Point: A case for state regulation of PBMs

May 17, 2007

State regulation of pharmacy benefit managers (PBMs) would benefit states and consumers by providing a regulatory framework for the only entity involved in delivery of a healthcare benefit to the consumer that is largely unregulated.

State regulation of pharmacy benefit managers (PBMs) would benefit states and consumers by providing a regulatory framework for the only entity involved in delivery of a healthcare benefit to the consumer that is largely unregulated. Currently states regulate insurers, physicians, pharmacists, pharmacies, laboratories, third-party administrators and insurance agents. The state, primarily the insurance department, has mechanisms in place to handle and investigate consumer complaints. The departments have the authority to review records and take action against individuals and/or entities that violate the laws. However, because states do not have regulatory authority over PBMs, those safeguards are not available to consumers.

Because of a lack of regulatory oversight, the PBM industry is currently "regulated" by litigation and settlements. For example, between 2004 and 2006, nearly $378 million was paid in settlements, not including interest, by two PBMs (this is not a complete list of all settlements and litigation concerning PBMs during this time frame):

In the view of the National Community Pharmacists Assn. (NCPA), representing the nation's community pharmacists and supporting the adoption of laws to regulate PBMs, these settlement amounts are healthcare dollars. Those dollars should have been spent to provide healthcare to patients and lower the cost of the prescription drug benefit for employers and patients. The investigations and the resulting lawsuits take years to be completed and once resolved, their overall value to the patient and employers is oftentimes limited.

The consent order with the attorneys general addressed the issue of switching consumer's prescriptions and required extensive procedures before switching can occur including the need to obtain approval of the prescriber. According to South Dakota Attorney General Larry Long (R), Medco switched patients from certain cholesterol-lowering medications to another drug that required patients to receive follow-up blood tests at additional costs to the patient.

The other major component of the Consent Order was to require transparency and disclosure of revenue streams received by the PBMs from manufacturers. Many PBM customers are unaware of the magnitude of revenue received by the PBMs from manufacturers and the attorneys general believed that customers have the right to that information.

NCPA believes that PBMs can play an important role in performing the administrative tasks associated with prescription drug programs; however, NCPA is concerned when PBMs engage in activities that can be characterized as the "practice of pharmacy" without the benefit of regulatory oversight. Some of those activities include drug utilization review, formulary management, interaction screening and therapeutic substitutions. Another area of major concern is the ability of PBMs to self-refer to their own wholly owned mail-order facilities without any government oversight. The mail-order operations are the source of increasing patient complaints.