'PBM busters' find employers unaware of price mark-ups by drug middlemen
Kyle and Ken Fields were looking for a way to honor their father and preserve the pharmacy business he spent years building.
The brothers had heard complaints from businesses and universities in southwestern Ohio about rising prescription drug costs, so they began laying a foundation for Appro Rx — their version of a pharmacy benefit management company.
One by one, their audits found that businesses were unknowingly paying 20 to 30 percent markups — $200,000 or $600,000 more than the actual cost per year — for medications.
A common finding in the audits was that the charges were coming from the country’s largest pharmacy benefit managers: CVS Caremark, OptumRx and Express Script. Pharmacy benefit managers are middlemen in the prescription-drug pipeline between manufacturers and pharmacies, and they were established with the goal of managing costs for insurers and consumers.
The Fields brothers thought that landing the pharmacy benefit manager contracts would be easy.
Then the president of a private university in southwestern Ohio called to say that his existing PBM had made a donation to the school for the exact amount that the Fields’ audit found they were overpaying for drugs.
A month later, a grocery store chain called to say that a representative from his current PBM cut a $212,000 check on the spot to cover the discrepancy found in the Fields’ audit.
Shortcomings in federal or state regulation of pharmacy benefit managers, coupled with the secrecy around how prices are set for prescription drugs, has public agencies and private businesses fighting for transparency so they can unravel how pharmacy benefit managers work.
'Worse' in private sector
The Dispatch has spent nearly a year reporting on prescription drug prices and how pharmacy benefit managers use an opaque system to drive up drug costs and make billions of dollars.
The probe found that in Ohio’s Medicaid system, PBMs were not passing along the lower costs of generic drugs to the state and taxpayers. CVS Caremark and OptumRx charged the state three to six times the going rate and made nearly $200 million a year in additional profit, according to a state audit prompted by The Dispatch’s investigation.
Within that system, pharmacy benefit managers also sometimes made cancer patients wait weeks for lifesaving drugs that were sitting on their oncologists' shelves. The medications weren't covered by insurance unless the patients waited for the PBM to send the medication through the mail.
And pharmacy benefit managers didn’t catch that the city of Columbus was being soaked for $6 million in compound drugs, most of which were a mix of lotion and a cheap supplement that can be purchased over the counter.
Pharmacists at Ohio State University's Wexner Medical Center agree with the Fields brothers that the same things are happening in the private sector, and, in fact, to almost anyone who has a health-care plan.
A nationally recognized industry survey by the Henry J. Kaiser Family Foundation reported that the price tag for family health-care coverage has increased from $13,000 in 2008 to $20,000 this year.
Prescription-drug spending has been the fastest-growing sector of health-care costs over the past several years, according to the Centers for Medicare and Medicaid Services.
“In the private sector, it’s even worse because there is little scrutiny,” Kyle Fields said. “People just don’t know what the cost of the drugs are, and that goes for business owners.”
He said one of the biggest problems in the private sector is that employers aren’t aware that when they select a health-care provider for employees, they are also selecting the health-care company’s pharmacy benefit manager.
Health-care companies Centene and UnitedHealthcare are owned by the same companies that own the PBMs Envolve and OptumRx, respectively. CVS Caremark is in the final stages of purchasing Aetna, pending federal approval.
The Fields' Appro Rx agreed to provide The Dispatch the 2017 drug usage and audit of a small retail chain in southwest Ohio that was struggling to pay for its employee health-care plans.
Appro Rx would not disclose the name of the retail company nor its health-care provider per terms of its contract.
The retail chain’s plan included $2.4 million in prescription drug costs for 2017. Its PBM was taking $600,000 of that for itself.
About $330,000 was a result of "spread pricing," meaning that the PBM was charging the company more for drugs than it was reimbursing the pharmacies that sold them. The remaining money represented drug rebates the PBM received from drug manufacturers but did not pass along to the company.
When the company’s CEO notified its health-care provider that it was going to switch PBMs, the provider increased the per-employee rate by $35 to $50 per month.
“It’s bullying,” Fields said. “Stop the bullying and start focusing on health outcomes instead of profits.”
Several small pharmacy benefit managers and similar outfits across the country, like Appro Rx, offer what they say is a more transparent, fairer contract.
But no one really knows what is fair. No one in the drug supply chain will agree to a universal price list.
The federal government and states demand rebates on prescription drugs funded by taxpayers in an attempt to keep things more fair and lower prices.
That system, however, has pushed drug prices higher. Manufacturers give rebates only for brand-name drugs.
Pharmacy benefit managers demand a rebate from manufacturers in exchange for including their drugs in health-care plans so they are preapproved for patients. That list of approved drugs is called a formulary.
Manufacturers factor those rebates into the price of their drugs, which adds to the cost for consumers.
The Dispatch contacted six of the 10 major pharmaceutical companies in the country. All six pointed fingers at PBMs for rising drug costs but would not provide data showing how.
At the same time, the largest pharmacy benefit managers point fingers back at drug manufacturers. CVS Caremark has refused numerous requests from The Dispatch for proof.
Despite all of the finger-pointing, the two groups seem united by one key factor: the quest for higher profits.
“We don’t hate PBMs; they are our customers and we want to work with them,” said Christine Waller, spokeswoman for pharmaceutical giant Mylan, earlier this year.
The veil on drug pricing was lifted briefly for the public in 2016 when Mylan's CEO told Congress that PBMs were the reason for a 500 percent increase in the price of EpiPens, which inject epinephrine to combat allergic reactions.
It's clear from Mylan's financial statements that there's a significant cost for manufacturers to get their drugs to patients.
In 2017, the country’s largest pharmaceutical companies spent $74.6 billion on research and development to create their brand-name drugs, according to financial reports. Then they spent another $116 billion to get those medications from their warehouses to wholesalers, and then via pharmacy benefit managers to hospitals and pharmacies for consumers.
Linda Cahn, an attorney in New Jersey who advises health plans and employers on pharmacy benefit contracts across the country, said the finger-pointing and lack of transparency across the drug supply chain all falls down on the insured.
“PBMs are writing contracts with their clients that enable PBMs to retain profit spreads on drugs, as well as a large percentage of total manufacturer payments," she said
A 'twisted' system
Frustrated by the setup, Scott Knoer, head of 18 Cleveland Clinic pharmacies, did what he thought was fair for the group's employees and their dependents: He tossed PBMs out of their health-care plan.
That allowed Knoer and his staff to take back control of the approved drug list, or formulary, and end the secrecy.
“We determine what the most cost-effective medication is, which is not the cheapest,” Knoer said. “We are not placing things on a formulary to get a rebate and maximize profits.”
Taking control of the formulary has saved Cleveland Clinic $33.6 million per year, he said.
Knoer noted that his group has an advantage because, as a pharmacy, it can more easily see which drugs are most cost-effective.
A complicating factor in the private sector, Knoer acknowledges, is that businesses don’t have the resources to manage their own formularies.
“There’s a lack for awareness by business owners and the employees they have doing this,” he said. “Usually, there is someone in human resources that runs the employee health plans and they are not physicians or even really know what a PBM is.”
"PBM buster" companies such as Appro Rx said business owners can start by asking for numbers and seeing what they are being charged per claim.
The range should be $2 to $4 per claim, depending on the medication. Anything above that, Fields and Knoer agree, deserves more questioning by business owners.
“It blows your mind how twisted this system is,” Fields said. “Just asking for transparency is a start.”
Columbus’ drug problems
The city of Columbus’ up-and-down relationship with its PBM is similar to what some companies in the private sector experience.
Five years ago, union leaders were upset with what they called “poor customer service” and a “heavy-handed push” by OptumRx to force employees to use their mail-order prescription drug program.
City officials listened and sacked OptumRx in favor of Catamaran. But after that, OptumRx purchased Catamaran in 2015.
By the end of 2015, the city’s cost for prescription drugs had soared to $48 million, compared with $34 million the year before. This year, the City Council approved a $50 million prescription drug plan — more than double what the city paid in 2010 — with OptumRx.
UnitedHealthcare, OptumRx’s sister health-care company, provides insurance for the city’s roughly 8,500 employees.
OptumRx blamed the skyrocketing costs in 2015 on a loophole in the city’s health-care contract that allowed compound drugs to be preapproved.
That year, city employees unknowingly filed about $2.3 million worth of prescription claims for a bogus topical pain cream that claimed skin-care benefits.
The city was billed $8,100 per tube for a medication that was nothing more than lotion and a cheap supplement that can be bought over the counter.
OptumRx officials and the city said they addressed the loopholes, but none of the doctors who wrote the prescriptions, or the Florida-based pharmacy, Topical Rx, that filled the prescriptions, have been held accountable for the scheme.
Topical Rx closed sometime in 2017 and its owner, Bobby M. Vickers Jr., has not responded to calls seeking comment.
Nichole Brandon, the city’s human-resource director, said the city knows what it is paying for drugs. But when asked for information — such as the cost per pill in a prescription — to determine if that’s true, Brandon said she would have to get OptumRx to provide the info.
OptumRx never did.
That means the city also does not know how much OptumRx makes from generic drugs through spread pricing.
OptumRx said it lets clients choose the contracts they want and can make client contracts transparent.
“All of our contracts and pricing agreements support our client’s goal to manage costs,” said Drew Krejci, a spokesman for OptumRx. “They include robust audit rights and reporting packages to provide visibility into our contracts and engagement with the drug supply chain.”
The city’s OptumRx contract is similar to those in the private sector. The contract gives OptumRx complete control of the city’s formulary and offers a bigger discount if city employees order their prescriptions through OptumRx’s mail-order service.
The contract states that OptumRx can withhold any contractual guarantees, and even the $10.3 million the city receives in drug rebates, if city officials so much as question or try to negotiate a different formulary than the one OptumRx uses.
Dave Montgomery, the outgoing Columbus fire union president, said he proposed that the city use its own pharmacy license to serve city employees and help lower costs.
But the city’s contract with OptumRx forbids such a move.
Caremark's 'new approach'
Pharmacy benefit managers CVS Caremark, OptumRx and Express Scripts have spent most of this year defending their business practices by saying that they keep costs low.
Earlier this year, five CVS Caremark executives flew to Columbus to talk with The Dispatch and explain their business. The Dispatch asked executives in person for documents that detailed how they price drugs and data to prove that they reduce costs.
The officials said they would consider doing so, but to date they have provided no documents.
CVS Caremark has said it saved the state $145 million by mitigating increases through managed care. Meanwhile, CVS Caremark sued the state to block the release of the audit that Ohio’s Medicaid department commissioned after The Dispatch began investigating PBM practices.
Two weeks ago, the company signaled that it needed to address the volume of complaints and media scrutiny with a “new approach.”
CVS Caremark said it will offer employers a more “aligned” approach that will hold the PBM more accountable to drug price inflation and the shifting of brand names to generic drugs.
"We see a real opportunity to offer clients a simpler economic model that leverages proven PBM cost management strategies to provide predictable drug costs," Derica Rice, CEO of CVS Caremark, said in a news release issued at the time.
CVS Caremark said it will give certain employers with whom they contract a "net cost" per drug claim and will offer their clients a guarantee of net spending per claim over the life of a contract.
Cahn, the attorney who consults across the nation, said that CVS Caremark is using different language only to make it appear that it is being more transparent. And the new pricing approach also doesn’t eliminate rebates on brand-name drugs or spread pricing.
"When negotiating contracts with manufacturers, CVS Caremark can label manufacturers’ payments with whatever labels Caremark wants: rebates, manufacturer fees, health management fees, etc. Therefore, the question is what percentage of total manufacturer payments Caremark passes through,” she said.
Cahn said that all of this has forced companies, unions and taxpayers to absorb the increasing costs of health care.
"Just imagine what would happen if PBMs stopped colluding with manufacturers, stopped collecting secret manufacturer payments, and instead disclosed every drug’s net cost," she said.
"Manufacturers would be forced to compete on price, drug prices would inevitably fall, and corporations would have more money to pay out in increased salaries."