Payers Call for Greater PBM Transparency


By Michael Rule

For years, NCPA has been at the forefront in calling for greater transparency in the operations of pharmacy benefit managers (PBMs), from highlighting difficulties plan sponsors often have in auditing their PBM to noting PBM practices that may increase costs to plans while increasing profits for the PBMs. While the PBMs claim there is already adequate transparency, their policies are drawing increased scrutiny.

Many of these issues were discussed during recent hearings of the Department of Labor Advisory Council which explored whether new transparency measures should be mandated for PBMs in health plans subject to the Employee Retirement Income Security Act (ERISA).

During testimony, NCPA offered specific recommendations on how the council could bring more transparency to prescription drug plans covered by ERISA. Additionally, the council heard from, among others, representatives of Princeton University, the University of Michigan, General Dynamics Corp., on behalf of the HR Policy Association (HRPA), and Honeywell International, Inc.

Each of these witnesses relayed how the lack of transparency on the part of PBMs have limited their access to data necessary in determining if they are getting the best value from their plan. Many noted that even employing a PBM consultant when initially selecting a PBM may not be of much assistance since many consultants have existing relationships with certain PBMs which they in turn recommend to their clients.

For example, Robert Restivo, Director of Benefit Strategy of General Dynamics testifying on behalf of HRPA noted the following:

  • “The frustration that HRPA members have experienced centers on believing that they understand how much they are paying to provide a drug benefit to its employees only to find out that the PBM is receiving additional revenue from multiple sources that may or may not have their interests aligned with the employer.”
  • “When it comes to contracting, even the most sophisticated employer stands at a disadvantage to PBMs because only the PBM understands the whole range of the financial opportunities available in the supply chain.”
  • “PBM contracts tend to be one-sided and include sharp limitations on client access to data (even claims data that documents what the PBM is asking the employer to reimburse); unclear definitions (or silence) for important terms; sharp limits on audit rights and stringent approval process for audit firms (including excluding some audit firms from the ability to act on behalf of a client); a lack of clarity in the PBM’s drug pricing algorithm; a lack of transparency in the PBM’s retail network contracts; a lack of disclosure as to the financial incentives the PBM may receive from manufacturers and/or wholesalers; pricing disparities between retail dispensed drugs verses the cost of the same drug dispensed by the PBM’s mail order facility; definitional issues between generic verses brand drugs; and a habit of directing patients to higher cost therapies just prior to the therapy losing patent protection.”
  • “Clearly, PBMs provide an important role in helping keep employees healthy and productive, but the industry is beset with a lack of transparency that is difficult to deal with even for the largest employers.”
  • “Most Coalition members engage the services of benefit consultants to help them understand their options in the PBM marketplace, but all-too often those same consultants have preferred relationships with specific PBMs, which significantly calls into question their independence.”

Many of these same themes were echoed by Allison Klausner, Assistant General Counsel-Benefits, from Honeywell who testified to the complex nature of PBM contracts and concluded “At this time, since PBMs are service providers in a position to have a material impact on the plan, PBM compensation structure is complex and there are potential conflicts of interest, I think it has become abundantly clear that developing appropriate regulations regarding PBM disclosure could support parties as they strive to enter into or modify existing contractual relationships that are compliant with ERISA 408(b)(2).”

Corporations aren’t the only entities with difficulty navigating the murky terms of their PBM contracts; large universities face similar problems as evidenced by testimony on behalf of Princeton and the University of Michigan.

Kenneth Bruhnsen, Assistant Director of Benefits Administration, speaking on behalf of the University of Michigan highlighted some problems with verifying PBM revenue to evaluate whether they are truly receiving the best value:

  • “To what degree pharmacy discounts and rebates are fully passed on to the plan sponsor or are augmented with other revenue to the PBM is difficult to verify. Asking a PBM to disclose all sources of revenue is complex as they may define revenue as a discount, rebate, data fee, a credit, or some other administrative or education fee.”
  • “We believe a PBM cannot fairly set drug pricing while owning the pharmacy and purchasing from a wholesaler or manufacturer for specialty, brand, and generic drugs with contracts we cannot audit, especially the MAC list which is adjusted monthly.”
  • “We have audited a large PBM on rebates. We selected a national auditing firm and found it took two years to negotiate the agreement to audit. The PBM wanted assurance of a firewall between the auditing division and the company’s pharmacy consulting practice. The results of the audit showed less than I percent claim variance, both under and over payments, but more importantly that the PBM was unable to satisfy the auditor in fully explaining its invoicing, collection, and distribution of payment processes.”

Mr. Bruhnsen offered a unique recommendation that “A national standard on pricing models for RFP needs to be established.” and forcefully concluded:

Requiring transparency and disclosure on compensation and fees from PBMs is necessary in order to validate that a plan sponsor’s interest is being well served. We have a right to know how the PBM is making money on our drug claims to negotiate sharing in the revenues. Holding PBMs accountable for adjudicating drug claims on the plan design they are paid to administer is standard practice and it would be an improvement to have disclosure on all forms of compensation and fees PBM’s receive related to a plan’s activities.

Linda Nilsen, Executive Director of Benefits and Compensation, testifying on behalf of Princeton noted that it is extremely difficult to evaluate the true cost of products and services we are purchasing due to the reasons described by Mr. Bruhnsen and suggested that “…requiring standardized reporting of all income associated with an employers’ plan participant utilization by major category (i.e. rebates, discounts, grants, marketing incentives and administrative fees) will enable employers to more effectively evaluate the performance and market competitiveness of a PBM.”

It’s clear from the testimony provided to the advisory council that payers of prescription drug plans require more data to ensure that PBMs are delivering on the value they promised. The council should act swiftly to enact transparency mechanisms to provide payers with this required knowledge.

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