Blog -- the Clearinghouse for the Future of Pharmacy Benefits

Wall St. Journal and Academic Look at Adverse Effects of Independent Pharmacy Efforts to Get PBM Pricing Data

Roll of moneyA Wall Street Journal article, “Drugstores Press for Pricing Data,” (Mar. 27, 2013) takes a close look at independent pharmacy lobby efforts to get new laws in Oregon and other states forcing pharmacy benefit managers (PBMs) to turn over to pharmacies sensitive pricing information.

The article notes that these proposed legislative changes are unusual because PBMs “would be forced to turn over information that they’ve never been forced to share.”  According to the article, PBMs “act as the intermediaries between insurers and everyone else in the health-care system…[and]are paid to lower prescription-drug costs and process pharmacy claims.”  The “arcane pricing data” the independent pharmacies are seeking “would help drugstores negotiate bigger reimbursements” from PBMs.

The Pharmaceutical Care Management Association (PCMA), the trade group for PBMs, argues that the proposed legislation “could prompt pharmacies to collude against PBMs on pricing.”  PCMA has said that pending Oregon legislation’s “goal is to raise prescription-drug costs.”  Jonah Houts, vice president of government affairs for PBM Express Scripts, “said revealing reimbursement methodologies could have unintended consequences, such as pharmacists opting to prescribe pricier, profitable drugs over those that have little return, meaning patients could be receiving medications that require higher copays.  These bills are about continuing to increase pharmacy profit, without doing anything additional to improve patient care.”

In Oregon, where the legislative fight is “particularly fierce,” PBMs, health insurers, and law-enforcement unions, have been working to stop the legislation promoted by the drugstores.  Mark Merritt, president of PCMA, said “We want to nip these things in the bud,” and that “potential changes in Oregon could prompt other states to propose similar laws.”  He also said that defeating the proposed laws would “be a victory for other businesses which don’t have to pay more for prescription drug benefits.”

A new academic paper published in the Cornell Law Review Online by Associate Professor Joanna Shepherd of the Emory University School of Law provides scholarly analysis of the pernicious aspects of the legislation being promoted by the independent pharmacy lobby.  In the abstract of her informative paper, “Is More Information Always Better? Mandatory Disclosure Regulations in the Prescription Drug Market,” Professor Shepherd writes:

Pharmacy benefit managers (PBMs) save Americans billions of dollars each year by lowering the prices of prescription drugs and the costs of prescription drug coverage. However, as I explain in this Article, mandatory disclosure regulations recently enacted in several states and under the Affordable Care Act threaten to disrupt the cost savings PBMs currently produce for consumers. These regulations require PBMs to disclose competitively-sensitive financial information to various participants in the prescription drug market. Although mandatory disclosure regulations are premised on the idea that PBM clients can only ensure that they are paying a competitive price for PBM services if they know the specifics of PBMs’ financial arrangements with pharmaceutical manufacturers and pharmacies, there is no theoretical or empirical reason to believe mandated disclosure of this information is necessary. Not only are these regulations unnecessary to achieve competitive outcomes, they also impose significant costs on PBMs. The additional disclosure increases both direct costs and litigation costs for PBMs. More importantly, the regulations foster tacit collusion and reduce PBMs’ ability to negotiate discounts with pharmacies and rebates with drug manufacturers. By disrupting competition in the prescription drug market, mandatory disclosure regulations will ultimately increase the prices that consumers pay for prescription drugs.

We hope that state legislators will weigh carefully the likely resulting prescription drug cost increases for consumers and businesses before they consider enacting the legislation sought by independent pharmacies.

  1. Jim Fields
    Jim Fields04-03-2013

    Also recently released is a paper/document edited by the Emory University School of Law professor Joanna Shepard; where she debated whether State Boards of Pharmacy should regulate PBM’s or if financial governing bodies such as FINRA, NAIC, or the SEC should regulate PBMs
    In this document Ms. Shepard and her PBM clients clearly state and factually confirm that they are not a fiduciary or an insurance entity.
    She further makes it clear in this paper that PBMs perform no insurance or fiduciary duties and she makes it equally clear it is only the PBMs Acts of Pharmacy (AOP) and pharmacy administrative duties that save money. Yet she then goes onto counter argue for insurance and fiduciary style regulators of PBMs and not pharmacy regulators?