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Pharmacy benefit managers take heavy criticism from a new source: local officials

In what is being described as an unusual move, a Pennsylvania county is openly blaming pharmacy benefit managers for high prices in the opaque pharmaceutical pricing system, a move that suggests more local officials may start scrutinizing these controversial middlemen.

In a report released last week, the controller in Lehigh County, Pa., estimated the county could have saved $1.4 million in 2019 if local officials were aware of the extent of rebates that were pocketed by Highmark Blue Cross Blue Shield, which hired Express Scripts to provide pharmacy benefits, and if comparative pricing was pursued for 200 different prescription drugs.

“This audit exposes what many of us have known, that our healthcare system is wasteful, lacks transparency and is subject to the greed of pharmacy benefit managers that are more interested in profit,” Lehigh Country Controller Mark Pinsley said in a statement. He added the county could have saved $1.6 million if rebates had been passed along between 2017 and 2019.

A Highmark spokesman argued the report is a “misinformed and misleading assessment of pharmacy costs” that “cherry picks” the cost of certain medicines from “a limited group of pharmacies at a particular moment in time” on a consumer website. “Comparing the cost of a small number of drugs on a pricing tool to the overall value and member experience offered by health benefits does not work,” he wrote us.

We asked Express Scripts, a Cigna (CI) unit, for comment and will update you accordingly.

The report arrives as more states grapple with the rising cost of medicines, a pocketbook issue that is vexing Americans and straining government budgets. In response, some state lawmakers have been pursuing a variety of legislation and regulations targeting not only drug makers, but also PBMs, which occupy an important but perplexing role in the pharmaceutical supply chain.

Typically, these companies act as middlemen by negotiating prices with drug makers to create formularies, or lists of medicines for insurance reimbursement. In the process, PBMs collect rebates from the drug makers, a controversial tactic because the deals are blamed for rising drug prices, but the amounts are kept confidential. Washington has tried to intervene.

Late last week, though, the Biden administration agreed to delay implementing a rule that would prevent drug makers and PBMs from negotiating rebates on prescription drugs. A PBM trade group filed a lawsuit to thwart the rule, which was proposed by the Trump administration but prompted debate over concerns it would cost Medicare beneficiaries too much money.

In recent years, meanwhile, a growing number of states have audited PBM performance. Last year, the Ohio Attorney General sued Express Scripts for allegedly overcharging a state pension plan for generic drugs and “silently” pocketing millions of dollars. The state previously sued OptumRx, a UnitedHealth Group (UNH) unit, for allegedly failing to pass discounts for medicines purchased by a state agency.

Dozens of states, in fact, have proposed or passed 160 laws to tighten oversight of PBMs over the past few years, according to the National Academy for State Health Policy, a group of state policy makers that has been active in proposing legislation to control prescription drug spending. But this appears to be the first instance in which county officials have sought to rein in PBMs.

“From one perspective, [the Lehigh County audit] isn’t surprising at all and well in line with what we and others have been uncovering,” said Antonio Ciaccia, who heads 46Brooklyn, a market research firm that has researched PBM practices. “From another perspective, this is unusual because many local auditors and controllers haven’t been looking under the hood of their PBM contracts. This could start a whole new series of falling dominoes.”

The report found the county opted for a fixed discount on medicines, rather than actual rebates, based on historical rebates, but these did not reflect current rebates that Highmark negotiated with suppliers. Actual rebates exceeded fixed discounts by $700,000 for the 2019 plan year. And after evaluating nearly 235,000 claims for 200 different drugs, the report found the county could have saved almost $655,000.

The controller concluded that county officials, however, shoulder some of the blame, because internal controls over prescription drug costs were “inadequate.” He urged the county to renegotiate the Highmark contract in order to choose whichever amount of money is larger — fixed discounts or actual rebates. We asked Phil Armstrong, the county executive, for comment and will pass along any reply.

Pinsley also pushed for greater transparency in contracts, arguing that Highmark refuses to disclose contract details such as pricing, claims paid, and other financial details they have with third parties such as Express Scripts, which provides mail-order pharmacy services. He also complained that Highmark only allows an audit of the most recent contract year and only permits an annual review of 200 paid claims.


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