Pharmacy Benefit Managers' drug cost savings is a shell game: Numerous lawsuits filed against PBMs for fraudulent conduct

WASHINGTON, June 28 /PRNewswire/ -- If pharmacy benefit managers (PBMs) were really reducing prescription drug costs for more than 200 million Americans, as their trade association professes, why have dozens of lawsuits been filed against them. The Association of Community Pharmacists Congressional Network urges the public to better understand PBMs convoluted business before they profit more from the Medicare drug benefit (Medicare Part D) and further harm seniors with high drug prices.

"Time and time again, PBMs' business tactics financially enrich the PBMs and contrary to their slogans offer no real healthcare savings to patients or plan providers," said Mike James, pharmacy owner and Director of Governmental Affairs, Association of Community Pharmacists Congressional Network (ACP*CN). "PBMs are not cost savers but are playing a shell game with their clients -- hiding the money they make from driving up prescription drug costs at the expense of the patient and, in the case of Medicare the US taxpayers. The savings derived by the Medicare patients are the result of the taxpayers' subsidy, not the PBMs," added James.

Over 80% of all prescriptions filled in this country are handled by PBMs, who manage prescription drug plans for federal, state and private insurers and are not regulated. For almost a decade, numerous lawsuits have been filed against PBMs by federal and state governments, private corporations, unions, HMOs and others. Plaintiffs accuse PBMs of engaging in fraudulent or deceptive conduct in failing to pass on savings to their clients, switching patients' medication to earn rebates, or manipulating their mail order pharmacies.

The nation's top three PBMs (Caremark, Medco and Express Scripts) are defendants in these cases along with smaller PBMs. Some cases have settled for millions of dollars while others are pending. Below are some examples of cases:

-- American Federation of State County and Municipal Employees v. Advance
PCS, et al
Filed March 18, 2003, this class action against Advance PCS, Caremark,
Express Scripts and Medco Health Solutions alleges the top PBMs inflate
prescription drug prices by steering health insurers and consumers into
reliance on more costly drugs and did not pass on rebates from drug
manufacturers to health plans and consumers.

-- US Department of Justice vs. Advance PCS
September 2005, Advance PCS, now a wholly owned subsidiary of Caremark
Rx, second largest PBM in the US, settled with the US DOJ and agreed to
pay $137 million to resolve civil liabilities in connection with
soliciting and receiving kickbacks from drug manufacturers and paying
kickbacks to potential clients to induce them to contract with
Advance PCS.

-- United States of America v. Merck-Medco Managed Care LLC, et al.
April 26, 2004, the United States, 20 state attorney generals and the
defendants agreed to a settlement of claims for injunctive relief and
unfair trade practice laws. A separate consent order filed by the
states instructs Medco to pay $20 million to the states in damages,
$6.6 million to the states in fees and costs, and about $2.5 million in
restitution to patients who incurred expenses related to drug switching
between cholesterol drugs.


Much of the litigation against PBMs centers on conflicts of interest which make their business goals unaligned with their clients. Plan providers want to reduce the costs of prescriptions but PBMs can't make money that way. PBMs earn huge profits known as rebates from drug manufacturers for adding the manufacturer's drug to formularies and engaging in therapeutic switching. Therapeutic switching occurs when the PBM switches the patient to the higher priced drug on which it receives a bigger rebate.

Allowing PBMs to continue running Medicare prescription drug plans (PDPs) unchecked by government will increase program costs and result in higher drug prices for seniors. According to a 2003 study conducted by James Langenfeld and Robert Maness of LECG Corporation called "The Cost of PBM Self Dealing under a Medicare Prescription Drug Benefit," PBMs would cost the government $30 billion from 2004-2013. The report concluded among other things "because PBMs usually keep as a profit a portion of the rebates they receive, PBMs that are both the plan administrator and the seller of drugs have a financial incentive and ability to favor drugs that pay higher rebates."

Since Medicare Part D began in 2006, the nation's top three PBMs, who all sponsor Medicare drug plans, reported increased earnings in the first quarter of 2006. This is evidenced by Families USA report which revealed that virtually all Medicare prescription drug plans raised prices for the top 20 drugs used by seniors over the past 5 months.

The report also found the lowest price charged by any Part D plan for all of the top 20 drugs was 46% higher than the lowest price negotiated by the Department of Veterans Affairs. According to Ron Pollack, executive director of Families USA, "... plans are quietly raising the prices that they charge. As a result, seniors will pay more and more as will America's taxpayers."

Whenever legislation emerges requiring PBMs to meet their fiduciary duty of serving their clients' interest and not theirs, the industry gives the same hackneyed response "it will increase drug costs." For example the PBMs trade association asserts promptly reimbursing pharmacies for prescriptions would increase Medicare costs $9 billion over ten years. This makes no sense. Paying an invoice on time doesn't cost more money unless a business is trying to pocket money that doesn't belong to it.

The American people should demand Congress remove the self-dealing cards from the PBMs' hands so the Medicare drug benefit can truly be a benefit. Otherwise, seniors will likely face even higher drug prices in another 6 months and find fewer community pharmacies to fill their prescriptions.

About the Association of Community Pharmacists Congressional Network (ACP*CN)

Founded in 2002 and based in Raleigh, NC, the Association of Community Pharmacists Congressional Network consists of 15,000 independent pharmacists nationwide dedicated to serving the communities in which they live. ACP*CN is dedicated to the survival and growth of the independent pharmacy owner, who often times is the only pharmacy operating in rural towns across America, where access to pharmacies is extremely limited. Our network of pharmacists do more than just fill prescriptions, they counsel patients on medication use and many times act as the front line healthcare provider for individuals and families who can't afford or don't have direct access to a doctor.