Prescription Drug Costs Skewed by Hidden Fees

Most independent community pharmacists consistently encounter misleading and confusing fees imposed by prescription drug middlemen. These fees distort medication costs and reimbursement rates, according to a recent survey by the National Community Pharmacists Association (NCPA). The survey documents two relatively recent trends: direct and indirect remuneration (DIR) fees imposed on community pharmacies and increased copay claw-back fees that affect pharmacy patients. NCPA CEO B. Douglas Hoey, RPh, MBA said, “Pharmacy benefit management (PBM) corporations are inserting costs into the system on virtually everyone in order to fuel their profits and reward shareholders. Government officials and health plan sponsors must insist on greater transparency and oversight of these practices to ensure that plan costs and premiums go to their intended purpose: taking care of patients. NCPA will continue to work with Medicare officials, Congress and others toward that end.”

Community pharmacies are assessed DIR fees that can turn a modest profit into a financial loss. Sometimes it takes weeks or months after medication is dispensed until the patient and pharmacy is reimbursed. The survey reveals the following:

  • 67% of pharmacists say they get no information on how much and when DIR fees will be collected or assessed.
  • 53% say DIR fees are assessed quarterly. Many complain that this lag time makes it difficult to operate a small business and impossible to determine if net reimbursement will cover their costs at the time of dispensing.
  • DIR fees started in the Medicare Part D program, but 57% of pharmacists say they now appear in some commercial plans as well.

Eighty-seven percent of pharmacists said that DIR fees significantly affect their pharmacy’s ability to provide patient care and remain in business. Many pharmacists say that DIR fees can be thousands of dollars each month. According to the survey, members report that the Aetna and CVS Caremark drug plans are the most egregious in this area. The survey also disputes claims that DIR fees are actually pay-for-performance incentives. Pharmacists said that PBM corporations were not transparent about their DIR fee criteria and they assessed DIR fees on pharmacies with the highest quality ratings.

Recently, 16 U.S. senators and 30 representatives wrote to the Centers for Medicare & Medicaid Services (CMS) urging implementation of the agency’s proposed “negotiated drug price” guidance. Proponents say that requiring  Part D plans to report these fees consistently would improve transparency, increase accuracy of the Medicare Plan Finder tool that patients use to evaluate drug plans, and give pharmacists more clarity about their true reimbursement rate.

The survey also addresses copay claw backs on patients. PBMs instruct pharmacies to collect elevated copays and recoup the excess amount – and sometimes more – from the pharmacy. “Patients purchase insurance with the presumption that they will save money using the plan’s designated health care providers. Copay claw backs turn that logic on its head. A copay becomes a full pay – and then some,” Hoey added. The survey also reveals the following:

  • 83% of pharmacists have witnessed copay claw backs at least 10 times during the past month.
  • 67% say the practice is limited to certain PBMs.
  • 59% say the practice occurs in Medicare Part D plans and commercial plans.

PBM corporations sometimes impose gag clauses that prohibit community pharmacists from volunteering that a medication may be less expensive if purchased at the cash price rather than through the insurance plan. In other words, the patient has to ask about pricing. Fifty-nine percent of pharmacists say they encountered these restrictions at least 10 times during the past month. Pharmacists sat that United Healthcare/Optum Rx and Aetna appear to employ copay claw backs most often.

PBMs Say They Increase Competition and Reduce Rx Costs

Testifying before the House Committee on Oversight and Government Reform, Pharmaceutical Care Management Association (PCMA) president and CEO Mark Merritt outlined ways to increase competition and lower prescription drug costs. The Committee is examining methods and reasoning behind recent drug price increases at a hearing titled, Developments in the Prescription Drug Market.

PBMs administer prescription drug plans for more than 266 million Americans who have health insurance from a variety of sponsors including: commercial health plans, self-insured employer plans, union plans, Medicare Part D plans, the Federal Employees Health Benefits Program, state government employee plans, managed Medicaid plans, and others.

PBMs are projected to save employers, unions, government programs, and consumers $654 billion—up to 30%—on drug benefit costs over the next decade according to new research. PBMs reduce drug costs by doing the following:

  • Negotiating rebates from drug manufacturers.
  • Negotiating discounts from drugstores.
  • Offering more affordable pharmacy channels.
  • Encouraging use of generics and more affordable brand medications.
  • Managing high-cost specialty medications.
  • Reducing waste and improving adherence.

Merritt said, “There is a growing use of bait-and-switch copay assistance marketing programs that encourage patients to ignore generics and start on more expensive brand drugs.” Unlike programs for the poor and uninsured, copay offset programs are designed to encourage insured patients to bypass less expensive drugs for higher cost branded drugs. Such practices are considered illegal kickbacks in federal programs and have long been under scrutiny by the Health and Human Services Office of Inspector General (OIG).

PCMA outlined several potential solutions for high drug prices that policymakers could consider, including:

  • Accelerating FDA approvals of “me-too” brands against drugs that face no competition.
  • Accelerating FDA approvals of generics to compete with off-patent brands that face no competition.
  • Creating a government watch list of all the off-patent brands so potential acquirers are aware that policymakers can monitor these situations.
  • Making copay coupons an illegal kickback for all insurance that gets any federal subsidy.

The State of Prescription Benefit Plans

Ninety-nine percent of employers provide prescription drug coverage to active employees compared to 96% in 2011. The survey by Buck Consultants reveals that more employers are contracting with pharmacy benefit managers (PBMs). Sixty-one percent use PBMs compared to 57% in 2011 and 47% in 2009. Sixty-eight percent say pricing competitiveness is an extremely important service from PBMs. Paul Burns of Buck Consultants advised that, “Any PBM contract that is 18 to 24 months old should be reviewed for pricing competitiveness and up-to-date contractual language.”

Seventy-one percent of employers say that pharmacy benefits account for at least 16% of their spending on healthcare benefits. Eighty-seven percent say that providing affordable pharmacy benefits helps contain healthcare costs over the long run.

Pharmacy benefit costs continue to increase, accounting for more than 15% of employers’ total health care costs. If not managed effectively, prescription drugs can be a constant financial drain on company resources and undermine the entire healthcare benefit program, said Burns.

Only 26% of survey respondents have grandfathered health plans. And 42%  of these employers plan to keep their grandfathered plans beyond 2014. Employers are using the following options to comply with the ACA mandate to offer contraceptive products at no cost to plan participants:

  • 27% cover contraceptive generics and brands with no generic equivalent at $0 copay.
  • 25% cover generic contraceptives at $0 copay, and cover others at the brand drug copay level unless deemed medically necessary.
  • 25% cover all prescription contraceptives at $0 copay (The majority of survey respondents provide coverage of immunizations under the medical benefit only, with about 20% offering coverage under the medical and pharmacy benefit.)

One percent or less of covered employees use specialty medications for chronic catastrophic illnesses, such as multiple sclerosis and cancer. But these medications represent 20% or more of pharmacy plan costs. These specialty medications can cost $75,000 or more a year. More than 30% of employers don’t know the portion of drug spending that’s attributed to specialty medications.

Sixty-seven percent of employers have utilization management programs compared to 45% in a prior survey. Fifty-five percent have step therapy protocols to manage specialty drug costs – up from 34%.

Forty-eight percent of respondents offer prescription drug plans to Medicare-eligible participants. But only 55% plan to continue this benefit, down from 75% in the previous survey. Burns said that some employers are considering moving to an employer-group waiver plan to take advantage of additional subsidies under the Affordable Care Act (ACA).  For more information, visithttp://www.bucksurveys.com.

Does The Medicare Drug Discount Program Drive up Prices?

The Patient Protection and Affordable Care Act established the Discount Program to help Medicare Part D beneficiaries with their prescription drug costs while in the coverage gap. Until the Discount Program began in 2011, beneficiaries in the coverage gap paid 100% of drug costs. The Discount Program required manufacturers to provide a 50% discount on the price of brand-name drugs for beneficiaries in the gap.

The General Accountability Office (GAO) interviewed pharmacy benefit managers (PBMs) to get their take on the effects of the program. Most sponsors and PBMs told GAO that the Discount Program may be contributing to rising prices of some brand-name drugs by some manufacturers. However, most manufacturers say they don’t think that the Discount Program affected the drug prices that they had negotiated with sponsors and PBMs.

The PBMs said that some manufacturers decreased rebates for their brand-name drugs because of the Discount Program. In comparison, most of the plan sponsors did not observe manufacturers decreasing rebate amounts and most manufacturers said the Discount Program had no effects on their rebate negotiations. Most sponsors and PBMs told GAO that the Discount Program did not affect Part D plan formularies, plan benefit designs, or utilization management practices.

Prices for high-expenditure brand-name drugs increased at a similar rate before and after the Discount Program was implemented in January 2011. Specifically, from January 2007 to December 2010, before the Discount Program began, the median price for the basket of 77 brand-name drugs (weighted by the utilization of each drug) used by beneficiaries in the coverage gap increased 36.2%. During the same period, the median price for the basket of 78 brand-name drugs used by beneficiaries who did not reach the coverage gap increased 35.2%. From December 2010 through December 2011, the first year with the Discount Program, the median price for the two baskets increased equally by about 13%, the greatest increase in median price for both baskets compared to earlier individual years.

For more information, contact http://www.gao.gov/products/GAO-12-914

Last Updated 06/23/2021

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