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Pharmacy Benefit Managers 101: Who They Are And What They Do
AHLA On-Demand Course
Gregory S. Mitchell Robert N. Rabecs
Cori Turner1
April 2018
I. Introduction
This webinar program will provide legal counsel with a basic understanding
of pharmacy benefit managers (PBMs). The program will address the following
topics: (1) What is a PBM and how does it work?; (2) PBM services; (3) major PBMs
and the competitive landscape; (4) PBM client types; and (5) relevant federal and
state laws impacting the PBM industry.
II. What is a PBM and How Does it Work?
PBMs are organizations that play a significant role in the delivery, payment,
and coordination of healthcare. Over the past 25 years, new medications and
broader insurance coverages have led to a doubling of expenditures for outpatient
prescription drugs (with more than $340 billion spent on such drugs in 2016).
1 Greg Mitchell is Vice President & Associate General Counsel with Express Scripts (gsmitchell@express‐scripts.com). Robert Rabecs is a Partner in the Phoenix office of Husch Blackwell, LLP ([email protected]). Cori Turner is a Partner in the Kansas City office of Husch Blackwell, LLP ([email protected]).
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PBMs implement prescription drug benefits for over 260 million Americans who
have health insurance through a variety of sponsors.2
Health plans, employers and other entities hire PBMs to help design and
administer prescription drug benefit programs for their members or employees.
PBMs provide services designed to help maximize drug effectiveness and contain
drug expenditures. PBMs do this by (1) coordinating the purchase, sale, dispensing
and reimbursement of prescription drugs between payers, patients, drug
manufacturers and pharmacies; (2) developing recommended formularies (i.e., the
list of drugs covered by a health plan); (3) designing utilization management tools
(e.g., prior authorization and step-therapy requirements); and (4) developing clinical
programs designed to ensure that patients are utilizing the most effective drug for
their condition.3
The operation of PBMs is very complex and often misunderstood. As a
general matter, PBMs can be viewed as the linchpin for ensuring the delivery of
prescription medications in a safe, efficient and cost-effective manner. There are
multiple components and transactions encompassed within a PBM’s operations. In
carrying out its functions, PBMs enter into numerous contractual relationships with
different parties, including health plan and employer group clients, pharmacies and
2 Pharmacy Benefit Managers (PBMs): Generating Savings for Plan Sponsors and Consumers, at 3‐4, Visante Report prepared for the Pharmaceutical Care Management Association (Feb. 2016), available at http://thatswhatpbmsdo.com/wp‐content/uploads/2016/02/visante‐pbm‐savings‐study‐Feb‐2016.pdf. (hereinafter “Visante Study”). 3 See Allison Garrett & Robert Garis, Leveling the Playing Field in the Pharmacy Benefit Management Industry, 42 Val. U. L. Rev. 33, 34 (2007).
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pharmaceutical manufacturers. Clients rely upon PBMs to negotiate favorable
pricing from manufacturers (generally in the form of rebates), develop pharmacy
networks that provide patients with convenient access to medications, negotiate
reimbursement rates with the pharmacy networks, handle pharmacy claims
submission and reimbursement, and provide a portfolio of clinical programs and
services designed to improve patient health and lower costs. Because the various
parties and stakeholders with which PBMs interact are varied and impact nearly
every aspect of the pharmaceutical supply chain and delivery system, it is essential
for healthcare legal counsel to have a basic understanding of PBMs’ role in the
delivery system and the laws governing their activities.
III. PBM Services
PBMs use a variety of strategies and tools to help clients manage the cost
and utilization of prescription drugs, improve patient outcomes, and lower costs.
PBMs generally offer a basic complement of integrated services related to the
administration of their clients’ drug benefit programs. As discussed more fully
below, these services can include:
Negotiating Rebates from Pharmaceutical Manufacturers;
Drug Formulary Development (through an independent Pharmacy and Therapeutics Committee);
Pharmacy Network Contracting and Management;
Claims Processing;
Client Benefit Design Implementation;
Drug Utilization Review; and
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Mail Order and Specialty Pharmacy Services.
PBM clients decide how extensively PBM tools will be used to manage drug
benefits for their enrollees. In other words, the role of a PBM is advisory and
administrative, and each client determines for itself what PBM tools and strategies
to implement. However, the adoption of a PBM’s full array of services can
significantly reduce client costs (including medical benefit costs), as greater
adherence and treatment with the most efficacious product keeps patients
healthier. According to a 2016 Visante study, if health plan sponsors elect to have
PBMs use their full range of tools, they can save up to 30% on drug benefit costs
compared to plans that opt for a limited range of tools. However, these savings
often come at the cost of patient choice regarding the drug product used and the
pharmacy network available to the patient. According to the Visante study, from
2016 to 2025, the current use of PBM tools in the healthcare marketplace will save
health plans and consumers approximately $654 billion.4
A. Negotiating Rebates from Pharmaceutical Manufacturers
PBMs negotiate and contract with pharmaceutical manufacturers to obtain
rebates on drugs dispensed to health plan members. PBMs are able to negotiate
substantial rebates with manufacturers for a variety of reasons. PBMs have
multiple clients and, therefore, are able to negotiate larger rebates than individual
plans with lower drug volumes. PBMs aggregate the collective scale and
4 Visante Study, at 3.
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purchasing power of all of their clients. They can negotiate better deals than any
one health plan or employer group operating independently.
Furthermore, a PBM’s agreement to include a particular manufacturer’s drug
on the PBM’s standard formulary (discussed below), including preferred placement
relative to similar drugs of other manufacturers, can drive the amount of the
rebates available. In this regard, rebates are typically negotiated on brand-name
drugs that compete with therapeutically-similar brands and generics. A
manufacturer may provide a greater rebate if its product is included in a “preferred”
position on the PBM formulary (meaning it is assigned a member copayment lower
than that of competing products that have not been excluded from the formulary
altogether). The larger the PBM (and the greater the adoption of its standard
formulary by its clients), the more negotiating leverage the PBM can potentially
exercise with manufacturers.
A PBM and its health plan client contractually agree on the amount of
manufacturer rebates obtained by the PBM that the PBM will “pass through” to the
client. In some cases, the full amount of the rebate will be passed through to the
client (i.e., the client pays the PBM the same price for the drug that the PBM paid
to the manufacturer less the rebate). In other instances, the PBM may retain a
portion of the manufacturer’s rebate in lieu of other administrative fees. The
amount of the rebate that is passed through to the client can obviously result in
cost-savings for the client that it would not otherwise have obtained if it had been
forced to contract directly with the manufacturer. Likewise, rebates passed on to
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the health plan can also act to keep member premiums lower (since the cost to the
plan for the drug is lower). On the other hand, rebates retained by the PBM can
lead to lower administrative fees charged to the client by the PBM for its services.
Rebate payment terms are negotiated by the PBM and the client in their PBM
services agreement.
B. Drug Formulary Development
PBMs develop lists of drugs that health plans can choose to cover as part of
the plan’s benefit design. Formularies may be “Open” or “Closed.” Drugs not
included on the formulary may not be covered by a plan (or may be subject to a high
cost-sharing payment by the member). PBM clients choose their own formulary,
and the PBM does not dictate the drugs a client will cover. PBMs typically offer one
or more standard formularies that clients can choose to adopt at their discretion. A
PBMs’ standard formulary development is a complex process that involves the
PBM’s Pharmacy & Therapeutics (P&T) Committee, which is comprised of clinical
experts (including physicians and pharmacists) who are usually independent from
the PBM. Generally, the P&T Committee only considers the clinical value of a drug
and not its economic cost. A separate committee will usually consider the economic
costs of a particular drug, and whether or not to prefer one drug over another, after
the P&T Committee has considered the clinical aspects of the drug. This separation
of duties ensures that the clinical value of a drug is the driving factor as to its
inclusion or exclusion on a formulary. A less efficacious drug will not be added to
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the formulary over a more proven product simply because it is more cost-effective or
subject to a higher manufacturer rebate.
Standard formularies are structured to encourage clinically appropriate
prescribing and ensure comprehensive coverage of drugs for all disease states and
conditions. However, formularies can also be a powerful tool for promoting cost-
effectiveness. One of the key ways formularies do this is by driving higher
utilization of lower cost generic medications and preferred brands. Generics are
FDA-approved drugs which are identical or bioequivalent to name brand drugs.
Pursuant to its standard formulary, a PBM will often seek to switch prescriptions
for brand drugs to corresponding generic drugs. As a result, generics now account
for more than 85% of all filled prescriptions in the U.S. An increase in a health
plan’s generic dispensing rate (GDR) can yield significant savings in total pharmacy
expenditures.5
PBMs and health plans encourage the use of generics and preferred brands
through a tiered member cost-sharing structure. For example, a health plan
member will pay a smaller co-payment for a generic or preferred brand than for
another therapeutically equivalent brand drug. Most plans offer three or more
tiers. Drugs placed on Tier 1 and Tier 2 have the lowest co-payment and are
typically generics and/or lower cost brand drugs. Drugs placed on Tier 3 or higher
have the highest co-payment and are typically higher cost brands and specialty
5 According to an August 2015 Generic Pharmaceutical Association (GPhA) report, generic utilization has saved patients and purchasers more than $1 trillion over the last decade. GPhA, "Generic Drug Savings in the U.S." (Aug. 15, 2015) available at http://www.gphaonline.org/media/wysiwyg/PDF/GPhA_Savings_Report_2015.pdf.
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drugs. As discussed above, drug manufacturers will typically provide rebates to a
PBM in return for inclusion and preferred status of a drug on the PBM’s formulary.
C. Pharmacy Network Contracting and Management
PBMs construct pharmacy networks by entering into participating provider
agreements with pharmacies, including independent pharmacies, pharmacy chains,
and pharmacy service administration organizations (which negotiate on behalf of
member pharmacies). PBMs make these networks available to their clients. The
networks specify which pharmacies plan members may use to fill prescriptions in
order for those prescriptions to be covered and reimbursed under the client’s drug
benefit. Reduced co-payments may be offered at pharmacies which are part of
selective or preferred networks as a way to encourage plan members to fill their
prescriptions at those pharmacies with lower costs.
Pharmacy network participation agreements set forth the rates under which
the PBM will reimburse the pharmacies for dispensing medications to health plan
members. When establishing networks, a PBM will typically negotiate contracts
with pharmacies that are willing to provide discounted rates in exchange for access
to the members of the PBM’s clients. PBMs can obtain large discounts from
pharmacies. The more selective the network, the greater the potential discount
offered by a pharmacy. Correspondingly, pharmacy discounts can create
negotiating leverage for a PBM when contracting with third party payers.
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A pharmacy may accept reimbursement from the PBM that is less than what
the client agrees to pay the PBM to have a particular drug dispensed to its
members. In other words, what the health plan client pays the PBM for each
dispensed drug may be greater than what the PBM pays its network pharmacy for
dispensing the drug. This pricing differential or “spread” between the “lock” price
that a client agrees to pay the PBM and the lower payment that the PBM makes to
the pharmacy can be an important source of revenue for the PBM. Such revenue
allows a PBM to offer more value-added services to clients and to keep
administrative and other fees lower. PBM arrangements may also be structured as
“pass-through” arrangements, where the client is charged the same amount as what
the PBM pays the pharmacy. However, pass-through arrangements will generally
result in the PBM charging higher administrative fees.
Other terms of the relationship between the pharmacy and the PBM may be
addressed in the network agreement. For example, as part of its management of
the pharmacy network, a PBM may perform routine or targeted audits of its
contracted pharmacies.
D. Claims Processing
Perhaps the most fundamental of a PBM’s core services is the claim
processing function. Claims processing has multiple components, and PBMs
develop sophisticated adjudication platforms to perform this function. The process
starts when a member takes a prescription to a pharmacy or a physician e-
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prescribes the drug to a pharmacy. Using the member’s health plan identification
card, the pharmacy will process the claim to be adjudicated by the PBM. The
PBM’s system will, in real-time, return certain information to the pharmacy. This
information includes, among other things, whether the member is eligible for
coverage of the dispensed drug under the plan benefit design, the amount of the co-
payment that the pharmacy is to collect from the member, whether a prior
authorization is required, whether an alternative drug or therapy needs to be tried
first, and the identity of other potential payers for the prescribed medication. The
PBM then either denies the claim or pays the pharmacy in accordance with the
reimbursement terms set forth in the network agreement. Correspondingly, the
PBM bills its health plan client for the claim pursuant to the terms in the client
agreement. Depending upon the arrangement the PBM and client have agreed
upon, the payment amount from the PBM to the pharmacy may or may not be the
same as the payment amount from the client to the PBM (e.g., “Spread” v. “Pass-
Through” pricing).
E. Client Benefit Design Implementation
PBMs perform the claims processing functions described above according to a
benefit design dictated by each client. PBMs do not direct the design of their
clients’ pharmacy benefit programs; rather, they implement the features selected by
each client. While PBMs may advise their clients on ways in which their benefit
design can be developed to optimize value and patient safety, the client retains
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ultimate responsibility for establishing the structure of the prescription drug
benefit and the PBM does not have discretion to deviate from that structure.
Benefit design features selected by each client can include member co-
payment amounts, drug formulary status, member maximum out-of-pocket spend, a
“prior authorization” requirement for certain drugs, and a “step-therapy”
requirement for certain disease states or conditions. Prior authorization means
that a plan enrollee must obtain the plan’s approval before a particular drug will be
covered. Step therapy means a member must try less aggressive (and less
expensive) medications or therapies before another medication will be covered by
the plan.
A PBM uses its adjudication platform to ensure that a client’s benefit design
is properly implemented. For example, a dispensing pharmacy will be alerted at
the point of sale what co-payment amount to collect from a customer. Furthermore,
if a physician has prescribed a drug that is not included (or preferred) on the plan’s
formulary, the pharmacy may be alerted to contact the prescriber to seek
permission to switch the prescription to a covered or preferred medication to
maintain compliance with the client’s formulary. Additionally, a pharmacy may be
alerted that a member’s prescription for a specific medication requires a prior
authorization or a step-therapy protocol before the medication is covered by the
plan.
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F. Drug Utilization Review
PBMs perform drug utilization reviews (DURs) on behalf of clients. DUR
involves reviewing patients’ entire prescription drug information during the course
of treatment and across multiple physicians and pharmacies. The information is
reviewed against clinical treatment protocols and algorithms. DUR tools also help
ensure patient safety by monitoring patient drug regimens and adherence through
the development of disease management and patient adherence programs. For
instance, the PBM may look for dangerous drug interactions, contra-indications, or
excessive drug use (e.g., multiple narcotics prescribed by multiple physicians and
dispensed by multiple pharmacies).
PBMs possess a tremendous amount of data related to members’ prescription
drug usage. For any given plan member, a PBM is able to aggregate records from
different prescribers and pharmacies, giving a PBM a more comprehensive picture
of a member’s prescription drug use. This data aggregation enables a PBM to
provide more effective DUR services to its clients than an individual physician or
pharmacy can provide. Through DUR, pharmacists and prescribers receive
feedback that allows them to make appropriate adjustments to an individual
patient’s care plan. This might include identifying for the pharmacist at point of
sale any duplicate prescription or potentially adverse drug interaction posed by a
new prescription (where the member is using multiple pharmacies). Another
common DUR edit alerts the pharmacist when a customer may be trying to refill a
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prescription too soon, such as when a pharmacy dispenses a 30-day supply of
medication and then tries to refill it 10 days later.
G. Mail Order and Specialty Pharmacy Channels
Some PBMs own and operate their own mail order and specialty pharmacies.
These pharmacies can be important tools for the PBM and client in driving generic
utilization, adherence and disease state management. Mail order pharmacies allow
plan members to receive their medications at home through a more convenient
channel than retail pharmacies (and generally at a lower cost). Also, mail order
typically allows for prescriptions to be filled up to a 90 day supply (whereas retail
dispensing is often more limited). In a 2005 report, the U.S. Federal Trade
Commission (FTC) concluded that there is no conflict of interest in a PBM owning a
mail-order pharmacy, and that PBM-owned mail-order pharmacies can offer lower
prices on prescription drugs than retail pharmacies.6
A PBM can also deliver complex, often injectable, medications to patients
with rare or complex conditions (e.g., hepatitis C, multiple sclerosis, cancer) through
its specialty pharmacy. Dispensing is usually made to the member’s home or
physician’s office for administration. Specialty medications currently account for
less than 1% of prescriptions but about one-third of drug expenditures. By 2020,
specialty medications are predicted to account for half of all drug expenditures.7
6 Federal Trade Commission, “Pharmacy Benefit Managers: Ownership of Mail‐Order Pharmacies” (Aug. 2005). 7 Visante Study, at 8.
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IV. Major PBM Companies and the Competitive Landscape
PBMs operate in a marketplace where competition has been described as
"vigorous" by the FTC. There are currently over 20 PBMs operating in the U.S.
PBMs feature vastly different corporate structures. Some PBMs are independently-
owned and operated, while others are subsidiaries or divisions of major health
insurance companies or chain pharmacies.
The PBM industry has seen consolidation over the last two decades. This is
understandable given that PBM service offerings require sophisticated (and
expensive) infrastructure, such as processing/adjudication platforms and pharmacy
network contracting and management resources. Furthermore, increased scale
gives the PBMs more negotiating power when negotiating rebates with
pharmaceutical manufacturers and deeper discounts from pharmacies. These two
factors drove a wave of consolidation that has resulted in approximately 80% of the
PBM market being controlled by three large PBMs – Express Scripts, CVS Health
(Caremark) and OptumRx. The following is a summary of some of the major PBMs
currently operating in the U.S. Most of these companies provide the full range of
pharmacy benefit management services.
A. Express Scripts
Express Scripts, Inc. (ESI) is the largest stand-alone PBM in the U.S. It is
not currently affiliated with a particular retail pharmacy or insurance company. It
operates as a subsidiary of Express Scripts Holding Company, a publically-traded
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Fortune 25 company. However, in March 2018, it was announced that the health
insurer Cigna would seek to acquire ESI for approximately $52 billion. ESI was
formed in 1986 and became publicly-traded in 1992. After a series of smaller
transactions, ESI acquired its competitor Medco Health Solutions for $29.1 billion
in 2012. ESI manages prescriptions for over 85 million and processes 1.4 billion
prescriptions annually. ESI is headquartered in St. Louis, Missouri.8
B. CVS Health Corporation (Caremark)
CVS Health Corporation operates the second largest retail pharmacy chain in
the U.S. Through its Caremark subsidiary, the company also operates the second
largest PBM. The Caremark subsidiary was built over the past 25 years through a
series of acquisitions and mergers. In 1996, MedPartners merged with Caremark
International, a publicly-traded company that operated PBM and physician practice
management business lines. MedPartners changed its name to CaremarkRx in
1998 after it sold the practice management business to focus solely on PBM
operations. In 2003, CaremarkRx merged with AdvancePCS (a larger PBM). In
2007, CaremarkRx merged with CVS Corporation to create CVS Caremark
Corporation. The company was re-branded as CVS Health Corporation in 2014.
The PBM manages prescriptions for over 80 million members. CVS Health is
headquartered in Woonsocket, Rhode Island.9 In November 2017, it was announced
8 See http://www.express‐scripts.com. 9 See http://www.caremark.com.
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that CVS Health would seek to acquire the health insurer Aetna for approximately
$69 billion.
C. OptumRx
OptumRx is one of the Optum subsidiary businesses of UnitedHealth Group
Inc., the largest health insurer in the U.S. In March 2015, UnitedHealth Group
expanded its PBM operations by acquiring Catamaran Corporation for
approximately $12.8 billion. It subsequently renamed the business OptumRx. The
PBM serves approximately 67 million members. OptumRx is based in Eden
Prairie, Minnesota.10
D. Medimpact
Medimpact was founded in 1989. It is one of the largest privately-held PBMs
in the country. The company serves approximately 27 million members in the U.S.
The company is based in San Diego, California.11
E. Prime Therapeutics
Prime Therapeutics was created in 1998 primarily to furnish pharmacy
benefit management for not-for-profit Blue Shield and Blue Cross Plans. It is
owned and operated by numerous Blue’s plans. It is one of the largest privately-
held PBMs in the U.S. Currently, Prime Therapeutics serves 14 Blue’s plans and
10 See http://www.medimpact.com. 11 See http://www.pbm.medimpact.com.
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approximately 22 million members. The company is headquartered in St. Paul,
Minnesota.12
F. EnvisionRx
EnvisionRx was formed as privately-held Envision Pharmaceutical Services
in 2001. In 2015, EnvisionRx was acquired by Rite Aid Pharmacy for $2 billion.
Rite Aid has more than 4,500 retail pharmacies in over 30 states. EnvisionRX
operates as a subsidiary of Rite Aid and is based in Twinsburg, Ohio.13
V. PBM Client Types
PBMs provide their services by contracting directly with various types of
sponsors. PBM clients include: (1) commercial health insurance plans and
managed care organizations; (2) Qualified Health Plans operating in the insurance
Marketplace established under the Patient Protection and Affordable Care Act; (3)
self-insured employer groups and corporate health plans; (4) Taft-Hartley funds and
employee union health plans; (5) third party administrators (TPAs) that contract
with insurers; (6) Medicare Part D prescription drug plan sponsors; (7) Medicare
Advantage organizations; (8) Medicaid managed care organizations; and (9) other
federal, state and local health benefit plans (e.g., Federal Employees Health
Benefits Program, TRICARE, and state government employee plans).14
12 See http://www.primetherapeutics.com. 13 See http://www.envisionrx.com. 14 Visante Study, at 1.
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VI. Relevant Federal and State Laws Impacting PBMs
PBMs are subject to numerous federal, state and local laws. These laws
include federal and state fraud and abuse laws, Medicare and Medicaid program
requirements, the Patient Protection and Affordable Care Act, employee benefit
laws, patient privacy laws, state pharmacy laws, state insurance laws, and state
consumer protection laws. Many laws apply directly to PBMs, while some may
apply indirectly through PBM clients. The following is a brief overview of some of
the most commonly applicable legal and regulatory requirements.
A. Federal and State Anti-Kickback Laws
PBM arrangements are subject to federal and state anti-kickback laws. The
federal health care programs’ anti-kickback statute prohibits the offer, payment,
solicitation or receipt of any type of remuneration in return for the referral,
recommendation, purchase or order of business reimbursable by a federal
healthcare program (e.g., Medicare, Medicaid, TRICARE).15 “Safe harbor”
regulations specify certain payment practices which are immune from prosecution
under the federal law (provided all elements of the applicable safe harbor are
satisfied).16 The failure to meet a safe harbor does not mean that an arrangement is
a per se violation of the law. Rather, an enforcement action will depend on whether
15 42 U.S.C § 1320a‐7b(b). “Remuneration” can be anything of value, including cash payments, credits, gifts, free services or goods, forgiveness of debt, or the sale/purchase of items/services at other than fair market value. 16 42 C.F.R. § 1001.952.
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there is an impermissible intent and if the government deems the arrangement to
be abusive (i.e., promotion of overutilization, increased costs for federal health care
programs, negative impact on quality of care, corruption of medical decision-
making, promotion of unfair competition).17 Many states have their own anti-
kickback laws which are similar to the federal law, but which may apply to the
referral of business reimbursable by commercial insurance plans.18 Violations of
anti-kickback laws can result in imprisonment, monetary penalties, exclusion from
government program participation, and reputational damage.
Various PBM arrangements with clients, drug manufacturers, pharmacies
and health plan members can implicate anti-kickback laws. PBM relationships
with manufacturers are often closely scrutinized under the federal anti-kickback
statute since PBM clients can include government payer programs as well as health
plans with federal and state-funded business. Specifically, a manufacturer’s
payment of a rebate or other fees to a PBM can be viewed as an inducement for the
PBM to purchase the manufacturer’s products (or recommend the manufacturer’s
products through favorable formulary placement). Consequently, many of these
arrangements are often structured to comply with the applicable federal safe
17 56 Fed. Reg. 35,954, 35,956, 35,978 (July 29, 1991). See United States v. Ruttenberg, 625 F.2d 173, 177 (note 9) (7th Cir. 1980). 18 See, e.g., Cal. Bus. & Prof. Code § 650; Fla. Stat. Ann. § 817.505; Mass. Gen. Laws ch. 175H, § 3.
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harbors for discounts,19 group purchasing organizations (GPOs),20 or personal
service arrangements. 21
Additionally, a PBM’s relationship with its health plan clients can also be
subject to scrutiny under anti-kickback laws. PBM payments to clients can be
viewed as an inducement to select or retain the PBM. This might include
discounted pricing to clients on the purchase of drugs. However, such discounts can
be structured to comply with the discount safe harbor. Additionally, a PBM may
provide “implementation credits” to reimburse new clients for the costs of changing
PBMs (e.g., costs for member mailings or new membership cards). This type of
credit can potentially be protected under the discount safe harbor if the PBM client
is required to treat the credit as a discount on the cost of prescription drugs for any
government program reporting. Alternatively, such a credit can potentially be
defended outside the discount safe harbor if it reflects reasonable and documented
expenses incurred by the client in the transition to the new PBM. Implementation
credits have been the subject of litigation.22
Other arrangements that can potentially implicate anti-kickback laws may
include: (1) PBM payments of fees to consultants and brokers; (2) purchase 19 42 C.F.R. § 1001.952(h) (protects certain manufacturer discounts and rebate payments made to a PBM). 20 42 C.F.R. § 1001.952(j) (protects certain manufacturer payments of administrative fees to a PBM serving as a group purchasing agent for health plan clients where such fees are authorized by the PBM’s clients). 21 42 C.F.R. § 1001.952(d) (protects fair market value payments for the performance of necessary services). 22 United States ex rel. Vieux v. AdvancePCS, Inc., No. 2:02‐cv‐9236 (E.D. Pa. filed Dec. 20, 2002) (the government entered into a settlement agreement with AdvancePCS, the terms of which have been widely adopted as standard industry practice by all PBMs).
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contracts between PBM-owned pharmacies and wholesalers; (3) service and
purchase agreements between PBM-owned specialty pharmacies and
manufacturers; and (4) interactions between prescribers and PBM-owned specialty
pharmacies. Consequently, all payment arrangements involving PBMs should be
carefully analyzed under these laws.
B. False Claims Laws/Deficit Reduction Act of 2005
PBM claims processing functions can implicate requirements regarding
claims preparation and submission. For example, federal Medicaid law generally
requires health insurers and other third parties that are legally liable to pay for
health care services received by Medicaid beneficiaries to pay before Medicaid
pays.23 In other words, Medicaid is the payer of last resort. However, state
Medicaid agencies might mistakenly pay claims for which a third party may be
liable because they are not aware of the existence of other coverage.24
The Deficit Reduction Act of 2005 (DRA) made a number of changes intended
to strengthen state Medicaid programs’ ability to identify and collect from third
23 42 U.S.C. § 1396a(a)(25)(A). The provision authorizes states to take all reasonable measures to ascertain the legal liability of “third parties” for health care items and services provided to Medicaid recipients. 24 For example, an individual may be dually‐eligible and covered by both a commercial health plan and a state Medicaid program. The person seeks to file a prescription at a network retail pharmacy but presents only their Medicaid eligibility card. The pharmacy’s system does not include the person’s commercial insurance information. Consequently, the pharmacy submits the primary claim to the state Medicaid program. The pharmacy is then reimbursed directly by the Medicaid program (subject to the person paying any applicable co‐payment required by Medicaid).
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parties that are legally responsible to pay claims primary to Medicaid.25
Additionally, the DRA mandates that states pass laws requiring applicable third
parties to provide states with the coverage, eligibility, and claims data needed by
the states to identify potentially liable third parties (e.g., name, address,
identification number).26 State Medicaid programs rely upon this information to
identify payers which may be primary to Medicaid in order to submit subrogation
claims to those payers seeking recovery of Medicaid payments. The recovery
generally reflects the difference between what Medicaid paid for the claim and what
Medicaid would have paid if the primary payer had been properly billed (e.g., the
primary payer’s applicable co-payment amount). As part of its claims processing
services, PBMs often perform for clients the functions related to these Medicaid
subrogation claims. This may include, among other things, aggregating and
sharing plan member eligibility and benefit information with the state Medicaid
agencies (or their vendor), adjudicating the Medicaid subrogation claims, and
paying any recovery amounts to the Medicaid agencies on behalf of clients. PBMs
only perform these services if they are directed to do so by the applicable client.
PBMs have been subject to government investigations and lawsuits alleging
that they may be impermissibly denying Medicaid subrogation claims. The claims
denials result in the PBMs’ commercial plan clients not reimbursing the state
25 Pub. L. No. 109‐171 (Feb. 8, 2006). Section 6035(a) of the DRA amended section 1396a(a)(25)(A) to clarify that “third parties” include: (1) self‐insured plans, (2) PBMs, and (3) other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service. 26 Id. See, e.g., Colo. Rev. Stat. § 25.5‐4‐209; Md. Health‐General Code Ann. § 15‐145; N.C. Gen. Stat. § 108A‐55.4; 62 Pa. Stat. § 1413; S. C. Code Ann. § 43‐7‐465; Tex. Hum. Res. Code § 32.042; Wis. Stat. § 49.475.
23
Medicaid agencies for amounts Medicaid would not have paid if the commercial
plans had been properly billed as the primary payers. Consequently, the
investigations and lawsuits have contended that the PBMs’ denial of subrogation
claims violates the DRA and results in “reverse false claims” liability for PBMs
under the federal Civil False Claims Act.27
Federal courts considering the false claims issue have generally ruled that
the DRA prevents PBMs from denying Medicaid subrogation claims for “procedural”
reasons (e.g., the failure of a dual-eligible to present eligibility documentation at the
point of sale, the failure to satisfy a plan’s timely filing requirement where the
subrogation claim is submitted within three years from the date of service).
However, denial of Medicaid subrogation claims may be permitted for “substantive”
reasons (e.g., the prescribed drug is a not covered by the commercial health plan).28
In other words, a health plan and its PBM are not required to pay all subrogation
claims; a state Medicaid agency cannot compel the commercial plan to reimburse it
for all items or services which are not covered under the plan benefit. PBMs must
work with their clients to review the plan benefit design to ensure that there are no
impermissible procedural limitations that are applied to Medicaid subrogation
claims. The amount due as reimbursement to the state agency is generally limited
to the lesser of the Medicaid paid amount or what the commercial plan would have
paid if it had been billed as the primary payer.
27 29 U.S.C. § 3729 et seq. 28 See, e.g., Caremark v. Goetz, 480 F.3d 779 (6th Cir. 2007); United States v. Caremark, Inc., 634 F.3d 808 (5th Cir. 2011); United States ex rel. Ramadoss v. Caremark, Inc., 586 F.Supp.2d 668 (W.D.Tex. 2008).
24
C. Medicare and Medicaid Reimbursement and Compliance Requirements
PBMs may serve clients that contract directly with the Medicare or Medicaid
programs and enroll Medicare or Medicaid beneficiaries (e.g., Medicare Part D
Prescription Drug Plan Sponsors, Medicare Advantage organizations, Medicaid
managed care organizations). Consequently, a PBM needs to take into account each
payer’s unique program requirements, including requirements related to beneficiary
protections, coverage standards, pharmacy network access standards, and provider
reimbursement.
For example, Medicare Part D regulations specify that, beginning in plan
year 2010, a Part D plan sponsor must report to CMS (and obtain from PBMs) the
amounts pharmacies actually receive from a PBM for dispensed Part D drugs. This
is the case even though the pricing may not reflect the contracted amount that the
Part D plan sponsor pays the PBM for the dispensed Part D drug.29
Additionally, PBMs are considered “First Tier, Downstream, and Related
Entities” (FDRs) of clients which are Part D plan sponsors and Medicare Advantage
organizations. These entities may delegate to FDRs some administrative or health
care service functions relating to the entities’ contracts with the CMS. However,
such delegation imposes certain Medicare compliance obligations upon FDRs (and
the contracting entities will require that their FDRS file with them annual
attestations of compliance with these requirements). Such requirements include,
29 74 Fed. Reg. 1493 (Jan. 12, 2009). See 42 C.F.R. Part 423.
25
among other things: (1) the provision of compliance and fraud, waste and abuse
training to FDR employees; (2) the distribution of compliance policies and
procedures to FDR employees; (3) government program exclusion screening of FDR
employees; (4) record accessibility and preservation; and (5) the establishment of
reporting mechanisms.30
Finally, to the extent a PBM owns specialty or mail order pharmacies, those
pharmacies may be Medicare or Medicaid participating providers. Consequently, in
such cases, the PBM will need to ensure that such pharmacies are properly enrolled
with the Medicare or Medicaid programs and comply with the applicable provider
participation requirements.
D. Patient Protection and Affordable Care Act (ACA)
The Patient Protection and Affordable Care Act (ACA) was enacted in 2010
and made significant changes to the health care delivery and financing systems for
private and governmental payers.31 Among other things, the ACA and its
implementing regulations set forth requirements for the creation and operation of
Qualified Health Plans (QHPs) offering coverage of “Essential Health Benefits”
through state and federal Marketplace exchanges.32
30 See 42 C.F.R. § 423.501. See also, Medicare Managed Care Manual (CMS), Ch. 21; Prescription Drug Benefit Manual (CMS), Ch. 9. 31 Pub. L. No. 111‐148 (March 23, 2010) as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111‐152 (March 30, 2010). 32 Id., at § 1301 et seq. See 45 C.F.R. Part 156.
26
The ACA made a number of changes affecting PBMs. First, the ACA led to
increased coverage of prescription drug benefits through QHPs (which have
contracted with PBMs to manage this benefit). Second, PBMs must take into
account QHP minimum requirements when developing standard offerings and
advising clients on benefit design features (e.g., the ACA established restrictions on
a plan’s ability to use pre-existing condition exclusions and lifetime or annual
benefit limits). Third, and perhaps most significantly, the ACA imposes on PBMs
certain transparency and disclosure requirements. Notably, a PBM contracting
with QHPs must now report to those clients certain information regarding generic
dispensing rates, rebates, discounts and other price concessions negotiated by the
PBM (with the clients then making that information available to CMS).33
E. Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act of 1974 (ERISA) provided a
comprehensive overhaul of the private employee benefit system.34 ERISA does not
require that an employer provide health insurance to its employees or retirees, but
33 Id., at § 6005. See 42 U.S.C. § 1320b‐23, 42 C.F.R. § 423.514. The information required to be disclosed
includes: (1) the percentage of all prescriptions that were provided through retail pharmacies compared to mail
order pharmacies; (2) the percentage of prescriptions for which a generic drug was available and dispensed, by
pharmacy type, that are paid by the Part D sponsor or PBM under the contract; (3) the aggregate amount and
type of rebates, discounts, or price concessions that the PBM negotiates that are attributable to patient utilization
under the plan; (4) the aggregate amount of the rebates, discounts, or price concessions that are passed through
to the plan sponsor, and the total number of prescriptions that were dispensed; and (5) the aggregate amount of
the difference between the amount the Part D sponsor pays the PBM and the amount that the PBM pays retail
pharmacies and mail order pharmacies. The statute specifies that this data is confidential and generally must not
be disclosed by the government or by a plan receiving the information. Id.
34 Pub. L. No. 93‐406 (Sept. 2, 1974) codified at 29 U.S.C. § 1001 et seq.
27
ERISA does regulate the operation of a health benefit plan if an employer chooses to
establish such a plan. Congress enacted ERISA to protect the interests of
participants in employee benefit plans by establishing standards of conduct for
fiduciaries of such plans.35 An entity is considered a “fiduciary” for an ERISA plan
if it: (1) exercises any discretionary authority relating to the management of such
plan, or (2) has any discretionary authority over the administration of such plan. 36
If an entity is deemed a “fiduciary” of the plan, ERISA requires the entity to act
solely in the interest of the participants and beneficiaries of the plan.37 If the
entity’s conduct is found to be in breach of its fiduciary duty, the entity is subject to
potential liability for damages and equitable relief in lawsuits brought by the U.S.
Department of Labor and private plaintiffs (with such lawsuits seeking recovery of
any profits realized by the fiduciary as a result of the fiduciary’s use of plan
assets).38
A fiduciary status under ERISA would threaten the PBM business model,
and potentially make many PBM practices subject to stricter standards (e.g.,
pharmacy network reimbursement, pharmaceutical manufacturer rebate
contracting, formulary construction, administration of drug substitution programs).
PBMs have successfully defended lawsuits asserting that they are ERISA plan
35 Id. 36 29 U.S.C. § 1002(21)(A). 37 29 U.S.C. § 1104. 38 29 U.S.C. § 1109.
28
fiduciaries and, therefore, obligated to act solely in the best interest of the plan
beneficiaries.39 PBMs are not considered ERISA fiduciaries since they only advise
clients with regard to benefit structure; they do not make final decisions related to
such structure and do not have discretion to overrule clients’ decisions. PBM client
agreements will typically specify that the plan sponsor has sole authority and
discretion to manage and administer the plan benefit.
There is one caveat to the general rule on the fiduciary status of PBMs. This
relates to initial coverage determinations and the appeal of denied claims. ERISA
permits employer plans to delegate these functions to a third party. PBMs
commonly arrange for the performance of these functions by a third party. For
example, a PBM may contractually agree with a client to identify an Independent
Review Organization which will serve as a fiduciary of the health plan when
making decisions regarding coverage and appeals (meaning that the PBM does not
assume a fiduciary responsibility for these functions). This can be an important
consideration given complex coverage and prior authorization criteria that may
apply for certain drugs. The PBM may also perform these functions itself, in which
case it will take on fiduciary obligations solely with respect to the appeal functions.
F. Patient Privacy and Electronic Claims Processing Laws (HIPAA)
PBMs compile and maintain a significant amount of information about health
plan members. A PBM will receive and transmit members’ prescription drug
39 See generally David Slade, ERISA Preemption and the Question of Pharmacy Benefit Managers’ Fiduciary Duty, 30 J. Legal Med. 409 (2009). See, e.g., Chicago District Council of Carpenters Welfare Fund v. Caremark, Inc., 474 F.3d 467 (7th Cir. 2007).
29
information pursuant to its claims processing functions. However, a PBM may also
gain access to other medical information about a health plan member through
various means, including operation of prior authorization and DUR programs.
Privacy regulations promulgated pursuant to the federal Health Insurance
Portability and Accountability Act of 1996 (HIPAA) set forth standards specifying
when and how a “covered entity” (or its “business associate”) may use a person’s
“protected health information” (PHI).40 Generally, absent a patient authorization, a
covered entity and its business associate may use and disclose PHI only for
treatment, payment and health care operation purposes.41 With limited exceptions,
the regulations require an individual’s written authorization before a use or
disclosure of his/her PHI can be made for marketing purposes.42
PBMs function as business associates of their covered-entity clients.
Consequently, they must enter into business associate agreements with each of
their clients and otherwise comply with HIPAA regulations. This limits the scope to
which a PBM can use and disclose PHI. For example, a PBM communication to
members recommending an alternative therapy is permissible (e.g., a
communication recommending a generic drug over a brand drug, or a preferred 40 Pub. L. No. 104‐191 (Aug. 21, 1996). 45 C.F.R. Parts 160, 164. “Covered entities” are generally health care clearinghouses, employer sponsored health plans, health insurers, and medical service providers that engage in certain transactions. 45 C.F.R. § 160.102(a). PHI consists of any of 18 elements that can be used to identify an individual (e.g., name, address, telephone number, birth date, Social Security Number, prescription fill date). 45 C.F.R. § 160.103. Many states have their own laws that address the use and disclosure of patient identifiable health information. In addition to the HIPAA requirements, PBMs must ensure that they comply with state law provisions that may be more stringent and which are not preempted by the HIPAA requirements. 41 45 C.F.R. § 164.506. 42 45 C.F.R. § 164.508.
30
brand drug instead of a non-preferred brand drug). On the other hand, a PBM’s
sale of members’ PHI to a pharmaceutical manufacturer (which enables the
manufacturer to send targeted marketing materials to those members) is
impermissible absent written authorization from the members allowing such
disclosure. Finally, PBMs may provide member information to third parties to
conduct clinical research studies related to disease conditions and treatments. The
disclosure and use of patient information for research purposes (including the
recruitment of members to serve as study participants) is generally allowed if: (1)
PHI is released pursuant to a written authorization by a member; (2) PHI is
released pursuant to an Institutional Review Board waiver; or (3) the information
being released has been de-identified or constitutes a limited data set under the
regulations.
HIPAA regulations dealing with electronic claims transactions also impact
PBMs. HIPAA required the Department of Health and Human Services (HHS) to
adopt standards that covered entities (and their business associates) must use when
electronically conducting certain health care administrative transactions (e.g.,
claims submission, remittance advice, eligibility verification). Pursuant to the
Transactions and Code Sets final regulation, HHS adopted the standards of the
National Council for Prescription Drug Plans (NCPDP) for use in retail pharmacy
transactions. The NCPDP maintains requirements regarding the standard way in
31
which retail pharmacy claims must be transmitted electronically.43 Consequently,
as part of its claims processing responsibilities, a PBM must ensure that it is
performing electronic claims transactions in compliance with the NCPDP
standards.
Finally, it’s important to note that PBM-owned mail-order or specialty
pharmacies are healthcare providers in their own right and must act in accordance
with the HIPAA requirements applicable to covered entities. It is therefore
necessary to differentiate between PHI handled by a PBM in its capacity as a
client’s business associate and PHI received by a PBM-owned pharmacy in its
capacity as a health care provider.
G. State Laws on Pharmacy Network Construction and Management
States have their own laws which govern how PBMs do business. For
example, many states have laws that dictate how a PBM may contract with, pay,
and manage its network pharmacies. These laws typically include: (1) any willing
provider laws; (2) prompt payment laws; (3) provider audit laws; (4) drug price
transparency laws; and (5) drug substitution laws.
1. Any Willing Provider Laws
A state “any willing provider” law generally require insurers to allow any
provider to participate in the insurer’s service networks (e.g., retail pharmacy
43 65 Fed. Reg. 50,312 (Aug. 17, 2000). The NCPDP standards for pharmacy transactions are available on the NCPDP website. See http://www.ncpdp.org/Resources/HIPAA.
32
network) so long as the provider is willing to accept the terms and conditions of the
insurer’s network contract and meet the quality standards established for network
participants. Some state laws can be broad in scope (applying to any licensed
providers), while others are specific to pharmacies. These laws can obviously
impact the ability of a PBM to offer restricted or narrow pharmacy networks (such
as networks limited to pharmacies owned by the PBM). Since these laws apply to
PBM clients (i.e., insurers), and not directly to PBMs, actions to enforce these laws
are typically brought against the PBM clients. However, clients expect PBMs to
structure their pharmacy networks in compliance with these laws, and PBMs may
face potential contractual liability for failing to structure the networks properly.44
2. Prompt Payment Laws
Some states have “prompt payment” laws which require insurers and PBMs
to reimburse or deny a claim in a timely manner. These laws typically specify a
certain number of days within which a claim must be paid to a pharmacy (or other
individual/entity submitting the claim). For “”clean claims” (i.e., claims not
containing any discrepancies or requiring additional information), payment to the
pharmacy is typically required within 15-45 days of the claim submission.
44 The National Conference of State Legislatures maintains a list of these laws on its website. See http://www.ncsl.org/research/health/any‐willing‐or‐authorized‐providers.aspx.
33
Additional time may be added for claims requiring supplemental information.
Interest and other penalties may be assessed for failing to comply with these laws.45
3. Provider Audit Laws
PBMs typically conduct periodic audits of network pharmacies. These audits
are designed to ensure that the pharmacies remain compliant with network and
payer standards. The audits will also review a sample of pharmacy claims to
identify any discrepancies with claims submission and reimbursement (e.g.,
overpayments, evidence of fraud or waste). State audit laws often dictate notice,
frequency, and appeal requirements associated with PBM audits of network
pharmacies. These laws typically require insurers and PBMs to provide written
advance notice to a network pharmacy prior to conducting an audit, indicate the
time periods covered by the audit, and specify pharmacy appeal rights. The laws
may also impose restrictions on the ability of a PBM to recover overpayments from
the pharmacy. For example, recoveries may be limited to overpayments related to
claims actually reviewed during the audit (and prohibit the PBM from relying upon
extrapolation or statistical sampling to seek a higher recovery).46
45 See, e.g., Mont. Code Ann. § 33‐18‐232; Nev. Rev. Stat. Ann. § 683A.0879; N.M. Stat. Ann. § 59A‐16‐21.1; S.C. Code Ann. § 38‐59‐240; Tenn. Code Ann. § 56‐7‐109. 46 See, e.g., Ark. Rev. Stat. Ann. § 17‐92‐1201 et seq.; Ga. Rev. Stat. Ann. § 26‐4‐118; Ind. Code § 25‐26‐22; Mo. Rev. Stat. § 338.600.
34
4. Drug Price Transparency Laws
PBMs commonly utilize a Maximum Allowable Cost (MAC) list when
contracting with their network pharmacies. MAC lists specify the maximum
reimbursement amount the PBM will reimburse the pharmacy for a particular
drug. A number of states have MAC price transparency laws. These laws dictate
how much information a PBM must provide network pharmacies regarding the
process by which the PBM establishes its drug reimbursement rates for pharmacies.
For example, a state MAC law may require a PBM to identify the sources it uses for
pricing data, disclose the methodology used in the calculation of the MAC price for
each drug, provide contracted pharmacies the MAC list, and specify a process for a
pharmacy to appeal the MAC rates.47
5. Drug Substitution Laws
A number of states have generic drug substitution laws. These laws impact
the ability of a pharmacist to substitute a therapeutically-equivalent generic drug
where a prescription is written for a brand drug. In some states, a pharmacist may
not make a generic substitution unless it is approved by the prescriber. Other
states may allow generic substitution (while a few states may even mandate such
substitution). Generic substitution is usually not permitted where "Brand Only" or
similar wording is indicated in the prescription by the prescriber. The ability of a
47 See http://www.pbmwatch.com/current‐state‐mac‐legislation.html (listing state MAC laws).
35
PBM’s network pharmacies to implement the formulary will be affected by these
state laws.48
H. State Insurance Licensing Laws
PBMs are often regulated by a state’s Department of Insurance (DOI). Most
states have insurance laws that require a PBM to hold some kind of DOI license or
registration. A number of states have PBM-specific licenses. Other states may
define insurance “third party administrators” broadly to encompass the functions
performed by PBMs (thereby requiring PBMs to obtain a TPA license or
registration). TPA laws generally regulate organizations that underwrite coverage,
collect premiums, or adjust/settle claims in connection with insurance. The
licensing/registration laws may require an annual license/registration filing or
renewal, require submission of financial information to the DOI, specify liquidity or
surety bond requirements, and mandate that the PBM make certain information
available to pharmacies or clients.49
PBMs typically perform DUR activities that involve an analysis of the
necessity, appropriateness and efficacy of prescription medications. Some states
require organizations that furnish utilization management (UM) services to be
separately licensed and impose further regulation for the performance of those
48 See http://www.ncsl.org/research/health/rx‐substitution‐by‐pharmacists‐state‐legislation.aspx (listing state
generic substitution laws).
49 See e.g.,Iowa Code § 510B.1 et seq.; Kan. Stat. Ch. 154; La. Rev. Stat. Ann. § 22:1657B; N.D. Cent. Code § 26.1‐27;
R.I. Gen. Laws § 27‐29.1‐7.
36
functions. Such regulation might include, among other things, a requirement that
only certain licensed or certified health care providers perform UM activities,
minimum qualifications for medical directors overseeing UM functions, and appeal
rights for plan members who are denied coverage because of an adverse UM
decision.50
I. State Consumer Protection Laws
Certain PBM business practices have been scrutinized under state consumer
protection laws. For example, in 2008, Attorneys General from 28 states and the
District of Columbia entered into separate agreements with Caremark and Express
Scripts to settle allegations that the PBMs engaged in deceptive trade practices by
encouraging physicians to switch patients to preferred drugs and by not disclosing
manufacturer rebates generated from such switches. As part of the settlements,
Caremark and Express Scripts were required to pay $41 million and $9.5 million,
respectively, and to make certain changes to their practices.51
Both companies were generally prohibited from seeking drug substitutions
when: (1) the net cost of the proposed drug exceeded the net cost of the originally
prescribed drug; (2) the originally prescribed drug had a generic equivalent and the
50 See e.g., 806 Ky. Admin. Rule 9:360E; Ariz. Rev. Stat. § 20‐2501 et seq.
51 See Press Release, Wash. Att’y Gen. (Feb. 14, 2008) (Caremark to pay $41 million to resolve multistate consumer
protection claims) available at http://www.atg.wa.gov/news‐releases/attorney‐general‐mckenna‐announces‐
caremark‐pay‐41‐million‐resolve‐multistate. See also Press Release, Wash. Att’y Gen. (May 27, 2008) (Express
Scripts to pay $9.5 million to resolve consumer protection claims) available at http://www.atg.wa.gov/news/news‐
releases/attorney‐general‐mckenna‐announces‐express‐scripts‐pay‐95‐million‐resolve.
37
proposed drug did not; (3) the originally prescribed drug’s patent was expected to
expire within six months; or (4) the patient was switched from a similar drug within
the previous two years. The settlements also imposed certain disclosure
requirements on both companies, including: (1) informing both patients and
prescribers what effect a drug switch would have on the patients’ co-payments; (2)
informing prescribers of material differences in side effects or efficacy between
prescribed drugs and proposed drugs; (3) informing patients that they could decline
a drug switch and the conditions for receiving the originally prescribed drug; and (4)
informing prescribers of the companies’ financial incentives for certain drug
switches.52
VII. Conclusion
PBMs are organizations that serve an important role in the health care
system. PBM functions have often been misunderstood, and the regulatory
environment in which PBMs operate is complex. Consequently, it’s vital that
health care legal counsel fully appreciate the issues confronting the PBM industry
in order to best advise their clients. We hope that this program is an effective
resource for that purpose.
52 Id.
