As the anonymous middlemen known as pharmacy benefits managers increasingly move into the limelight, Express Scripts has reported that during the past three years it had received $2.48 billion in rebates and administrative fees from pharmaceutical manufacturers.
The company disclosed the amount in its annual report filed with the Securities and Exchange Commission under an accounting change that books the money as a reduction of cost of revenue. The clients' portion of those proceeds represents more than 50% of the amount, the company says.
PBM rebates are increasingly catching the attention of cost-conscious consumers. Apparently to address the heightened interest, Express Scripts last month publicly disseminated a seven-point client pledge and set of business principles. One day later, the St. Louis-based PBM found itself on the defensive as a consumer coalition sued Express Scripts and three other PBMs-Advance PCS, Medco Health Solutions and Caremark Rx-for inflating prescription drug prices.
The Boston-based Prescription Access Litigation Project, or PAL, and the Washington-based American Federation of State, County and Municipal Employees filed the suit in Los Angeles Superior Court on March 18. They charge that "through a pattern of illegal, secret dealings with drug companies the PBMs have forced health plans and healthcare consumers to pay inflated prescription drug prices." The four companies control more than 80% of the PBM market, the plaintiffs said.
Although Express Scripts and PAL agreed the timing was coincidental, it nevertheless highlighted the growing notoriety of the prescription drug brokers, who for years operated under the radar of consumers. Recent debate over a Medicare prescription drug benefit and who will manage it has dragged the middlemen into the spotlight even further.
"Frankly, there have been a lot of questions about what is a PBM and how does it operate," says Steve Littlejohn, an Express Scripts spokesman. "In the past there was a level of business accountability between us and our clients and if we didn't deliver, they would fire us. But it's very competitive now and there are a lot of very understandable questions. We feel it's incumbent on us to do a far better job of communicating what we do," he says.
Last summer, the HHS' inspector general's office subpoenaed hospital alliance Premier and three of its vendors, including Express Scripts (Aug. 19, 2002, p. 6). At the time, Express Scripts said the subpoena had requested information on stock options, warrants and other payments the company gave to Richard Norling, chairman and chief executive officer of Premier, or other Premier employees. The investigation is ongoing, says Judith Holtz, a spokeswoman in the inspector general's office. Holtz says the inspector general had no comment on the pledge itself.
There is nothing really new in the pledge. The seven points include "clinically sound formularies," aggressive promotion of low-cost generic drugs and respect for doctors' prescribing authority. Littlejohn says the company has sworn off drug company-sponsored education programs, in which doctors and patients receive letters or phone calls asking them to consider using a particular drug. The programs will continue but on Express Scripts' dime. He says that in 2002 the company took in less than $20 million on $3.6 billion in revenue from such programs.
Express Scripts does not swear off the biggest bone of contention in the lawsuit-rebates from pharmaceutical manufacturers-but it does pledge that clients will get a full, detailed disclosure of the company's financial relationships with drug manufacturers.
"If they are not addressing rebates, then they are not addressing the problem," says Laurie Covens, a spokeswoman for PAL.
The lawsuit against the four PBMs marks a new tack for PAL, which in less than two years has filed 15 sets of lawsuits targeting drug industry practices-up until now suing only drug manufacturers. "People are beginning to realize that (PBMs) are the brokers, the middlemen," Covens says. "They claimed they would be a real tool for making prescription drugs affordable, but what happened instead is they are cutting their deals and taking profits and not passing them along to health plans."
Littlejohn says Express Scripts still is studying the lawsuit, "but we can say that our interests are fully aligned with those of our clients."