American businesses spend hundreds of billions of dollars a year on prescription drugs, and the bills keep getting bigger. But some of the companies promising to help rein in those costs prevent employers from looking under the hood.
Why it matters: Documents provided to Axios reveal a new layer of secrecy within the maze of American drug pricing — one in which firms that manage drug coverage for hundreds of employers, representing millions of workers, obscure the details of their work and make it difficult to figure out whether they're actually providing a good deal.
The big picture: Americans spent $370 billion on retail prescription drugs in 2019, and employers shouldered about $166 billion of that, according to federal data.
How it works: Employers hire pharmacy benefit managers to handle the drug coverage in their workers' health insurance plans. PBMs negotiate prices with drug manufacturers and decide which drugs get preferential treatment.
Zoom In: Aon, a major global benefits consulting firm, runs one of the largest drug pricing coalitions. It includes more than 400 large companies and 2.4 million insured people, according to the Aon documents provided to Axios.
So what are employers not seeing within this coalition? The data on prices, and understanding whether those prices are a good deal.
Details: The Aon coalition documents place tight limits on employers' ability to access information about their drug costs — and on their ability to analyze that data, if they can get it.
What we're hearing: Several people who work in the industry, who asked not to be named due to the confidential nature of coalitions, said most employers, regardless of how big they are, have no idea what they're giving up when they enter coalitions.
The other side: Executives at Aon and Express Scripts declined several interview requests.
Context: The secrecy and complexity of the drug pricing process goes beyond this coalition.
The bottom line: Employers foot a large chunk of the bill for millions of workers' prescriptions. But secretive contracts, which are nothing new in health care, are blocking employers from understanding whether they are paying reasonable drug prices.
Powerful drug-industry middlemen have quietly launched businesses to get better deals from drugmakers. It could drive up costs for patients.
‘Where’s my prescription?’: California wants to revoke an OptumRx pharmacy license for prescribing lapses
The California Board of Pharmacy is seeking to revoke or suspend a pharmacy license held by OptumRx, which is one of the largest pharmacy benefit managers in the U.S., for a series of prescribing failures that allegedly jeopardized patient health.
The infractions, which occurred between 2016 and 2020, involved failures to refill prescriptions promptly; substituting a medicine without written consent; telling a patient his health insurer denied a refill due to cost; and dispensing a generic version of a drug with a costly co-pay when the customer had no co-pay for the brand version, according to the complaint, which was filed in August but shared online recently by the agency.
This marks the second time in recent years that the California Board of Pharmacy has sought to penalize the company for similar violations committed by the facility, which is located in Carlsbad, Ca. That step followed a series of citations that were issued in 2013 and 2014 for not following dispensing instructions and releasing health information, among other things, according to a 2016 complaint.
Over the years, the problems at the Carlsbad pharmacy have also caught the attention of pharmacy boards in at least five other states: Alabama (see here and here), Colorado, Hawaii (see here and here), Maine and South Carolina. Each board cited the infractions in California as justification for issuing warnings or fines. State pharmacy boards often look at infractions that occur in other states if a problematic facility serves their residents.
A hearing to review the accusations, which also were made against the pharmacist in charge at the Carlsbad facility, is scheduled for February 2022, according to a spokesman for the state board. Although OptumRx runs several pharmacies in the state, each OptumRx facility doing business in California is licensed separately by the board, which means other facilities are not affected by the legal action.
A spokesman for OptumRx, which is owned by UnitedHealth Group (UNH), the health insurer, wrote to say the company provides more than 5 million prescription drugs to people through home delivery every month and that safety and quality checks deliver a dispensing accuracy rate of more than 99%. He claimed this is more than 500 times accurate than retail pharmacies.
“We take all consumer complaints seriously… these allegations are without merit and we will defend ourselves.”
This latest enforcement effort by the California Board of Pharmacy comes amid increasing scrutiny of pharmacy benefit managers, which play various roles in the opaque pharmaceutical chains. The companies are best known for creating formularies, or lists of medicines for which coverage is provided by health insurers. Drug makers, meanwhile, pay rebates to win favorable formulary placement.
Some pharmacy benefit managers also operate online pharmacies to provide a form of one-stop shopping which health plans can promote to their beneficiaries. OptumRx, for instance, operates numerous facilities in different states across the U.S. as part of its pharmacy benefits management business.
To what extent the California Board of Pharmacy may penalize OptumRx, should it win its case, remains unclear, though. To resolve similar accusations made in 2016, OptumRx was publicly censured and ordered to pay a $7,930 fine to cover the costs of the investigation, although the company was allowed to use a payment plan. The company was also ordered to provide healthcare services, such as reduced-cost immunizations, as part of a community service program.
In recent years, the California Board of Pharmacy has also focused on pharmaceutical wholesalers, some of which have often been cited for improper oversight in handling prescription medicines that are classified as controlled substances, such as opioids.
CVS Health and other massive corporations often use their pharmacy middleman subsidiaries to force people to get the most expensive class of drugs from the businesses’ own mail-order pharmacies.
Some call the practice “patient steering.”
CVS and companies such as UnitedHealth and ExpressScripts/Cigna say the arrangements save patients money. But some patients, oncologists and other health providers say it threatens lives.
Now the U.S. Supreme Court is poised to weigh in. In a little more than a month, it will hear arguments in a California case in which AIDS patients are claiming the practice discriminates against them.
Known as “pharmacy benefit managers” or PBMs, the middlemen work with insurance companies or government programs like Medicare and Medicaid to facilitate prescription-drug transactions. They negotiate rebates with drugmakers, decide what drugs are covered and they determine how much to reimburse pharmacies that dispense drugs as part of their health plans.
But the function that’s in dispute in the California case is how PBMs structure their pharmacy networks.
Each of the big three PBMs is affiliated with a major insurer and each is part of a corporation that is among the 13 largest in the United States. And the combined PBMs are estimated to control well over 70% of the pharmacy-middleman marketplace.
They’re also frequently in direct competition with the retail pharmacies whose reimbursements they control. CVS owns the nation’s largest retail chain and each of the big three owns a mail-order pharmacy for “specialty drugs” — the most expensive class of medicines, which can cost upward of $100,000 a year.
Increasingly, the big-three PBMs have been saying they won’t cover super-expensive specialty drugs if patients get them at their oncology centers or their AIDS clinics. It’s increasingly the case that the only way PBMs will cover them is if patients get them through the mail from a PBM-owned pharmacy.
Critics say the point is to pad profits, but the PBMs maintain that they do this to help their customers.
“To keep costs down, plan designs offered by pharmacy benefit managers often impose the most restrictions on ‘specialty’ drugs,” CVS said in its petition asking the Supreme Court to take up the case. “These medications have special shipping, administration, or storage requirements; treat rare conditions; or are very expensive.”
It added, “Pharmacy benefit managers often control the disproportionate costs and complexities of specialty drugs by contracting with specialty pharmacies that have expertise in the ‘unique handling, storage, and dispensing’ requirements of these medications. Increasingly, pharmacy benefit managers rely on specialty pharmacies that deliver by mail.”
Cancer, HIV patients say mail-order service doesn’t work
However, many patients complain that especially when they have complex conditions that require equally complex drug regimens, mail-order service is vastly inferior to the services they get in-person from pharmacy professionals.
In 2018, Elvin Weir, a now-deceased cancer patient, described to The Columbus (Ohio) Dispatch how late or improperly filled mail-order cancer prescriptions had often delayed the rest of his treatment as his disease worsened. And officials at oncology centers said the arrangement disrupts the collaboration between their pharmacists and oncologists treating conditions that can be not only complex, but also change rapidly.
The plaintiffs in the original California case made much the same argument.
“For people living with HIV/AIDS, strict lifetime adherence to antiretroviral therapies (ART), consisting of complex combinations of pharmaceuticals consumed daily, is vitally important, and can be literally a life-or-death matter,” the AIDS Healthcare Foundation wrote in a friend-of-the-court brief.
“For people living with HIV/AIDS, so-called specialty pharmacies and pharmacists that focus on HIV/AIDS and in-person treatment provide demonstrably superior care than do mail-order pharmacies and retail pharmacies,” it added. “Coercing people living with HIV/AIDS into using only mail-order pharmacies is thus guaranteeing inferior care and worse health outcomes, and is disability discrimination by both intent and impact.”
A panel of the 9th U.S. Court of Appeals last December said that among its mistakes, the lower court in the CVS case didn’t acknowledge that face-to-face interactions with pharmacists were part of the benefits to which plan members are entitled.
The Ninth Circuit ruled that CVS’s mail-order policy might discriminate against the disabled because it “burdens HIV/AIDS patients differently because of their unique pharmaceutical needs. Specifically, they claim that changes in medication to treat the continual mutation of the virus requires pharmacists to review all of an HIV/AIDS patient’s medications for side effects and adverse drug interactions, a benefit they no longer receive under the program.”
CVS argues policies don’t intentionally discriminate
In its appeal to the Supreme Court, CVS is disputing the plaintiffs’ legal argument that the mail-order policy violates the law because it has a “disparate impact.”
In other words, the AIDS-afflicted plaintiffs are saying that even if on its face the policy applies equally to everybody, it’s still illegal discrimination if it has a discriminatory effect against part of a protected group: the disabled. CVS, on the other hand, is arguing that so long as its policies aren’t intentionally discriminatory, they’re OK.
The law puts “federal-funding recipients on notice that intentional discrimination is illegal,” its petition says. “Schools cannot discipline students with attention-deficit disorder more harshly on that basis. Towns cannot target group homes for individuals with disabilities with uniquely onerous zoning requirements. Employers cannot refuse to hire someone solely because she is in a wheelchair. And health plans and anyone else subject to (federal health care laws) cannot facially exclude patients with disabilities simply because they have disabilities.”
“Courts do not need to rewrite (the law) and insert a nonexistent disparate-impact standard to accomplish Congress’ goals,” CVS argued.
The health care company noted that appellate courts have issued differing opinions in the matter. That, presumably, is the dispute the Supreme Court hopes to settle by taking up the case.
Oral arguments are slated for Dec. 7.
This story was originally published by Ohio Capital Journal, an affiliate of States Newsroom.
Congressional Democrats on Tuesday announced they had agreed to a broad plan to overhaul the way America pays for prescription medicines.
Under the deal, Medicare would be allowed to negotiate drug prices for both drugs dispensed at the pharmacy counter and those administered in doctors’ offices for drugs older than 9 years or 12 years, depending on the type of drug. Drug makers would have to pay penalties if they hike prices faster than inflation, including for employer-sponsored insurance plans. Seniors’ out-of-pocket costs would be capped at $2,000 per year. Insulin prices per dose will also be capped.
Moderate Democrats including Sen. Kyrsten Sinema (D-Ariz.) and Reps. Scott Peters (D-Calif.) and Kurt Schrader (D-Ore.), who all had reservations about Democratic leadership’s more aggressive drug pricing ambitions, endorsed the deal. Senate Majority Leader Chuck Schumer said the deal also has the White House’s support.
“It’s not everything we all wanted. Many of us would have wanted to go much further, but it’s a big step in helping the American people deal with the price of drugs,” Schumer told reporters.
The package’s path forward is unclear, but its inclusion at all is a coup for Democrats facing stiff opposition from the pharmaceutical industry. Just last week, President Biden announced the White House was abandoning the entire effort to lower drug prices because progressives and liberals were too far apart to cut a deal.
Many important legislative details remain unclear, but there are already some clear winners and losers.
Winner: House Speaker Nancy Pelosi
Pelosi snatched victory from the jaws of defeat after the White House shunned the policy on Thursday morning. Pelosi launched into dealmaking mode, and her office was on the phone with key stakeholders by that evening. Pelosi personally spoke with Sinema both Friday and Tuesday to hammer out a deal, a source told STAT after Punchbowl News reported the calls.
Pelosi’s team has fought for Medicare to negotiate drug prices for more than 15 years, and if it becomes law, the policy will provide an opportunity for Democratic members to tout a major win on the campaign trail ahead of the 2022 midterm elections.
Winner: Moderate Democrats
An unlikely cadre of pharmaceutical industry-friendly lawmakers ended up being the decision makers on prescription drug pricing because Congress’ margins are so narrow. Sinema, Peters and Schrader flexed outsized muscle for rank-and-file lawmakers, and steamrolled Medicare negotiation plans that House and Senate leadership had been crafting for years.
House Democratic leaders had envisioned a sweeping Medicare negotiation authority that would allow the government to bargain for the most expensive drugs, but moderates extracted big concessions to protect drugs for years once they enter the market.
Though there was tussling toward the end of negotiations, employers successfully fought to ensure drug makers would be penalized if they hike prices in the commercial insurance market. The nitty-gritty details remain unclear, but this bill would force drug makers to pay penalties if they raise their drug prices faster than inflation.
Employers had been concerned that if drug makers got less money from Medicare, they’d jack up their prices elsewhere. Experts disagree about how much drug makers would have been able to shift costs, but extending some price controls to commercial markets is a significant achievement.
Winner: Seniors with high drug costs
These policies may not make a measurable difference for every consumer who takes prescription drugs, but it seems that it would help seniors who have high bills at the pharmacy counter. Drug costs can be a huge burden for patients taking expensive medications, and capping seniors’ out-of-pocket costs annually, and for each month to avoid especially high spending early in the year, could go a long way to ensuring peace of mind.
Consumer groups including AARP, Families USA, and Patients for Affordable Drugs applauded the high-level agreement, though they said they are awaiting full details.
Loser: Drug makers
The pharmaceutical lobby won some battles on these policies. And it’s likely they will find ways to lessen their impact. But after the White House very publicly abandoned drug pricing reform entirely, Democrats in Congress robbed a colossal victory from the drug industry at the eleventh hour.
The creation of an infrastructure for Medicare negotiation is a big loss here. Drug makers had the chance to accept more incremental, bipartisan reform last Congress, but they stonewalled it. If this new Democratic deal becomes law, that tactic may have cost them, in hindsight. They will no doubt put up a fight as the deal moves forward through the legislative process, and if the changes make it to the regulatory process.
Loser: Progressive Democrats
Lawmakers pushing for aggressive prescription drug pricing reform for years are going to be disappointed by this deal. The final product is watered down significantly from their vision of price limits applied to every American for a wide array of drugs. A negotiation framework painstakingly crafted by Senate Finance Chair Ron Wyden (D-Ore.) was cast aside, and most likely, it will never see the light of day.
Rep. Peter Welch (D-Vt.), a member of the Congressional Progressive Caucus who has championed drug pricing reform for years, praised the deal even though he had advocated for much stronger legislation.
“To be clear: this isn’t enough. But in the face of Big Pharma’s power and deception, we have made significant progress with this deal,” he tweeted Tuesday.
Loser: Pharmacy benefit managers
After skating by scot-free as negotiations progressed, the middlemen between insurance companies and drug makers will face more transparency requirements, according to a summary of the deal circulated by Peters’ team.
Pharmacy benefit managers seem to be getting the better of the 21 states that banned spread pricing and are continuing to bill Medicaid for more than the price paid to drugstores for medicines.
Spread pricing is a financial boon to PBMs. Under this practice, PBMs pay pharmacists for dispensing medications at one rate, then return months later to "claw back" the difference between that amount and the contracted rate established by a Medicaid managed care carrier—after state Medicaid agencies have closed the books on the prescription purchases.
The tactic inflates states' drug spending and the capitation rates paid to Medicaid managed care carriers, and distorts insurers' medical-loss ratios, said Antonio Ciaccia, president of drug pricing watchdog 3 Axis Advisors and head of 46brooklyn Research.
States sought to save taxpayers money by prohibiting spread pricing. In Ohio, it doesn't seem to be working.
PBMs overcharged Ohio by millions of dollars by tweaking the spread pricing model, according the testimony state Medicaid Director Maureen Corcoran delivered to state legislators Wednesday. The companies charged payers more than they paid pharmacies and kept the difference, the Columbus Dispatch reported.
"What that means is that the entire fundamental premise with which pricing is based in Medicaid programs across the country is essentially trash," Ciaccia said. "We're talking about billions and billions and billions of dollars of implications if there's no integrity with the data with which they're using to set any of these items," he said.
"This phenomenon is occurring in states across the country, but this is the first public outing of the practice," Ciaccia said of the Ohio announcement.
PBMs' Medicaid clawbacks also violate the spirit—if not the letter—of the law in states that attempted to curb spread pricing by requiring pass-through pricing instead. This model pays PBMs administrative feeds and requires them to return drugmaker rebates and discounts to their payer partners.
The letter of the law is what matters and pharmacy benefit managers abide by their contracts with druggists, a spokesperson for the PBM industry's main lobbying group wrote in an email.
"Independent pharmacies voluntarily enter into contracts with pharmacy benefit managers, PBMs, which set reimbursement for pharmacies at fair market values," Greg Lopes wrote. "Independent pharmacies more often than not are backed by powerful pharmacy services administrative organizations—the largest of which are owned by drug wholesalers—which are negotiating on the pharmacies' behalf."
More than a dozen states are working with the law firm Liston & Deas to investigate PBM clawbacks. Liston & Deas and won a $214 million from settlement from Centene in a lawsuit that alleged the insurer's PBM overcharged Arkansas, Illinois, Mississippi and Ohio for prescription drugs. Centene also is in settlement talks with other states and has reserved $1.25 billion to cover claims related to its now-defunct PBM, Envolve.
A 3 Axis Advisors review of community pharmacies participating in Michigan's Medicaid managed care program revealed that the state's spread pricing ban did little to stop PBMs from gaming the system, Ciaccia said. PBMs hiked the initial reimbursements to pharmacists and clawed back the difference later, he said.
"You have all this historical data showing really crappy reimbursements to pharmacies and, all of a sudden, the state bans spread pricing and, voila, PBMs decided to be altruistic to pharmacies?'" Ciaccia said. "It's building in an excess from a contractual standpoint for the PBM to clawback."
Pharmacists have long bemoaned PBMs clawbacks, which threaten their businesses, said Ann Cassidy, a lobbyist at the National Community Pharmacists Association. These fees represent a cousin of the direct and indirect remuneration fees that PBMs demand from pharmacists through Medicare, which grew 91,500% from 2010 to 2019, according to the Centers for Medicare and Medicaid Services. But unlike direct and indirect remuneration fees, clawbacks in Medicaid are not barred by federal law but governed by pharmacists' contracts with PBMs, she said.
Consolidation in the PBM industry has exacerbated the problem, Cassidy said. Three companies—CVS Caremark, UnitedHealth Group's OptumRx and Cigna's Express Scripts—are responsible 75% of U.S. prescription drug claims.
"This all goes back to these 'take it or leave it' contracts," Cassidy said. "If the PBM tells the pharmacy, 'You have to agree to everything in this contract, even these clawbacks. If you don't, then you could possibly lose a third of your patients.' That's the catch."
iHeart Media: Portland News
Citing the recent announcement by Bi-Mart that it’s begun closing 56 pharmacies in Oregon and the Northwest, U.S. Senator Ron Wyden this week urged the federal Centers for Medicare and Medicaid Services (CMS) to review pharmacy closures nationwide in the last five years with a focus on how fees imposed by Medicare Part D plans and middlemen known as pharmacy benefit managers are driving those closures -- many of which are in rural communities.
Wyden noted in his letter to CMS Administrator Chiquita Brooks-Lasure that Bi-Mart cited “increasing costs and ongoing reimbursement pressure” in its announcement of the pharmacies closing, 37 of which are in Oregon.
“I write with deep concerns about these closures, which reports indicate are caused by the negative financial impact of direct and indirect remuneration (DIR) fees imposed by Part D plans and pharmacy benefit managers (PBMs) on local pharmacies in Oregon and other states,” wrote Wyden, chair of the Senate Finance Committee. “Pharmacies across Oregon report that these fees exert significant financial strain and impede their ability to deliver critical services. These fees do nothing to lower the amount Medicare beneficiaries must pay for their drugs each time they fill a prescription and seemingly serve only to pad plan and PBM profits.”
He wrote that CMS reported in June to Congress that Part D plans and PBMs increased pharmacy DIR fees by an astounding 91,500 percent from 2010 to 2019, and that fees doubled from 2018 to 2020.
“I am deeply concerned that the rise of these fees has contributed to the permanent closure of 2,200 pharmacies nationwide between December 2017 and December 2020,” Wyden wrote. “Meanwhile, middlemen like Part D plans and PBMs continue to generate exceedingly high profits under the Medicare program—PBMs collectively generated annual revenue of $449 billion in 2020—using such forced post-point-of-sale price concessions and shifting costs onto beneficiaries and taxpayers.”
Wyden said these troubling trends raise alarm bells because mechanisms like pharmacy DIR fees can be deployed as anti-competitive tactics by PBMs to destabilize pharmacy revenue and subsequent closures serve to benefit pharmacies owned by plans and PBMs responsible for DIR fees by driving volume in their direction.
“Our rural communities are particularly dependent on local community pharmacists for their care, and are especially impacted by these closure,” he wrote. “Pharmacies not only provide access to medication in these communities, they also play an essential role in the provision of other critical services, such as patient education, management of chronic disease, preventative care, certain testing, and vaccine administration.”
Arkansas Attorney General Leslie Rutledge is announcing a settlement with Centene Corporation and its subsidiaries Arkansas Total Care, Inc., Centene Management Company, and Envolve Pharmacy Solutions, Inc.
This settlement will end Rutledge’s review of the business practices of Arkansas Total Care and its Pharmacy Benefit Manager (PBM), Envolve, which began with allegations that Centene was using these companies to overcharge the State of Arkansas for medications in its Medicaid program.
To settle the claims, Centene must pay $15,228,318.72 to the State of Arkansas.
“I have successfully fought predatory pharmacy benefit managers in the nations highest court, and I continue to hold these providers accountable for gouging Arkansans with unreasonably high costs for their prescriptions,” said Rutledge said.
“I will always fight to protect Arkansans, and this settlement with Centene is a big step in repairing the damage it did by taking advantage of Arkansans,” she added.
Arkansas Medicaid had tasked Envolve to assist in managing its prescription drug program. PBMs, such as Envolve, contract with and reimburse pharmacies for drugs, create preferred drug lists, and negotiate rebates with pharmaceutical companies.
Envolve subcontracted its responsibilities for the payment of pharmacies to CVS Caremark. When Envolve reported to Arkansas Medicaid the costs paid to pharmacies for the drugs, Envolve reported inflated amounts of pharmacy costs by failing to disclose substantial discounts in ingredient costs and dispensing fees which Envolve received under the Envolve-CVS subcontract. This conduct by Envolve occurred in 2017 and 2018 and ended with termination of the Envolve-CVS subcontract.
Centene must pay $15,228,318.72 to the State of Arkansas in two installments within the next year and 45 days. Going forward, Centene has agreed to provide Arkansas with full transparency related to the adjudication and payment of all pharmacy benefit claims, including the exact amount paid to the pharmacy for each pharmaceutical claim.
In 2018, Rutledge announced an investigation into PBM CVS Caremark. In 2020, Rutledge won an unanimous victory at the U.S. Supreme Court upholding Arkansas’ pharmacy benefit manager regulations in Rutledge v. Pharmaceutical Care Management Association. Rutledge stated she will continue to aggressively investigate PBMs responsible for overcharging consumers and plummeting medication reimbursement rates paid to local pharmacies. The Attorney Generals Office is actively looking for any violations of the law committed by PBMs in Arkansas and will continue to enforce laws to protect Arkansas consumers.
Kansas paid auditors $100,000 to dig into the more than $160 million it spent in 2018 and 2019 on prescription drugs for state employees, retirees and their families.
But experts who follow the pharmaceutical industry say the resulting 16-page report doesn’t tell Kansas whether the health plan — or rather, the taxpayers and public employees who fund it — got a bargain or got gouged.
Nor does it reveal what role CVS, which manages the health plan’s drug benefits and was the audit’s focus, plays in either keeping down or inflating costs.
The audit “was poorly structured and poorly performed,” New Jersey attorney Linda Cahn, CEO of Pharmacy Benefit Consultants said in an email. Her firm helps public and private health plans avoid contract loopholes that lead to overcharges on drugs. “It does not provide Kansas — or its taxpayers — with the information needed to evaluate just how much money the State wasted.”
Cahn spent more than a decade litigating pharmacy benefit issues and has reviewed hundreds of drug spending contracts like the one Kansas signed with CVS.
Both she and 3 Axis Advisors, a consulting group that investigates prescription drug costs, said the state health plan may have lost millions to ambiguous provisions in its CVS contract.
Antonio Ciaccia, president of 3 Axis Advisors, said even the largest of public and private employers often don’t know how to ask the right questions about the complex world of prescription drug deals.
What they end up with are audits that “leave everything on the cutting room floor that you actually need.”
“Some of the biggest companies in the world are getting taken advantage of,” said Ciaccia, a former lobbyist for pharmacies in Ohio, which sought an investigation in that state. “You have an incredibly opaque and complex system … There's so many opportunities to exploit that complexity.”
By the time Ohio finished digging into the matter, it discovered more than $200 million in Medicaid spending had gone into a byzantine profit model run by the administrative middlemen.
It effectively fired the middlemen companies involved, sued one of them and got an $88 million settlement this summer.
And yet Ohio audited only a slice of what it should have, experts say, leaving unknown the full taxpayer-funded profits that middlemen took home. And that holds lessons for Kansas. Not just for its state health plan, but for its cities, counties, school districts and private employers.
Clear, thorough audits are intended to expose things like overcharges and to keep contractors honest.
In the complex business of managing prescription drugs, the stakes of those audits become even greater.
The opaqueness is compounded by how Kansas, CVS and the auditor handled inquiries from the Kansas News Service.
First, the Kansas Department of Administration redacted large swaths of the audit, saying it needed to protect trade secrets. (Lawyers who reviewed the botched redactions for the Kansas News Service disagree.)
Then the department declined an interview request, saying in an email, “the audit speaks for itself.”
CVS also declined an interview. “We would refer any questions you may have to our client, the state of Kansas,” a spokesman said by email.
And the auditor, PillarRx, said it can’t discuss its findings or even the thoroughness or quality of its work without permission from CVS — the company whose work it was paid to watchdog — and Kansas. A company vice president said her hands are tied “because of our confidentiality statements” with both parties.
PillarRx’s report found more than $1 million in overcharges that CVS paid back, but otherwise concludes that CVS largely handled the health plan’s money appropriately.
The audit conclusion is written by CVS, not the auditor. In it, the company promises to address co-pay issues related to four claims.
After that, “it is our view that we are in compliance with the contract and plan design, and there are no additional material financial discrepancies related to the findings.”
The conclusion left Ciaccia flabbergasted.
“I’ve never heard of the entity being audited having the privilege of writing their own conclusions to the audit,” he said.
Cahn said Kansas should demand to see any confidentiality agreements between PillarRx and CVS. Such agreements often limit what financial documents the auditors get to review in the first place, she said, and how much detail the auditors get to disclose to their clients. They can also grant the company under audit the right to review all drafts and preliminary findings before they reach the client. The state should demand to see all earlier drafts, she said.
“The State should also require PillarRx to provide it with all exchanges that PillarRx had with (CVS) Caremark,” Cahn said, “concerning its audit, and its draft audit reports.”
A quick primer on pharmacy middlemen
The Kansas audit homes in on the same obscure but important part of the drug supply chain that Ohio looked at — the administrators called pharmacy benefit managers.
These middlemen typically negotiate prices with pharmacies, determine what drugs a health plan should cover and process the actual claims. Health plans would struggle to get that done on their own.
So the administrators handle the money flow. They pay the drugstores. And they collect the rebates that drugmakers offer as incentives to include specific medications in their coverage.
It’s lucrative work that sometimes pulls in more money than drugmakers and insurers earn.
Three of the nation’s wealthiest corporations control most of the market: Express Scripts, CVS Caremark and OptumRx.
CVS ranks No. 4 on the Fortune 500. UnitedHealth Group (which owns OptumRx) ranks No. 5. Cigna (which controls Express Scripts) ranks No. 13.
As Fortune magazine wrote, “The company climbed more than 50 spots on the Fortune 500 after completing its merger with pharmacy benefits manager Express Scripts.” It enjoyed “skyrocketing” revenues, and all that pharmacy benefit manager business kept Cigna healthy during the pandemic.
Independent and small-chain pharmacies generally stand at odds with the pharmacy benefit managers that control payments from health plans. That tension has magnified over the years as the corporations that do this administrative work merged with drug stores and insurance companies.
CVS Health, for example, not only owns its ubiquitous drugstore chain, but also functions as an insurance company (Aetna) and a pharmacy benefit manager.
It is the pharmacy benefit manager for the Kansas employee health plan. The plan covers about 80,000 public employees, retirees and dependents. It spends about $80 million on drugs annually.
A consultant told the Kansas Department of Administration that CVS’ latest contract would save the health plan tens of millions of dollars over a three-year period. Continue Reading