PBM Transparency and the CVS Caremark Conundrum

By Devin Stone

Demanding transparency from pharmacy benefit managers (PBMs) is a notion that has clearly gained steam. Most recently, the U.S. Senate and House have approved limited PBM disclosure requirements in their health reform bills. It’s a small step toward reining in egregious and costly PBM practices like spread pricing (paying the pharmacy one price then quietly billing health plans much more) and rebate abuse (pocketing huge sums from drug makers before giving plan sponsors what’s left). Leading patient and labor advocates agree.

The PBMs continue to oppose these reforms, primarily by arguing that transparency will lead to higher drug prices as pharmacies and manufacturers learn what their competitors are charging.  As this blog has discussed earlier, the disclosure proposals before Congress explicitly state that all information collected will remain confidential, and therefore out of the hands of pharmaceutical manufacturers and retail pharmacies.  That’s partly what led the Congressional Budget Office (CBO) to score the requirements budget neutral and, in fact, many public and private payers are saving money through transparency. 

But what if the rates at which pharmacies are reimbursed by PBMs were fully disclosed? The PBMs say higher prices would be the certain outcome.

That leads us to the transparency dilemma of CVS Caremark.

CVS Caremark is, of course, both a retail pharmacy and a PBM.  Its PBM negotiates with practically every competing retail chain in the country to establish how much these pharmacies will be paid for dispensing medications to patients whose coverage is managed by CVS Caremark.  On the other side of the corporate giant, CVS Caremark has to negotiate with other PBMs to determine how much its retail pharmacies will be paid for dispensing prescriptions to patients whose coverage is managed by rival PBMs. 

In other words, CVS Caremark’s PBM knows exactly how much the Walgreen’s and the Wal-Marts of the world are charging, which in theory is information CVS Caremark could use during negotiations with other PBMs regarding reimbursement levels. 

If one follows the notion that fully disclosing such information will lead to higher prices charged by retail pharmacies, than one must ask: Has the CVS Caremark merger led to higher prices for patients covered under competing PBMs such as Express Scripts and Medco Health Solutions? 

Ironically, the only way to know is through transparency.

What can be stated with confidence is that disclosing the reimbursement amounts between chain pharmacies and PBMs will have little to no impact on the ability of independents to negotiate better contracts.  Again, CVS Caremark can act as a practical example.  In 2008 Change to Win put together a report documenting the reasons why CVS Caremark is bad for patients, including a historical list of reimbursement levels established between the retail pharmacy and the prescription drug programs it had contracted under.  Even with this information, independent pharmacies have not benefitted as they receive PBM contract offers on a “take-it or leave-it” basis. 

Without transparency, employers have little leverage when negotiating contracts with PBMs.  PBMs select the information that they want to share and restrict other information and they determine who can audit their services.  In other words, their message to their employer customers is, the customer is always right as long as you agree with me.  The real winners of transparency will be patients and health plans.