Counterpoint: A case against state regulation of PBMs

May 17, 2007

Trumpeting the now-popular battle cry of transparency, many states are attempting to control the contractual arrangements between pharmacy benefit services providers and their clients. Because of the historical issues around hidden revenue streams and misaligned objectives, it is no wonder the public sector is taking note.

Trumpeting the now-popular battle cry of transparency, many states are attempting to control the contractual arrangements between pharmacy benefit services providers and their clients. Because of the historical issues around hidden revenue streams and misaligned objectives, it is no wonder the public sector is taking note.

On the surface, many of the bills proposed and the recent laws passed, appear to be calling for more openness between vendor and client, which is a good concept in principle. However, when you drill into the legislation you quickly see that in fact state legislators are attempting to run our businesses for us by mandating that we share revenues and assume fiduciary responsibilities without consideration for the associated risks.

When Business Contracts are Legislatively Controlled

Health plans and employers, who fund pharmacy benefits, generally do not support the legislative efforts because quite often it can drive costs up, and many of the businesses providing pharmacy benefit services have not operated in a manner that warrants government intervention. Yet, some of the states that have passed laws, or are proposing laws, are requiring the pharmacy benefit services providers meet requirements such as:

The result of such restrictions removes any freedom of choice the payers have in contracting with a provider in a manner that best meets their needs and expectations. Although the intent of laws, such as the Maine and Washington, D.C., laws recently upheld by the courts, was to provide some safeguards for payers, the reality is that these newly passed laws simply add to the administrative overhead of the pharmacy benefits providers and ultimately their clients. Contract laws already exist that guide the contractual arrangements between vendor and plan sponsor. Therefore, additional laws layered on top simply add overhead and administrative cost without effecting the change that the legislative sponsors hope to achieve.

Allowing the Market Place to Set the Business Model

Disclosure only has value when the vendor and client have aligned their goals and identified mutually beneficial outcomes. Today's marketplace provides a range of choices with varying degrees of plan designs that function extremely well with and without the added component of transparency or disclosure.

Plan sponsors can choose to have limited involvement in their pharmacy benefits management by contracting with a traditional PBM who handles all aspects, including the formulary development and management, manufacturer and pharmacy network agreements and claims processing. In exchange for these and other pharmacy related services the payer and the PBM are able to engage in a contract with financial arrangements that satisfies both of them, including allowing the PBM to retain all or a portion of the manufacturer's financial incentives.