Critics Attack Secret Deals by Middlemen to Buy Drugs

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http://www.nytimes.com/2003/12/20/business/20pbms.html?th

 

December 20, 2003Critics Attack Secret Deals by Middlemen to Buy DrugsBy MILT

FREUDENHEIM

 

The middleman companies that manage drug benefits for millions of American

workers are under growing pressure from government officials, big employers and

some drug makers to end their practice of cutting secret deals with drug

companies, deals that often favor sales of expensive drugs. Already, some of the

companies, known as pharmacy benefit managers, have made formal promises to

inform their customers fully about any rebates or other deals they make with

manufacturers.

 

More such moves could not only upend the industry's business model but result in

substantially lower drug costs for employers and workers, according to industry

executives and analysts. Because the companies are expected to manage the new

Medicare drug benefit, the savings could extend to the elderly, as well.

 

The pressure on the benefit managers is taking several forms.

 

Federal prosecutors who have been investigating the industry are offering

briefings to employers on ways to demand more transparency in their drug plans.

Big employers, including the Ford Motor Company and Verizon Communications, have

been pressing in negotiations for the benefit managers to be more open or to

eliminate their deals with manufacturers altogether.

 

Some drug manufacturers, meanwhile, are saying they have no objection to letting

employers see their contracts with the pharmacy benefit managers, contradicting

assertions by those companies that it is the manufacturers who have insisted on

secrecy.

 

And though a disclosure requirement was dropped from the Medicare bill before it

was passed by Congress, regulators are likely to demand information about rebate

arrangements, said Thomas Scully, who resigned this month as head of the federal

Center for Medicare and Medicaid Systems.

 

" They will have to be more transparent if they are dealing with taxpayer

dollars, " he said, adding that the government would probably offer benefit

managers the assurance that information they disclose would not be released to

competitors.

 

The pharmacy benefit managers have been growing robustly, and their stocks are

up more than 80 percent this year. But they face rising competition from

pharmacy managers owned by large insurance companies.

 

On Tuesday, Blue Cross and Blue Shield plans in Illinois, Texas and New Mexico

said they were dropping their pharmacy manager, AdvancePCS, and transferring

four million members to Prime Therapeutics, a fast-growing Blue Cross-owned

pharmacy benefit manager based in Minnesota.

 

As owners, the health plans will of course be fully informed about Prime

Therapeutics' contracts with drug manufacturers. " The market wants

transparency, " said Tim Dickman, the president and chief executive of Prime.

 

Several large commercial insurers, including Aetna, Wellpoint, Anthem, Cigna and

Pacificare also have their own drug units.

 

Pharmacy benefit managers are paid by employers and health plans to negotiate

reduced prices for drugs on preferred lists. The benefit managers also typically

receive rebates from manufacturers, based on sales volume. They agree to pass a

portion of these rebates, as well as other fees paid by the drug manufacturers,

along to their customers.

 

Two big benefit managers, Express Scripts and Caremark Rx, have made formal

promises to inform their customers fully about the manufacturers' payments. And

many big employers use independent auditors to make sure they are receiving

their due.

 

Even some of the largest employers say the four biggest pharmacy benefit

managers - Express Scripts, Caremark RX, AdvancePCS and Medco Health Solutions -

have refused to let them see the full text of the managers' contracts with

manufacturers. Medco said last night that some of its clients, but not all, had

the ability to see the full text in audits.

 

The inability to see the contracts has created " a cloud of suspicion, because of

the inability of the benefit payers to see what those relationships are and how

they may be affecting us as a benefit payer, " said Dr. John Wright, pharmacy

benefit manager at Ford Motor.

 

Ford, which spent $840 million in 2002 on drugs for employees and retirees,

asked in requesting bids for its business last year that all such contract

information be disclosed. " We were told the industry doesn't work that way, " Dr.

Wright said. " It was a very unsatisfactory response. "

 

Verizon Communications, which is spending more than $600 million on drugs this

year, is trying to deal with the secrecy by negotiating deals with benefit

managers based entirely on fees, rather than rebates.

 

" Employers who buy health care would rather know all their costs up front, " said

James N. Astuto, a regional health care manager for Verizon in Atlanta who has

been discussing the fee proposal with pharmacy benefit companies.

 

Defending their secrecy policies, the benefit managers say that they would lose

their bargaining leverage with manufacturers if their deals were public

knowledge. Prices would rise, said Ann Smith, a spokeswoman for Medco.

 

The Justice Department, which has been examining the pharmacy benefit management

industry for five years, accused Medco, in a civil lawsuit unsealed last June,

of cheating the Federal Employees Health Plan by favoring expensive drugs and

charging for pills that were not delivered. Medco has denied any wrongdoing.

 

James Sheehan, an assistant United States attorney in Philadelphia, and Cathy

Thomer, a consulting attorney in Mr. Sheehan's office, have been urging

employers to insist on transparency and disclosure in dealings with the pharmacy

managers.

 

" You need to know what payments are being made that influence the P.B.M.'s

decisions " on which drugs to place on a preferred list, Ms. Thomer said she told

a group of employers in Canton, Ohio, earlier this month. " You need to negotiate

with open eyes. "

 

The National Business Coalition on Health, which includes purchasing groups with

7,000 employers, has asked Mr. Sheehan and Ms. Thomer to repeat their briefing

on " Ten Questions for Your P.B.M. " at a meeting of its national leadership group

next month.

 

Some drug manufacturers are distancing themselves from the secrecy issue. Roche,

the Swiss drug maker, told a group of 20 employers last week that it welcomed

their review of its pharmacy benefits contracts.

 

" Roche consistently encourages pharmacy benefit managers to disclose rebate

information to their clients, and we do not prohibit P.B.M.'s from disclosing

such information to them, " said Darien Wilson, a Roche spokeswoman.

 

GlaxoSmithKline, based in Britain, said in a recent contract that all amounts

that it paid to a benefit manager should be disclosed to the manager's

customers, if they ask for the information, according to an industry executive

who saw the contract.

 

Critics say that the managers' secret deals have often directed sales to new

brand-name drugs, even when similar lower-priced generic versions were

available. Relaxing the secrecy could add to a surge in generic drug sales

already under way, said a benefits manager for a large company.

 

More than half the prescriptions sold in retail stores were for generic drugs

last year and in 2001, a trend that has continued this year. In the 12 months

through November, there were 1.88 billion prescriptions for generics, up 11

percent over the previous year, according to IMS Health, a drug sales research

concern.

 

Copyright 2003 The New York Times Company

 

 

 

 

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