Fact Sheet: Disclosing Relationships Between Pharmacy Benefit Managers and Drug Companies

Jan. 27, 2005

Disclosing Relationships Between Pharmacy Benefit Managers and Drug Companies

Overview:

Pharmacy benefit managers (PBMs) are private companies that administer pharmacy benefits and manage the purchasing, dispensing and reimbursing of prescription drugs. PBMs provide their services to health insurers or to large health care purchasers such as public employee systems, other government agencies and labor union trust funds. PBM services to their clients may include negotiating rebates or discounts from pharmaceutical manufacturers, processing claims for prescription drugs and negotiating price discounts from retail pharmacies. PBMs also develop formularies and manage utilization of drugs through prior authorization or utilization reviews.

In the United States, Pharmacy Benefit Managers handle prescription drug benefits for between 160 and 200 million people. In July 2004, the Federal Trade Commission estimated that 95 percent of patients with prescription drug insurance coverage receive their benefits through a pharmacy benefit manager. The largest of about 60 PBMs operating in the United States are Medco Health Solutions, Express Scripts and Caremark Rx. According to the most recent estimates available, Caremark Rx represents 25 percent of “covered lives”, Medco 15 percent, and Express Scripts 12 percent, leaving 48 percent to be covered by smaller PBMs.

The Problem:

In recent years, PBMs have been accused of failing to act in the best interests of their clients.


The Solution:

We propose legislation that would help prevent conflicts of interest and disclose financial relationships between PBMs and drug companies. Maine, South Dakota, Vermont and the District of Columbia have enacted similar laws; at least 24 other states have seen similar bills introduced. South Dakota estimates their state employee health plan will save 7-8 percent in drug costs because of the legislation.

What the Model Bill does:

Footnotes:

1 Atlas, Robert F. “The Role of PBMs in Implementing the Medicare Prescription Drug Benefit.” Health Affairs. October 28, 2004.
2 MacDonald, John, “States want say on drugs; Pharmacy managers extending control,” Hartford Courant August 22, 2004. PA1, retrieved from Nexis database.
3 “Analysts ponder FTC's 'second request' regarding Caremark Rx/AdvancePCS deal - Federal Trade Commission.” Drug Cost Management Report, October 24, 2003.
4 Pugh, Tony, “Prescription Drug Strategy Under Fire,” St. Paul Pioneer Press, February 10, 2003.
5 Martinez, Barbara, “Pharmacy-Benefit Managers Toil for Drug Companies.” Wall Street Journal, August 14, 2002.
6 Office of the Attorney General, Nevada Department of Justice. April 26, 2004.
7 Freudenheim, Milt, “Pharmacy Benefit Companies Won’t Disclose Fees,” New York Times, January. 10, 2003.