PBMs concerned oversight involves conflict of interest

June 1, 2013

State boards of pharmacy would have access to proprietary data that PBMs want to protect

Pharmacy benefits managers (PBMs) are concerned about states that are considering turning over the regulation of PBMs to state boards of pharmacy. Typically, state insurance commissions oversee PBMs. To date, only Mississippi has passed such legislation.

“State pharmacy boards comprised of pharmacists will be out for their own best interests since they compete with PBMs and their mail order businesses,” says Ed Buthusiem, director, Berkeley Research Group’s Healthcare Practice in Washington, D.C. “Pharmacies could buy directly from manufacturers and drive drug costs up.”

Buthusiem says it’s been a 10-year debate over the role of PBMs and believes that most states will not pass a law giving state pharmacy boards authority for overseeing them. 

“The boards should only be responsible for monitoring the behavior of pharmacists and licensing professionals in the discipline,” he says.

He is concerned that if boards assume oversight, PBMs will be required to disclose costs, and once that proprietary information is available, pharmacists will leverage it to their own competitive advantage. Ironically, a 2006 survey by the International Foundation of Employee Benefit Plans found that 69% of plan sponsors using a pharmacy benefit manager require their PBMs to pass through all manufacturer rebates, discounts, fees and other payments. The survey also indicated that 63% of plan sponsors require an unrestricted right to audit their PBMs.

“It is a conflict of interest to be regulated by those with whom PBMs contract, those who negotiate their payments. It would open up a hornet’s nest,” says Mark Merritt, president/CEO of the Pharmaceutical Care Management Assn. (PCMA).

PCMA threatened to sue Mississippi this year for attempting to push through additional regulations that would have imposed fiduciary mandates on PBMs and violated federal law. The state backed down. The initial regulation allowing state boards of pharmacy to oversee PBMs passed in April 2011.

 “We understand the need to be regulated, but we already are by state insurance commissioners,” Merritt says. “Transferring responsibility to a board of pharmacy would only bring value to retailers. It may seem like a Mom and apple pie scenario, but if you look more closely, retailers just want to increase their profits.”

PCMA, the trade association representing PBMs, warns that the legislation is like “letting the fox guard the henhouse.”

The Federal Trade Commission (FTC) stated that the provision could make collusion easier and increase prescription drug prices if a pharmacy board obtains and discloses PBMs' competitively sensitive information to pharmaceutical manufacturers, pharmacists and pharmacies.

The state of Mississippi defends its decision to move PBM oversight to its state board of pharmacy by contending that the new relationship enables the board to regulate licensing and ensure that appropriate statutes are passed-rather than meddle in PBM business.

 “We have been aware of the argument against board oversight since it began, but it doesn't hold water,” says Steve Parker, PBM administrator for the Mississippi Board of Pharmacy. “We have not overstepped our bounds, we have not said anything against PBMs, and we have not fined them for any of their actions.

The board charges a $500 licensure fee, which some PBMs say will cause an increases in prices.

“We are not out for blood,” Parker says.

However, he is concerned that transparency regarding PBMs does not exist and that payers have little idea of a PBMs’ pricing spread.

“Our primary goal is to find out who the PBMs are that operate in our state and how to contact them,” Parker says. “Prior to moving oversight to our board, if an issue arose with a PBM in relationship to a pharmacy, the only avenue of recourse was through a call center, a toll-free number. Now we are able to resolve 85% to 90% of problems.”

He emphasizes that protecting the consumer is one of the board’s key initiatives.

Other states, including Oregon, Oklahoma and Hawaii, are considering legislation similar to that adopted by Mississippi, allowing pharmacy board oversight.

 “Departments of insurance don’t have the expertise or ability to oversee PBMs. They don’t know what a PBM is,” says Oklahoma State Representative David Derby (R-Owasso), who is also a pharmacist, introduced HB 2100 to bring PBMs under the guidance of the state’s board of pharmacy. “The pharmacy board could ensure that PBMs follow regulations. The job of the board should be to protect the public from pharmacists.”

Oklahoma’s legislation explicitly allows the board of pharmacy to demand confidential information about the business practices of PBMs. The bill has passed in the Oklahoma House but not yet in the state Senate. It will not come up for reconsideration until the legislature meets in 2014.

Derby says that the board of pharmacy would assume the same responsibilities as the insurance department does, monitoring the use of mislabeled drugs, inaccurate dispensing and expired medications, and would serve as the point of contact for any consumer issues related to PBM activities. A toll-free number is currently the only vehicle.

He notes that a PBM’s concern over sharing its client information if the board oversees its action is overblown. 

“Sensitive materials like contracts are not open to the public,” he says.

Although he admits that as a pharmacist himself, he would like to know about the financial arrangements PBMs have with drug manufacturers and how much they reimburse pharmacies for dispensing.

Matt Diloreto, director, state government affairs for the National Community Pharmacists Association (NCPA), agrees with Rep. Derby that the switch of oversight to a state board of pharmacy has been blown out of proportion.

NCPA says it is imperative that state boards of pharmacy provide oversight to ensure that decisions are made based on the best interests of the patient-a recurring theme among state board proponents.

He says that state boards of pharmacy are the logical place for regulating PBMs, which control more lives than pharmacies, have access to electronic health records and operate as plans.

“If there is any accusation of higher costs, it has to do with the PBM, not with legislation,” he says.

While PBMs question the role of the boards in their regulation-citing higher healthcare costs, disclosure of competitive information and a conflict of interest for pharmacists-NCPA notes that most state legislative proposals that would require PBM licensure by boards of pharmacy also contain provisions that would require both the board of pharmacy and health plan sponsors to treat any information disclosed to it by PBMs as strictly confidential, as it does with pharmacies and pharmaceutical wholesalers.         

“Whether it be a PBM or any other entity or individual regulated by a state board of pharmacy, any conflict of interest must be identified and addressed,” says Carmen Catizone, executive director, National Association of Boards of Pharmacy.

“PBMs, in terms of their regulation by state boards of pharmacy, should be responsible for the same objective and patient protection processes and goals as any other entity or individual regulated by a state board of pharmacy,” he says.

Dismissing any conflict of interest, Catizone says boards must not engage in any actions that involve economic or turf protection objectives. He notes that there would be no more of a conflict of interest than if there were a health-systems pharmacist on a board regulating chain or other retail entities that may be competitors-something that he says must be monitored.

In short, Catizone says that state boards should be responsible for the self-regulation of the competency and behavior of pharmacists, as well as ensuring that they are legally accountable and responsible for their practices.

“Similarly, if a PBM is engaged in the practice of pharmacy, it should be regulated by the board of pharmacy fairly, objectively and competently,” he says.