State Auditors are Demanding Increased Oversight of PBMs to Stem Skyrocketing Costs of Prescriptions

Updated: Jul 8, 2019

The Columbus Dispatch, last year, initiated an investigation of the cost of prescription drugs to taxpayer funded Medicare and Medicaid programs. The findings uncovered by state auditor Dave Yost were jaw dropping.

A December 23, 2018 follow-up article by Columbus Dispatch journalist Lucas Sullivan uncovered, through audits of self-insured companies by a small PBM, 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 Scripts. 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.

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.

The same companies that own the PBMs Envolve and OptumRx, respectively, own healthcare companies Centene and United Healthcare. CVS Caremark recently purchased Aetna and Cigna just completed the purchase of Express Scripts.

On December 5, 2018, in response to the negative news about PBMs and their opaque practices, CVS Health’s Caremark introduced its New Approach to Pricing of Pharmacy Benefit Management Services. CVS Health stated: we are working to help redefine the PBM industry in a way that better serves payors, patients and the entire health care system by helping to lower prescription drug costs and maximize payor cost savings.” CVS Health further states: “We believe guaranteeing the net cost is in the best interest of the client, and we are confident clients and consultants will also see it that way. Lastly CVS Health stated that they are going to pass through all rebates to the plans.

Despite pressure by the Trump administration and state audits of taxpayer funded Medicaid programs, little has changed. In fact, Christina Beckerman, Manager, Corporate Communications at CVS Health, on December 5, 2018 in a Fierce Healthcare article the company does not expect CVS Health’s profitability to increase or decrease as a result of the shift to 100% pass-through rebates. Think about that for a moment. Ms. Beckerman, spokesperson for CVS Health stated. “...the company does not expect CVS Health’s profitability to increase or decrease as a result of the shift to 100% pass-through rebates.”

CVS Health’s shareholders have nothing to worry about. What about CVS’ clients? CVS Health is introducing a New Approach”. They are going to be giving $Millions back to their plans and yet Ms. Beckerman stated their profitability is not expected to increase or decrease.

CVS opaquely is substituting one opaque source of gross profits — guaranteed net cost markup — for another opaque source — retained rebates.

The PBM, CVS' Caremark, has offered its self-insured corporate clients an alternative business model called “Guaranteed Net Cost”. How do they define net cost? Who defines net cost?

The pricing scheme features 100% pass-through of drug rebates and the end of rebate retention as an opaque source of PBM gross profits.

But, CVS has glossed over the fact that their “guaranteed net cost” price to plans is not the same as the net costs to them. Until CVS tells us otherwise, the new business model allows for an opaque markup on top of PBM net cost. A markup of guaranteed net costs serves as an opaque offset to foregone rebate retention. 

It is naive to think that CVS Caremark is about to give back a significant source of its annual gross profits without some sort of offset. In fact, CVS admitted as much in the the Fierce Healthcare article

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