Controversy continues to swirl over the impact Pharmacy Benefit Managers (PBMs) have on the nation’s new healthcare delivery system.

Conflicts of interest, opaque pricing, a marketplace the Federal Trade Commission (FTC) said shows “vigorous” competition, and PBMs’ role in driving the Maximum Allowable Cost (MAC) for reimbursement have thrust the pharmaceutical business into a stewing national debate over PBMs’ role in Obamacare.

According to the National Community Pharmacists Association (NCPA), a lack of transparency benefits PBMs, which members say keep two MAC lists for the same prescription drug health plan – one for health plan sponsors, another for pharmacies. The trade association argues that pharmacies are reimbursed at a low rate, based on an aggressively low MAC price list, while plans sponsors see a higher MAC price list, with spread pricing pocketed by the PBM. PBMs, mostly a third-party administrator (TPA) of drug prescription plans but often an integrated health systems service, generate MAC drug lists to determine how retail pharmacies are reimbursed for multi-source, generic drugs.

Robert Weinberg, JD, a Polsinelli shareholder representing PBMs, specialty and mail order pharmacies, plan sponsors, and other stakeholders in the pharmacy benefit market, emphasized the tremendous value PBMs bring to the healthcare delivery system.

“Sure, PBMs have been very successful and profitable, but their success has always been aligned with the value they create for plan sponsors and their members by making the use of prescription drugs safer and more affordable. PBMs make money when they save their client’s money,” said Weinberg, adding that “a big component of this has always been driving higher utilization of generic drugs through effective clinical programs and lower reimbursement through the use of MAC pricing, which is intended to reflect the average acquisition cost of an efficiently managed pharmacy.”

However, the problem lies in PBMs not communicating real-time with pharmacies about specific drugs on the MAC list or the price of reimbursement.

“PBMs have enjoyed broad discretion to manage drugs on their MAC lists and how they’re reimbursed,” he pointed out, and then quickly added, “but their ability to manage MAC reimbursement in ‘real time,’ through their sophisticated adjudication platforms, results in lower costs being instantly passed through to the consumer at point-of-sale and to plan sponsors.”

Pharmacy chains like Walgreens, the nation’s largest with nearly 8,000 stores, may negotiate guarantees, or average effective rates, such as the Average Wholesale Price (AWP), minus a percentage for all MAC drugs.

“With scale, pharmacies are able to negotiate generic effective rates, or average rates, so they’re able to prospectively negotiate reimbursement levels in the aggregate,” said Weinberg, who spent nearly a decade as an executive and in-house counsel for a significant PBM.

Under new laws that have been passed in several states, pharmacies may challenge reimbursement from PBMs on the grounds they cannot acquire a MAC drug list to stock their shelves at a rate allowing them to break even.

“It’s good for the independent retailer, but will likely lead to the unintended consequence of higher drug costs for consumers and plan sponsors,” he said. “Ultimately, these laws negatively impact a lever the PBM has to manage lower reimbursement for its clients, which are typically employer groups.”

PBMs rely on their ability to broadly manage MAC list drugs and pricing to manage their client guarantees.

The wrinkle comes from these new state MAC laws, which affect the administration and reimbursement methods for plan sponsors, including for self-funded plan sponsors.

“These laws do disrupt the PBM business model,” said Weinberg, noting that independent retail pharmacy associations have been more successful lobbying for change at the state versus federal level. “But that model has always been good business, not only for the PBMs, but for the plan sponsors and members they represent. PBMs focus solely on managing the pharmacy benefit, and have created very focused clinical and adherence programs to manage disease states, improve patient outcomes, in addition to holding down reimbursement levels for prescription drugs through their arrangements with manufacturers and retail pharmacies. MAC pricing is only one tool in the PBMs’ belt, but it’s a very effective tool.”

In Medical News markets, state laws and pending legislation to provide clarity on PBMs’ derivations of MAC pricing, and standardization for how drugs are selected for inclusion on MAC lists, run the gamut – greater PBM transparency, length of time between drug list adjustments, more consistent PBM audit practices – with little uniformity. For example, significant MAC legislation hasn’t passed in Missouri, home of St. Louis-based Express Scripts (NASDAQ: ESRX), the nation’s largest PBM with 2013 revenues topping $100 billion. By contrast, Tennessee has a rather onerous MAC law, mandating among various legal components that PBMs “shall not set the MAC for any multi-source generic drug it places on a MAC list below the amount found in the source used by the PBM to set the cost.”

State law highlights from other Medical News markets:

• In Alabama, the law governing MAC statutes establishes minimum and uniform standards and audit criteria of pharmacy records.
• Arkansas has created a Bill of Rights conducting pharmacy audits and requires MAC list updates every seven days.
• Florida’s MAC law governs the timing of audits for pharmacies participating in Medicaid.
• Kentucky requires MAC drug list adjustments every 14 days.
• Louisiana’s MAC law spells out broadly the regulations governing recoupment of assets and an appeals process for pharmacists appealing audits results, while also requiring PBMs to update their MAC drug list “on a timely basis.”
• Mississippi regulates how PBMs interact with the state insurance department and abide by regulatory compliance laws.

These state laws have been drafted broadly enough to cover self-funded plan sponsors. But this “may ultimately be their downfall,” said Weinberg, noting that Maine and the District of Columbia (DC) passed anti-PBM laws in the mid to late 2000s to make PBMs fiduciaries in certain respects.

The Pharmacy Care Management Association (PCMA), a national trade organization that represents PBMs, challenged both laws on ERISA preemption grounds governing self-funded plans. The DC law was struck down; even though Maine’s law was upheld, lawmakers repealed it.

According to the NCPA – established in 1898 as the National Association of Retail Druggists – much more work needs to be done legislatively to address marketplace challenges regarding PBMs.

“Pharmacies are required to sign contracts not knowing how they’ll be paid,” said NCPA president Bradley Arthur. “It’s equivalent to agreeing to the services of a home builder, not knowing how you’ll be paid or what materials will be utilized in the home’s construction.”

LINKS:

Polsinelli Shughart: www.polsinelli.com

National Community Pharmacists Association www.ncpanet.org/home

Pharmacy Care Management Association: www.pcmanet.org