Middlemen to the middlemen to the middlemen — how many people get paid when you buy a prescription?
It’s no secret that pharmacy prices are high and rising for people using their insurance in the United States. Part of the reason is the middlemen.
The cut the middlemen take is at the heart of a new lawsuit against Wells Fargo for mismanaging employees” drug benefits that is making headlines. The lawsuit “accuses the company of mismanaging its employee health plan by paying inflated prices for drugs, not engaging in fiduciary processes and notably for this discussion, overpaying Express Scripts for administrative services.” Chris Deacon, founder of VerSan Consulting, writes on her LinkedIn.
This is the second big drug-related suit under the Employee Retirement Income Security Act (‘ERISA’) — Johnson & Johnson was accused of very similar misdeeds in February. ERISA fiduciary suits are popping up across the United States, reflecting the growing employee ire at having their healthcare benefits cost more and more, while their paycheckes stay in place. Here’s a map from Dave Chase at Health Rosetta on the ERISA suits he is tracking, on drug and other medical grounds.
Employers at risk
The issue of middlemen is complicated. One big factor is the pharmacy benefit managers, groups that rose up in the late 1950’s and early 1960’s to manage the supply of medications under insurance plans. They were originally described as a net benefit, helping to buy drugs at reduced costs, buying the best drugs, and keeping Big Pharma’s profits in check. They were also said to be additive in the sense that the drug marketplace was complicated, and they could help insurers and employers understand it better, and insure better pricing.
But what actually happened is that the PBM’s began to control every part of the drug supply chain, and prices increased willy-nilly because no one understood where the money was going. That, coupled with the assumption that your insurance plan gave you the lowest price, let the PBM world expand exponentially.
PBM’s began to charge drug manufacturers “rebates” to get on the insurer’s formulary (the list of preferred drugs) — with those rebates paid directly to the PBM’s, hidden from sight but adding to the cost of every medication.
Now, each one of the big PBM’s is owned by a big insurance company. The PBM’s contribute substantially to profits; Evernorth, the CVS pharmacy and health services business, drove the company’s 25% growth year over year in the last quarter, for instance. UnitedHealthcare saw its growth driven by Optum, the pharmacy and health services unit.
A series of congressional hearings has taken place, but the PBM executives who testify resolutely claim that they are solving problems, not causing them.
Another middleman
Further complicating the system is the relatively new Group Purchasing Organization for pharmacy sales. PBM’s are creating GPO’s, which seem to collect money separate from the PBM. Once again, it adds to the bill.
“In 2019, Express Scripts PBM (pharmacy benefit manager) formed Ascent Health Services GPO (group purchasing organization), based in Switzerland,” Deborah Abrams Kaplan writes at Managed Healthcare Executive. “In 2020, CVS Caremark formed Zinc GPO. And in 2021, OptumRx formed Emisar Pharma Services, based in Ireland. With pharmacy benefits for approximately 75% of U.S.-covered lives under their control, why would these PBM’s need GPO’s — to capitalize on their scale to get better drug prices?”
The role of the GPO, the PBM’s say, is to manage contracts with manufacturers, get advantageous prices, help set the formulary, monitor PBM and pharma performance, add to negotiating power and collect and manage rebates.
But don’t the PBM’s already do these things, without a GPO? Good question. If there’s another entity that needs to be paid, won’t that raise prices? Also a good question.
Group Purchasing Organizations are not new; they have existed since 1910, with the goal of allowing a group — say, of hospitals — to band together and get a better rate on purchases with the strength of numbers. But over time, the practice of adding administrative fees, and the need to pay for these services, has seemingly inflated prices — yet another mouth to feed, as it were.
The PBM GPO launches came as Congress was debating legislation that would establish new transparency requirements for PBM’s, James Gelfand, executive vice president, public affairs, of the ERISA Industry Committee, a trade association, told Kaplan.
“Gelfand finds the timing for forming GPOs suspicious,” Kaplan writes. “‘Are you creating another intermediary in the supply chain to prepare for transparency requirements that are going to be specific to the PBM?’ he asks. “Many have worked to bring more transparency to the drug supply chain and healthcare system in recent years. With so many entities involved in the drug supply chain, such as insurance companies, PBM’s and vendors that set up and run the plans, adding another intermediary — the GPO — risks losing some of the progress made, Gelfand believes.”
Ohio Attorney General Dave Yost last March sued Express Scripts, Humana and other companies, accusing them of violating state antitrust law and the Ohio Deceptive Practices Act,” Marty Schladen wrote at Ohio Capital Journal. “In his lawsuit, Yost named Express Scripts and corporate relatives Cigna and Evernorth as defendants. He also named Ascent Health Services, a “group purchasing organization” that Express Scripts formed in 2019 as calls grew for more transparency around PBMs’ dealings with drugmakers.
“Even though all of its customers are in the United States, Express Scripts headquartered important parts of the company in Switzerland, home to some of the strictest bank-secrecy protections in the world.”
Multi-state lawsuit
In October, Hawaii joined a multi-state lawsuit against the PBM’s. “The lawsuit was filed Oct. 4 against ‘the Big Three’— CVS Caremark, Express Scripts, and OptumRx — which, collectively, manage prescription drug benefits for hundreds of thousands of Hawaii residents. The suit says the harmful practices include charging drug manufacturers rebates, which are payable directly to the PBMs, in exchange for the favorable placement of drugs on the PBMs’ formularies,” Healthcare Innovation reported.
Creating offshore entities is also problematic. The Swiss banking laws are famously opaque, and anything that has an offshore domicile is one step further away from U.S. regulators and the IRS.
“GPO creation ‘could be a really good thing or it could be a really bad thing. And … it’s too early for us to tell,’ Gelfand says,” Managed Healthcare Executive writes.
Of course, the PBM and GPO are not the only entities that get paid from your drug purchase: The insurance company, the broker who sold the policy, the consultants who advise your employer, the actuaries figuring the rates for the policy, the finance entities who move money around and store it — and the list goes on.
From experience, I would suggest that having another entity in the food chain (another mouth to feed), with the already-opaque pharma landscape, and with some important new entities offshore and out of reach of U.S. Government regulation (which is already outmanned and outgunned) means … higher drug prices for U.S. consumers.
I’ve written before about this related puzzle: A generic medication I take was going to cost $68 at my local independent drugstore using my Medicare Part D insurance. I got it instead from Mark Cuban Cost Plus for $10. Another: $56.55 using my insurance, but $8.60 at Mark Cuban Cost Plus. Did someone say middlemen?
Expect more ERISA suits
In the wake of the ERISA red flag suggesting that employers are at risk if they do not fulfilly their fiduciary duties, Mark Cuban, the wealthy investor and head of Mark Cuban Cost Plus Drugs, is issuing a big warning to self-insured employers: If your company receives pharmacy rebates through employee benefits, prepare for an eventual lawsuit.
“It’s not a question of if, it’s a question of when,” he wrote on X on July 22. “The inevitable class action suit will dwarf the tobacco settlements.”
It’s also no secret that some competitors, like Mark Cuban Cost Plus Drugs and DIRX for direct sales, sell almost exclusively generics, at very low prices compared to the insurance prices. And it’s true that their data can be very specific in comparing what an employee is payng for a generic under their insurance plan, and what they might pay to Mark Cuban Cost Plus for the same thing. The Federal Trade Commission, in a recent report criticizing the PBM’s, used Mark Cuban Cost Plus Drugs pricing data for comparisons.
DIRX has free standard shipping on its generics; Mark Cuban Cost Plus charges for shipping. DIRX says it does not add surcharges from manufacturers, while Mark Cuban does — a standard 15 percent.
DIRX charges a “membership” fee of either $119 or $299 for unlimited medications. Mark Cuban does not.
Honeybee Health, like Marc Cuban and DIRX, does not take insurance, but it has live pharmacists available by phone. Blink Health helps compare prices and accepts insurance in some cases. Amazon Prime RXPass has a subscription-type model: $5 a month gets you access to 50-plus medications. Amazon says it will accept insurance.
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(Here’s our overview of how to save money on prescriptions.)
