District Court in Manhattan wherein it accused 44 of the leading pharmaceutical companies of defrauding taxpayers out of tens of millions of dollars. In the last seven years NY State's Medicaid spending on drugs has tripled to over $4 billion, according to the State Department of Health. Of that amount about $2.8 billion was spent on New York City residents.

According to Michael A. Cardozo, the New York City's corporation counsel this amount reflects about 13% of the entire city budget. About two million New York City residents received some form of Medicaid assistance last year. The Medicaid program reimburses medical professionals based on the average wholesale price of a drug, less the 10% discount that Medicaid is entitled to receive. The drug companies have been inflating the AWP of their drugs, and in turn the prescribers have been using this price in billing Medicaid, when in fact they were being charged a much lower price by the drug companies.

Medco agreed to change some of its business practices and to pay $29.3 million to resolve the legal issues. The company did not admit to any wrong doings. Patrick Meehan, the U.S. attorney in Philadelphia, where the federal suit was filed, said the settlement prohibited Medco from switching drugs when the net cost of doing so would be higher that the cost of the prescribed drug.

The allegations involved the switching by Medco of a prescribed medication to one for which the company would receive a rebate from the manufacturer. Medco had been a subsidiary of Merck, and received substantial payments from Merck to "push their drugs". This could be done by either having the Merck drugs on its formulary of preferred drugs, or by calling the prescribing physician to request a change of the prescribed drug. Although the drug on the formulary might have been a cheaper one than the prescribed drug, it ended up costing the patient more money since he had to go back to the physician for another physical and undergo additional tests to see how the new medication was working.

From now on Medco patients will get a letter and a phone call to inform them when a switch has been requested. For prescriptions filled at a retail pharmacy, Medco might call the doctor for permission to switch future prescriptions to preferred drugs. Patients in the Medco mail-order program who were switched did not know about it until the medication arrived in the mail. Patients who bought their medications at a retail pharmacy were advised by mail that their prescription would be switched when they renewed it.

Under the transparency provisions of the new Medicare law, pharmacy benefit managers and other sponsors of Medicare drug discount cards must pass along the full amount of any manufacturer's rebates to the consumer. The PBMs will have to disclose rebate terms to Medicare officials, (but not to the public) when the new Medicare law goes into effect.

Two pharmacists, a husband and wife, who were former employees of the pharmacy benefits manager Caremark Rx Inc., have brought suit against the company alleging that the company illegally resold prescription medications that had been returned by patients. The suit was filed in Leon County state court in Florida. Reselling returned prescription drugs is legal in some states, but the majority prohibits the practice. There is no federal law regarding this practice but the FDA "generally discourages the reuse of drugs that leave the control of the pharmacy."

Michael and Peppi Fowler filed the lawsuit under Florida's False Claims Act statute, which permits an individual to sue on behalf of a state agency that is being defrauded. The plaintiffs also allege that the company defrauded the state by both illegally reselling the returned drugs, and also by charging Florida twice for the same medication. The suit is charging further that the defendant Caremark lied about how quickly it sent out the prescriptions to the 200,000 Florida state employees, retirees and their dependants. The Florida state attorney general has refused to join in the lawsuit. Florida law does not allow for the resale of returned drugs.

In a deposition given by Carlos Gonzales, director of pharmacy operation in Caremark's Illinois facility, he testified that workers in the company's mail-order facilities in Florida and in Texas would send shipments of hundreds of returned drugs to his facility in Illinois about once a week. The workers in Illinois would check to see if the drugs had been tampered with, but those bottles that were still sealed were put back on the shelf. The state of Illinois prohibits the resale of returned prescriptions, even if sealed with tamper resistant packaging.

Even if states do allow the resale of returned medications, many national pharmacies such as Walgreen Co., the country's largest filler of prescription drugs, and CVS Corp. do not allow the resale of returned drugs. Medco Health Solutions, the largest PBM that filled 80 million prescriptions last year, also does not allow the resale of returned prescriptions.

The PBM's trade organization, the Pharmaceutical Care Management Association (PCMA) was granted a temporary injunction that prevents the state of Maine from enforcing legislation that the state recently passed requiring the PBMs to disclose certain information to its clients. The law required the PBMs to disclose any secret deals they had with the drug manufacturers.

As a general rule the amount of fees and rebates that a manufacturer pays to a PBM has been kept "secret". These fees and rebates improve the chances of a particular drug to be sold by a PBM. Maine was the first state to introduce legislation to force the PBMs to disclose these payments. Several other states have now followed Maine in enacting similar legislation. The law became effective in Maine in September 2003. In granting the temporary injunction against compliance with the law, the judge said that PCMA "has demonstrated substantial likelihood of success" in its argument that the Maine law is preempted by the federal benefits law, the Employee Retirement Income Security Act of 1974.

The Maine law also requires the PBMs to pass along to their clients the volume-based discounts they get from a drug maker. The law also requires the PBM to get the physician's approval if a prescribed medication is to be switched. It also requires the PBM to tell the individual and the health-insurance provider the cost of the prescribed drug and the drug that the PBM wants the patient to be switched to. Violations would be punishable by a fine for as much as a $10,000 per violation.

The U.S. attorney in Philadelphia, Patrick L. Meehan has added charges of violating the kickback laws against Medco Health Solutions Inc. to the civil suit that he has brought against the company. The allegations involve the payment of $87.4 million to Oxford Health Plans when Oxford changed PBMs to manage the prescription drug accounts for its members.

When an HMO changes PBMs the members must receive new information and membership cards from the new PBM. Records have to be updated and there may even be changes made in the formulary that the new PBM uses. Medco and Oxford said that the payments were made two years ago and were fully disclosed to the members. Both companies asserted these payments are legal and do not violate any kickback law.

Some health care experts assert that it is not uncommon for a PBM to offer up to $10 per covered person to cover the transition costs of installing the new contract. Oxford said that in its 2001 annual report included the facts that it had received a total of $87.4 million from Medco related to the transfer of the account from another PBM, including a five-year commitment to provide data about members' health claims and consulting services. Please keep in mind that these payments took place before the effective date of the Health Insurance Portability and Accountability Act of 1996 that might make this illegal if done after October 2003.

In September 2003 the Justice Department brought a civil suit in the U.S. District Court in Philadelphia charging Medco Health Solutions Inc., the former subsidiary of Merck & Co. with fraud, falsifying records and making false statements. The suit stems from two suits filed previously that we discuss later in this article. It alleges that Medco systematically defrauded federal employees, their families and retirees who had prescriptions filled by the company.

The government is requesting the judge to order Medco to refrain from these actions in the future and is also seeking an indeterminate amount of monetary damages. Each offending prescription can be considered a false claim, and subject the defendant to a $5,000 fine and triple damages. Two former pharmacists of the company who worked at Medco's mail-order pharmacy in Las Vegas brought one of the suits. A New Jersey physician who has been convicted of Medicaid fraud brought the other suit. Medco defended its actions and said the federal charges are baseless.

Four of the largest California HMOs have banded together to give their members generic drug coupons valued for as much as $10 towards their first purchase of generic drugs for certain illnesses. The illnesses for which the coupons can be used include treatment for arthritis, depression and other chronic medical problems. This concerted effort to get their members to switch from brand name drugs to generic drugs can result in huge savings for the HMOs.

"For every 1% increase in generic fill rate, we will save over $7 million," said Sam Ho, chief medical officer for PacifiCare Health Systems Inc., one of the four health plans that are involved in the effort. The other participants are Health Net Inc. Los Angeles, Blue Shield of California, San Francisco, WellPoint Health Networks Inc., the Thousand Oaks Cal., and PacificCare Health Systems Inc., of Cypress, Ca.

The coupons are being distributed to about 15,000 California physicians to attach to any new prescriptions that they may write for certain ailments, if the generic version thereof is appropriate. The member who receives the coupon can use it to get the discount as against the co-payment that is charged to the member. The four HMOs together have more than 14 million California members who would be eligible under the plan.

The illnesses for which the coupons will be usable were selected by outside consultants and faculty members of the University of Southern California schools of pharmacy and medicine. The generic versions of the branded drugs contain the same active chemical ingredients, as do the branded drugs. The HMOs hope that when the members get refills for their medications, that they will continue to use a generic drug rather than a brand name drug for that illness.

Will a merger of the number two and the number four largest pharmacy benefits managers cause a further escalation in the rising cost to the consumers for prescription drugs since it will reduce the competition in this field? This will be a question that the regulatory bodies will have to deal with since CaremarkRx (number 4) and AdvancePCS (number 2) have announced that they will merge with Caremark being the surviving entity.

According to one market analyst, the combined companies have about 20% of market share as measured by total prescriptions processed. Medco Health Solutions is the largest PBM with 22% of the market share under this guideline. Express Scripts is number 3 in the field with about 12% of the total prescriptions processed.

Two groups of pharmacy owners have filed suits against two of the PBMs, Medco Health Solutions (recently spun off by Merck & Co.) and AdvancePCS alleging violations of the anti-trust laws. These two PBMs have about 140 million members in America. According to the plaintiffs this gives them overreaching pricing potentials in the prescription drug field.

It is also alleged that these two PBMs in particular have set artificially low payments to retail pharmacies and have prevented them from fairly competing with their mail-order rivals. The Pharmacy Freedom Fund, a coalition of pharmacy owners and the National Community Pharmacists Association, a trade association brought the suit in the U.S. District Court in Philadelphia for pharmacy owners.

The Justice Department joined a suit brought by 2 whistle blowers against Merck Medco, based on its four-year investigation of the matter. The government's complaint accuses Medco of promoting the use of expensive Merck drugs, charging for pills that were not delivered and for favoring drugs manufactured by Merck over competing drug companies.

Patrick L. Meehan, the U.S. attorney for Philadelpia is leading the government's team in the matter. The government is joining with the accusations made by the whistle blowers, George B. Hunt and Walter W. Gaucher, who worked in the Medco mail-order center in Las Vegas, and by Dr. Joseph Placentile, a N.J. physician. The suits have been assigned to Judge Anita Brody of the Federal District Court in Philadelphia. The Office of Personnel Management and the Department of Health and Human Services is also involved in the case.

The charges also include destroying mail-order prescriptions to avoid penalties in meeting deadlines for filing the orders; changing prescriptions based on "misleading of false information provided to treating physicians"; and failing to comply with state laws requiring reviews of potential harmful interaction among drugs. Formal charges will be filed against Medco in September.

Express Scripts, which is based in St. Louis, another of the PBMs had previously announced that it had received a subpoena from the N.Y. State Attorney General, Elliot Spitzer. Mr. Spitzer's office had said earlier that it and a number of other state attorneys general were coordinating inquires into Medco and other drug plan managers along with federal officials in Philadelphia. Regulators have also questioned Advance PCS and Caremark Rx, two other PBMs.

Two powerful business interests have launched competing ad campaigns in connection with the proposals to include prescription drug coverage under Medicare. These two forces have been at odds with each other for a number of years now, but the battle between the two seems to be escalating right now. The two groups are the pharmacy benefits managers and the retail pharmacies. The Senate approved 95-0 a requirement that private health plans that provide the new coverage must allow beneficiaries to go to local pharmacies for long-term prescriptions.

The PBMs took aim at the retail pharmacies in the ad "America's Retail Pharmacy Giants". The ad shows the photo of a beefy football player and the implication that the retail pharmacies want to deprive Medicare beneficiaries of prescription drug coverage under Medicare. The retail pharmacy industry came back with its ads "Can you trust PBMs with a Medicare prescription-drug program? No!."

The pharmacy industry says that PBMs steer consumers away from drugstores with their mail-order programs and restrictions on being able to buy prescription drugs from retail pharmacy programs. The PBMs countercharge that the retail pharmacies are simply interested in their own bottom lines and not in getting the best prices for the beneficiaries and effectuating efficiencies in the Medicare program.

According to Express Script, a company that manages drug plans for 50 million people, its members spending in the first quarter of 2003 was up by 11.3 percent in contrast to the first quarter in 2002 when the spending was up by 16.9 percent. The company attributed a good portion in the slowdown in the rate of increase to two key factors. One was the increased usage of generic drugs and the other was the increase in co-payment costs for its members. The switch of the allergy drug Claritin from prescription to generic also helped to sharply reduce spending on prescription drugs by employer health plans. In addition the negative reports about the safety of estrogen replacement drugs depressed spending on those products.

Express Script also stated that 47 percent of the prescriptions it processed were for generic drugs in the first quarter up from 43 percent in the same quarter last year. This trend is expected to continue with Prilosec , the ulcer drug now becoming available in a generic drug form. Monopril, ablood pressure treatment, and Nolvadex, a cancer drug will lose patent protection this year. The patents for the anti-biotic Cipro and the anti-depressant Celexa are due to expire next year.

The Office of the Inspector General of the Department of Health and Human Services released voluntary guidelines for the drug industry indicating what would be considered improper conduct in the promotion of drug sales. One of the areas that the guidelines dealt with, were payments from the drug companies to the pharmacy benefits managers.

In order to avoid violating the federal anti-kickback laws, any financial arrangements that are made between the drug companies and the PBMs can be protected from prosecution under certain conditions. For example if the PBM fully discloses to their clients the fees they receive from the drug companies, the payment may not be considered a kickback.

The guidelines also state that the practice of paying a physician by the PBM to switch patients to a different medication, could be considered a kickback, unless the PBM tells their clients about any financial arrangement that was received by the physician to induce him to make the switch. Recently, Express Script, a PBM, said it would provide "detailed disclosure" of its financial relationships with drug manufacturers.

Are pharmacy-benefits managers (PBMs) really effective in holding down the cost of prescription drugs or are they just another force that just complicates the whole picture? Are generic drugs the answer to holding down the ever rising costs for prescription drugs? Is the average wholesale price (AWP) just another illusion in the medical pricing structure?

These are three of the most important questions that we have to examine in determining how to best deal with the problem of ever rising costs in connection with prescription drug costs.

In this article we will confine ourselves to the issue of the PBMs. The four largest PBMs in this country are AdvancePCS, Express Scripts, Merck & Co.'s soon to be spun off to its shareholders Medco unit and Caremark RX Inc. These four companies control the prescription drug benefits of 210 million members in the U.S.

Express Scripts claims that its average net income per prescription is only 46 cents. This figure varies from a low of 25 cents to a high of $2 for the other 3 PBMs. The PBMs have made their money traditionally on the administrative fee that they charge the employers or municipalities who comprise their membership. Recently however, more and more of their income has come from taking advantage of the "spread" between pharmacy prices and what the employer or municipality pays them. As far as the question of rebates goes, that is an open matter that needs further examination.

Initially the patients are not affected in this matter since they pay the co-pay, and are not involved in any further matters. As the premiums and co-pays continue to soar however the patient is becoming more and more aware that he is involved in these matters.

Express Scripts says that close to half of the 300 million prescriptions if processes annually are for generic, and the proportion is growing. Most of the organizations that use PBMs have no idea as to what margins they are working on. Sure you can check the AWP price of a drug, but that price may not be close to the actual price that the PBM is paying for the medication.

In 2000 the state of Arizona hired AdvancePCS to provide benefits to 135,000 state employees. The contract called for Advance to pass through pharmacy prices without any markup and receive administrative fees of 24 cents per claim, as well as a share of certain drug-manufacturer rebates. An auditing arm of the state legislature found that the contract was not being adhered to. There was an overcharge of $478,000 on generic drugs over a four-month period. Advance said that a computer error had caused the problem and repaid the state for any of the overcharges. Sharon Dickerson, the state's employee-benefits chief, says that overall, Advance helped the state save about $4 million in 2002. The audit determined that the company had made a profit margin averaging 22% for processing generic prescriptions for the state's employees. In fact the audit discovered that there is a much higher profit margin made on generic rather than on the higher costing brand name drugs.

In a similar vein, Express Scripts overcharged the New York State employees' prescription-drug plan which covers 1.1 million people about $613,000 which the company also attributed to "human error". The company charged New York AWP minus 14% for certain generic drugs, rather than the amount that had been contracted for of AWP minus 39%.

In a lawsuit filed by West Virginia's attorney general, Darrell V. McGraw Jr., it is alleged that Merck & Co., and its Medco Health Solutions pharmacy-benefits subsidiary eventually increased prescription-drug costs for the state rather than lowering them. The complaint further alleged that Medco steered state employees to higher-priced drugs, especially Merck drugs, and kept rebates from the drug companies that should have been passed back to the state. The state alleges that Medco pocketed more than $6 million that should have gone to the state under a plan for cutting prescription drug costs.

More than 200 million Americans get their drugs from PBMs. The state charged that Medco steered the 200,000 state employees in the Medco program to more expensive drugs because Medco received millions of dollars in rebates from the pharmaceutical companies. According to the complaint Medco was supposed to pass on to the state all by 5% of the rebates but instead kept the rebates for itself.

PBMs do not disclose how much of their revenue comes from rebates and other sources from the drug companies, and how much comes from processing of the claims. Medco is the country's second largest PBM. Many other state attorney generals are considering bringing similar lawsuits as this one against the PBMs.

PBMs receive rebates from the drug companies and therefore might have a more expensive drug on their approved list since they receive a bigger discount from some drug companies than from some other ones. The second largest PBM is Medco Health Solutions, which is a unit of Merck & Co. and therefore is more likely to have Merck drugs on its approved list. A benefits drug list can be structured to favor some drug companies over others even though the cost may be greater. If the member co-pays less for drug A over drug B, that member might not care that drug A is the more expensive of the drugs, price wise.

There are at least 4 class action lawsuits pending against the PBMs at latest count. Two of them are against Merck-Medco, one is against Express Scripts and the other is against AdvancePCS. In one of the suits against Merck, the plaintiff alleges that the prescriptions were switched from a non-Merck drug to a Merck drug. In some cases the switch took place, it is alleged, from a generic drug to a brand name drug. Pharmacists are lobbying in several states to require that PBMs be licensed by the state pharmacy boards and supervised by state insurance departments.

An interesting battle has broken out in the drug-discount card area in a matter involving AARP cardholders. Please keep in mind that prescription-drug benefits managers (PBMs) administer these plans for the cardholders. The PBM negotiate discounts with drug makers and pharmacies, and then pass the savings on to the card members.

In September 2001, AARP switched its drug-discount card business from AdvancePCS, the country's biggest prescription-drug manager, to UnitedHealth. UnitedHealth in turn subcontracted the discount card business to the PBM, Express Scripts Inc., which is the 3rd largest PBM in the U.S.

According to a lawsuit brought by AARP and UnitedHealth against AdvancePCS in U.S. District Court in Minnesota a sharp drop-off took place in the number of AARP prescriptions written for its cardholders starting with the month of September.

In September Advance launched a new discount-card program in which pharmacists could participate by using the carrier number H020 in their computerized system. The problem was that the number H020 was the same number that Advance had used for the AARP members. This took place because many AARP members had not received their new Express Script discount card and continued to use their old card. Advance further encouraged the pharmacists to use the old number saying they could get a $3 enrollment fee for each new member who used the service at least 6 times.

The plaintiffs claim that nearly 3 million drug claims were diverted to Advance over a four-month period of time. Advance said it kept the old number for its new plan since it is not contractually obligated to change an access code that it already owns. AARP further asserts that its members are being put at increased risk in this situation because its plan includes a drug-interaction safeguard that it says Advance can not recreate. Advance claims that its plan also has a drug-interaction safeguard system.

 

For our other articles in this series please see:
Medicare and the Cost of Prescription Drugs-Part I
Medicare and the Cost of Prescription Drugs-Part II
Medicare and the Cost of Prescription Drugs-Part IIa- Medicare and Medicaid Drug Spending
Crossing the Border to Obtain Cheaper Prescription Drugs-Part IV-Importing drugs from outside the U.S.
Prescription and Generic Drug Costs- Part V of a V Part Article
Medicare and Prescription Drug Costs- Part VII

For a related article on the new prescription drug discount cards:
The New Medicare Prescription Drug Discount Cards

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home

By Allan Rubin and Harold Rubin, MS, ABD, CRC, Guest Lecturer
updated May 10, 2017

To e-mail: hrubin12@nyc.rr.com or allanrubin4@gmail.com

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