| Mail
Order & PBMs |
| Major
Mail Order Problems Outlined |
|
Generic drugs: Neighborhood
drug stores filled far more prescriptions with lower-cost generic
medications than did mail order pharmacies owned by PBMs |
| |
 Local
figures: In metropolitan Detroit, retail pharmacists
last year dispensed generic medicines for 38 percent of the
prescriptions they filled in the 10 most common therapeutic
drug categories.
Mail order companies used generics for 30.4 percent of those
prescriptions. (Source: University of Minnesota research) |
| |
| Earnings
surge: PBMs have average gross profit of $3.50 on each
mail order prescription, compared to $1.40 for each prescription
they fill at a retail store. (Source: JP Morgan Securities report,
April 2, 2002) |
| |
Potential conflict: Each of the four largest PBMs runs
a mail order division that is more profitable than administering
a health plan.
PBMs have a strong incentive to switch patients to more expensive
brand-name medications that earn substantial rebates from manufacturers,
which are not passed along fully to consumers or employers. |
| |
Markups:
Mail order houses “profit by repackaging prescription
drugs and selling the repackaged drugs at higher per-unit average
wholesale prices than the manufacturer originally charged. …
Since the PBM is acting as both the dispenser, through its mail
order pharmacy, and claims adjudicator, it has both the incentive
and ability to dispense these higher-priced products to its
patients.
This can result in substantial costs to payers and consumers.”
|
| |
Authors conclude: “Evidence
shows that PBMs with captive mail order not only have incentives
to act in ways contrary to the interests of payers and consumers,
but appear to have done so.
Abuses resulted from the conflict of interest between PBMs and
their captive mail order divisions.
"PBMs should
be prevented from both administering a plan and selling drugs
to its patients through their own mail order pharmacies –
just as doctors are barred from owning pharmacies. |
| |
Pharmacy
Benefit Managers (“PBMs”) typically administer
drug reimbursement plans for insurers. They choose the drugs
that will be covered by the plan, they negotiate with drug manufacturers
for discounts, and they administer the claims filed by plan
participants.
Not content to merely administer
drug plans, major PBMs have acquired their own mail order pharmacies.
This has created a conflict of interest. The PBM is both the
policeman and the entity being policed. Indeed, many PBMs now
make more money selling drugs than administering plans. |
| |
| The
PBM conflicts of interest costs billions of dollars to
health plans. A recent study by two former FTC economists calculated
that this conflict of interest increased drug costs by close
to $3.7 billion in the last three years. |
| |
| These
overcharges result because, when PBMs both administer
plans and sell drugs to the same plans, they can, and do, steer
business to drugs that are most profitable for the PBM mail
order house to sell. |
| |
One
way in which PBMs that own captive mail order houses
have increased their profits is through therapeutic switching.
Because it can take several days to fill a mail order prescription,
mail order dispensing provides time for PBMs to obtain the necessary
physician permission to switch prescriptions to higher priced
drugs.
The report finds that such switching occurs much more frequently
in PBM-owned mail order houses than in unaffiliated mail order
houses. |
| |
Another
way in which PBMs that own captive mail order houses
have increased their profits is by selling repackaged drugs
at higher prices.
For example, the economic study finds 15 instances when the
branded drug Celebrex was repackaged and sold at a higher per
unit price. |
| |
These
practices will continue to cost billions
of dollars unless a provision is added to the Medicare Drug
Benefit legislation that would preclude self-dealing by a PBM
administering a Medicare program.
As the economic study shows, neither competition among PBMs
nor risk-bearing by PBMs will solve the problem. |
| |
|
In order to save money and
make the free markets work better, Congress should preclude
a PBM administering a Medicare program from adjudicating claims
in which it is selling the drugs. |
