Can you give us some background on these pharmacy benefit manager lawsuits? Which companies have been sued and what are the allegations?
It’s more of who hasn’t been sued at this point. The largest players in the PBM marketplace have found themselves swallowed up in a number of controversies, a lot of them originating in state Medicaid programs. My home state of Ohio really started a bonfire with suits against CVS Caremark, OptumRx and Envolve, which is a PBM most people know of under the Centene banner.
In 2018, the state of Ohio found that while pharmacies were being paid very low reimbursement rates for the Medicaid managed-care program, they weren’t really seeing the savings as a state agency. An audit from then-state auditor Dave Yost found PBMs taking about $244 million in hidden spreads by paying pharmacies low, billing the state high and pocketing the difference. That was a catalyst that kind of started a tidal wave of lawsuits and litigation across the country.
Have PBMs changed their operations as a result of these lawsuits?
A lot of folks in the industry will refer to this as a game of whack-a-mole, partly because PBMs aren’t really PBMs anymore.
PBMs are insurance companies. PBMs are mail-order pharmacies. PBMs are specialty pharmacies. In the case of a company like CVS Caremark, they are a retail pharmacy.
PBMs used to exist for the sole function of facilitating the claims transaction at the pharmacy counter as well as working on the behalf of consumers to act as a necessary friction against drugmakers, wholesalers and pharmacies who, left to their own devices, would charge as much as they could get away with.
Over time, as PBMs started to get compensated from drugmakers, opening their own pharmacies and making money off the very transaction they were hired to control, that traditional role has been flipped on its head. Typical and traditional regulatory approaches to smoothing out some of the margins become quite complicated when those margins can shift upstream or downstream across the enterprise.
Have public and private payers changed their operations as a result of these lawsuits?
We’re seeing more Medicaid programs take a proactive approach. Rather than just whittling around the edges, they are essentially blowing up their (drug) programs and starting from scratch by working with new vendors or completely redesigning the model to hold PBMs and the pharmacies that service the members in a position of more predictability and transparency.
That has extrapolated considerably to other public sector agencies. We’re also seeing more employers taking a laser focus and seeing how some of the practices that are being uncovered at the public level might be manifesting themselves in the commercial sector, where transparency is not nearly as stringent.
Can you give us some examples of how public and private payers are either blowing up their PBM operations or partnering with new players?
A perfect example is the Purchaser Business Group on Health, which made headlines last year after announcing that they were creating their own PBM, EmsanaRx. They have since launched it as a public benefit corporation. On the surface it seems like a more aligned, altruistic approach to a market entrant, one that seeks to truly do nothing but serve the client rather than its shareholders.
PBGH represents some of the largest employers in the country. That’s a perfect example of a payer saying, “We’re not going to continue to do business as usual. Not only are we going to try to do what we can from a policy standpoint, we’re going to put our money where our mouth is and push for a private market entrant to help upset the applecart.”
Simultaneously, we’re seeing a lot of headway with transparent PBMs, like Capital Rx, and we’re also seeing a lot of headway with the Mark Cuban Cost Plus Drug Company. What excites me about that is, in a world where we operate off of artificially inflated list prices, Cuban is saying, “Well, let’s just work on achieving the lowest net cost possible and deliver that to the consumer.”