Pharmacy benefit managers generally provide pharmaceutical outpatient plans, which depend on all sorts of financial concessions the PBM extracts from drug manufacturers, pharmacies and other suppliers. Those forms of direct and indirect compensation help the PBMs to keep costs to company health plans low. But the companies are often unaware of whether promised discounts are fully forthcoming because of lack of transparency.
The Department of Labor's Employee Retirement Income Security Act Advisory Committee recently approved two recommendations pushing for the department to require disclosure of both direct and indirect compensation.
"We commend the ERISA Advisory Council on its action and we are also excited that U.S. Labor Secretary Thomas Perez has indicated his desire to ensure those long-overdue changes are implemented," says B. Douglas Hoey, CEO of the Alexandria, Va.-based National Community Pharmacists Association. The NCPA has been locked in numerous battles with the PBM industry over adequate participation of retail pharmacies in PBM networks.
"In the past, some council recommendations have led to regulatory projects," says Michael Trupo, a Labor Department spokesman. "The department looks forward to reviewing the council’s final reports when they are submitted."
James I. Singer, the issue chairman on PBM disclosure for the ERISA Advisory Committee, says the report should be available at the start of 2015.
Three PBMs control the lion's share of the market: Express Scripts, CVS/Caremark and Catamaran. Health plans such as Aetna, Humana and United Healthcare also own PBMs.
Allison Klausner, assistant general counsel for benefits at Honeywell International Inc., says that rebates PBMs receive from drug manufacturers for placing particular drugs on the most attractive formulary "tier" can create "conflicts of interest." That placement, she says, may have nothing to do with a drug's superior effectiveness and everything to do with a higher PBM profit margin.
In some instances, she says, plan sponsors may be fine with rebates obtained by the PBM, but may be denied access to auditing them to ensure they are getting the share they contracted for.
But Washington, D.C-based attorney William J. Kilberg, a partner at Gibson, Dunn & Crutcher who represents the Pharmaceutical Care Management Association—the PBM trade group—says the rebates PBMs obtain from manufacturers are not "compensation," and should not be subject to DOL regulation.
Nor should there be any regulation of any kind of compensation PBMs receive, he adds, as employers have many PBMs to choose from, which gives them leverage to extract whatever information they need from whichever PBM they contract with.
Industry experts, such as Patricia M. Danzon, the Celia Moh Professor at the University of Pennsylvania's Wharton School, say that manufacturer rebates to PBMs are generally disclosed and have become less of a profit maker for PBMs as plan sponsors heavily incent the use of generics, where rebates do not come into play ordinarily.
But that trend, experts warn, may also account for the growth of another criticized, opaque practice: PBMs' use of "spread pricing" to boost profits, by which a PBM reimburses pharmacies a lower amount than it charges a plan sponsor.