Expert: Working Together, Sharing Information Is Crucial to PBM Reform

In an interview with Pharmacy Times, Cheryl Larson, president and CEO of the Midwest Business Group on Health, discussed the employers’ perspectives on pharmacy benefit manager (PBM) reform efforts and how they can dovetail with the concerns of pharmacies. In addition to reviewing some ongoing and already-passed legislative efforts, Larson discussed what she thinks needs to be done in order to see real, lasting change.

Q: Can you give some background on the various issues associated with PBMs?

Cheryl Larson: Yes, we've been working on a 14-year project to educate employers and bring these issues to the table. So, I always start by saying in our world, self-insured as well as fully insured employers were the real payers of health care and pharmacy benefits. It's not the insurance companies, it's not the PBMs. And yet, we have little to no say about pricing. And what's interesting is that as plan sponsors, we're fiduciary. And that means we have an obligation by the Department of Labor to offer the best benefits at the best price for our beneficiaries, and beneficiaries are our employers and family members. And this marketplace has continued to lack transparency by many intermediaries; I would say probably at the top of that list would be PBMs, and employers have to deal with opaque business practices and its significantly increasing costs. But it's not providing equivalent value. So not only, maybe, the cost of drugs might be moderate or high, it's money is being added on to that by significant amount. So, even though many employers have gotten more sophisticated and are focusing on optimizing their PBM contract to avoid some of these challenges, we've seen a lot over the years. And what's interesting about now is the consolidated appropriation that is putting employers on the hook for their benefits to be cost-effective and talking a lot about the role of the fiduciary. So, what we've seen in the past are things like the PBMs retaining the rebates, or any discounts or anything else like that; keeping the spread, which is the difference between what they pay the pharmacy to fill a prescription and what they bill the employer. There's a pretty significant gap there [and] they often will keep drug distribution in-house so that they make sure they can control what drugs are on formulary, oftentimes leading to the higher cost drugs being put on formulary and many drugs just being removed from formulary because they didn't feel that they were able to get high enough of a rebate.

And then on the pharmacy side, there's claw backs. [PBMs] claw back the copays, they claw back other money from the retail pharmacies and other entities out there, that does indirectly hurt employers and also really hurts patients. And they lock out new drugs. So, they'll say, oftentimes, we're not going to include this drug for 6 to 12 months, when in reality they're trying to maximize which drug they're going to include on formulary based on rebates. So, we have really had to address each and every one of these issues. We have lists of employer action steps for employers to do this. Some have taken advantage of that. But the average employer in this country that might be 250 employees to 3000 employees, they don't have a lot of levers to pull, so they're paying a lot more than others are.

Q: Do you see any key themes of approaches in the various bills trying to enact reforms?

Cheryl Larson: Yeah, you know, I think there's 3 bills out there. And the one that we in the employer coalition world support is the Pharmacy Benefit Manager Reform Act, and it's focused on some of the things that we just talked about. In the end, it's focused on lowering drug costs based on PBM practices and also driving more value for workers and their families. We've also seen PBM reform legislation that was passed earlier this year, I think it was this summer, on a wide bipartisan basis in the Senate Finance Committee, called the Modernizing and Ensuring PBM Accountability Act, that looked at unfair practices to make sure that there were cost savings for people in government programs like Medicare and Medicaid. So, it's been exciting to see that pass, but it doesn't affect commercial plan, public and private employers that are paying for benefits through their self-insured ERISA plan. So, it has been challenging for us to get this much legislation along, as long as we've been trying, because other bills have not passed.

Q: What will it take to get real movement on this issue on the federal level, in your opinion?

Cheryl Larson: Well, I would say thank goodness for employer coalitions like ours, because if you're an employer relying only on your broker or your benefit consultant, or your carrier or your PBM, to tell you what to do, you know, there could be some misaligned incentives in there. And with an employer coalition, we're not only educating them on what's really going on out there, but they have the benefit of talking to their fellow employers. And so, I would say employer coalitions and other key stakeholders need to speak up. We've been doing this for 14 years, uncovering the blanket from the bed, if you will, to tell the truth about a lot of these behaviors that employers knew nothing about. Ironically, me and my coalition colleagues are going to the Hill tomorrow, we're going to advocate for legislation. And we're not going to just be talking about PBM reforms, but also high hospital prices, anti-competitive practices, ERISA preemption, HSA flexibilities, and I think, also very important, the integration of mental health into primary care. And it's undetermined if legislation on any of these will be passed this year. We do know that they're trying to pass a funding bill, and if Congress can pass that funding bill and avoid a shutdown, there's a small chance they will switch their focus to other things like PBM reform. We just hope our bill makes it in the final package to the floor to debate it.

Q: Have you seen any real substantive change with the already-passed legislation?

Cheryl Larson: The only thing that I can think of were already mentioned—the Medicare and Medicaid bill. Again, that is helping people under these important government programs reduce costs, and I think that we're going to continue to see movement in those areas. And the value is often when CMS or a program related to Medicare or Medicaid happens, we feel in the employer community that we have a better chance of something passing for us. And we're, you know, we're paying the benefits for 70 million, 80 million people, the workers of this country.

Q: What key pieces of legislation should pharmacists be paying attention to?

Cheryl Larson: They're going to be looking at the things I talked about—the copay, claw backs—which I think legislation happened. There are also these DIR fees that they pull from them. Any opportunity that PBMs saw to make fees through pharmaceutical manufacturers or other stakeholders in the chain, they did it. And that all needs to change.

Q: Is there anything you’d like to add?

Cheryl Larson: Yeah, this is an opportunity for me to talk a little bit about the Consolidated Appropriation Act (CAA) that clarifies that employers have a fiduciary duty to their employees and their family members to act in their best interest. And it's interesting, we've done a lot of research in the area of what the CAA means to employers; they have to comply. Based on government regulations, they must show all direct and indirect compensation that they paid to brokers, employee benefits consultants, medical and prescription claim drug claim administrators. But most of them don't have this data, their vendors have this data, the PBMs have the data, or the carrier has the data, and they don't want the employer to see the data. So, they have to have the vendors send the data. And that continued to keep them in the dark. And I'm just hoping that the government is going to look at that data and say, ‘Oh, this is what they've been talking about all these years.’ And although most employers know how much they're paying in direct administration fees to their vendors, they don't know what any of the other fees are—not the charges, the surplus, or other revenue that's being collected. And this includes indirect compensation that's being paid for things. Like maybe the PBM might be taking a percentage of drug costs or spread pricing.

The bottom line is not knowing this indirect compensation could be a violation of the employer's fiduciary duty to their employees. And they've even been told by consultants and others in the marketplace, ‘You're fine, don't worry about it.’ We tell them ‘You're not fine. Do worry about it.’ We give them guidelines about what they need to make sure that they are protected, because there have been some unscrupulous companies out there, law firms that are soliciting employees in large firms to go after the employer for some of these practices, when the employer really didn't realize that this was going on behind the scenes, and they had no control over it. Well, the intent of that law firm is it's a class action suit; that law firm will make money and those employees could potentially make money. So, we're trying to give the right information to our employer members to avoid those.

Probably the number 1 thing to avoid that is to audit your plans to protect yourself. You know, we know that the top the 3 biggest PBMs in this country process more than 80% of the claims, so they have huge market power. And it makes it nearly impossible for any employer, the average employer, to negotiate transparent and fair contract terms. And so, we're starting to say to our employees, you must optimize your PBM contracts so that it benefits you more than it benefits the PBM, because that's what's been happening all these years. And we've also said, be ready or be prepared if they don't agree to what you're asking for, which is only fair, to walk away. You've got to be willing to walk away. And finally, we need to remember that despite what we hear out there from others—there's been surveys and data that says that employers love their PBM—that is not true. We need common sense changes to get PBMs to be accountable, and it doesn't matter what size that employer is. We also recognize that the transparency efforts are not enough. We recognize we need legislation to address all of these rebates and fees and discounts, and it's important for our employees and their family members to make smart and informed decisions.