EDITORIAL: PHARMACY BENEFIT MANAGERS GOUGING MEDICARE & CONSUMERS

Prescription drug prices are too high. And Part D plans are not delivering the lower prices that were promised when the Medicare drug benefit was created. Plans certainly are not providing discounts on par with the prices the Veterans Administration, state Medicaid programs or our neighbors in Canada have secured. That is a widely acknowledged fact. What is less well known, however, is that the rebates and discounts that the Part D plans have been able to obtain are not passed through to consumers as lower prices.

For example, each time a person with Medicare scrapes together the money to buy a $400 specialty drug, the Part D plan may pocket a $30 or $40 dollar rebate from the manufacturer. That rebate is not used to lower the $100 coinsurance the patient pays during the initial benefit period, and it does not bring down the $400 price she pays during the coverage gap, or doughnut hole.

Plans argue that rebate revenue is used to keep premiums down. In effect, sick people who need expensive medicine pay a surcharge to keep costs down for their healthier neighbors. This is the opposite of the way insurance is supposed to work.

It is not just brand name drugs that are too expensive under Part D. People with Medicare are also being overcharged for generics under some Part D plans. Here is how the scheme works:

The Part D plan, an insurance company, pays its pharmacy benefit manager (PBM) $60 for each prescription of generic Zocor that it covers. But the drug really costs only $20, with the pharmacy receiving $15 from the PBM and $5 from the consumer. At the end of the month, the consumer gets a statement from the PBM saying it spent $55 for the prescription and the customer is $60 closer to the doughnut hole. Consumers who take several generic drugs that are subject to these inflated prices are pushed into the doughnut hole two or three months earlier in the year.

What happens when consumers hit the doughnut hole? Do they pay $20, the reimbursement rate for the pharmacy? They do not. They pay $60, and the pharmacy is forced to kick $40 back to the PBM.

This overcharging, sometimes called “lock-in pricing”, for some widely used generics leaves the consumer paying double or triple the price that pharmacy benefit managers pay to pharmacies. This also raises costs to Medicare for covering low-income people with the Low-Income Subsidy (or “Extra Help”).

PBMs argue this pricing scheme keeps administrative costs down for the insurance companies. But here's the twist. Sometimes the Part D plan and the PBM running this pricing scheme are part of the same company. In effect, prices are being manipulated to gouge both the consumer and Medicare.

When the insurance industry and the PBMs talk about how Part D has marshaled market forces to lower costs, this is the market they are talking about. The market for prescription drugs is untransparent; it is rigged against consumers, particularly when they fall sick; and it does not deliver the prices consumers could receive if Medicare were negotiating with manufacturers and running the benefit. People with Medicare should have the choice to receive drug coverage directly through Medicare.

The political influence of the pharmacy benefit managers has allowed this scam to continue, although the Centers for Medicare & Medicaid Services has recently proposed regulations to put an end to this practice.

“Medical Record”- References and More Information

“ We find it deeply troubling that the lock-in pricing model tends to raise prices for commonly prescribed generics. Consumers generally have switched to a generic because of coverage restrictions imposed on brand name drugs in the same therapeutic class, to reduce out-of-pocket spending and to avoid falling in the Part D coverage gap. It is unfair that these consumers, after taking action they thought would lower their costs, should be subject to a pricing model that not only fails to deliver the full savings benefit of generic substitution but could also push them into the coverage gap earlier in the year” ( Comments on CMS proposed regulations, Medicare Rights Center, July 2008)

-Adapted from “Consumers and Part D” Asclepios , Your Weekly Medicare Consumer Advocacy Update, the Medicare Rights Center , July 24, 2008 • Volume 8, Issue 30 and “How much for the middleman?”, Asclepios, Your Weekly Medicare Consumer Advocacy Update, from the Medicare Rights Center , July 17, 2008 • Volume 8, Issue 29.

07/08