Drug Middlemen Are Facing Pressure Over Rising Prices
By MILT FREUDENHEIM
Paul O. Boisvert for The New
Peter E. Shumlin, chairman of
the Northeast Legislative Association on
Prescription Drug Prices.
s employers, consumers and government officials grow
by upwardly spiraling drug costs, pressure is building against
a handful of
powerful companies that have prospered for years as middlemen
manufacturers and those who pay for medicines.
The companies, called pharmacy benefit managers, administer
drug plans for
some 200 million Americans and play a critical role in
drugs people take for different ailments.
But increasingly, large corporations and major public
employers say pharmacy
benefit managers have not done enough to stem the rapid growth
spending on prescription drugs, which nearly tripled in the
last eight years
from $50 billion in 1993 to $150 billion last year.
Consumers and employers have filed lawsuits against several
managers, claiming that they inflate drug costs for some
violate their duty to act in the best interest of customers.
in a dozen states are pressing for laws that would tighten
oversight of pharmacy benefit managers.
Officials at Merck-Medco Managed Care, a unit of Merck
(news/quote) Inc. and
the largest pharmacy benefit manager, said drug costs
increased at a slower
rate for its clients than the national average. Executives of
big drug plan managers said that they had to provide savings
customers or they would lose the business to rivals. "We
don't switch to a
higher-priced product," said Barrett Toan, chairman of
David D. Halbert, chairman of AdvancePCS (news/quote), said,
"We are held
accountable through the competitive bidding process."
But critics say the pharmacy benefit management companies
with drug makers that benefit themselves and the drug
companies more than
Some say the drug plan managers actually contribute to rising
because they strike deals that then lead them to induce
patients to use more
For example, after Merck-Medco Care was sued by several
consumers who said the company was not serving customer
and consultants for the company said in court documents and
year that Merck- Medco and other pharmacy benefit managers
sometimes ended up
promoting the most expensive drug in a class because Merck and
makers paid them the most to do that.
Pharmacy benefit managers often receive payments or rebates
from drug makers
to include their drugs on lists of preferred medicines. The
then structure the lists so that consumers pay less for those
drugs than for
other brand name drugs in the same class. Consumers are often
request those drugs from doctors because their own payments
are smaller. But
the employers covering the rest of the cost of the drug may
have to pay more
to treat a given ailment.
Drug plan managers say they allow clients to audit the rebates
and they say they pass on at least some of the payments. But
disclose the full terms and amounts of the payments they
receive, and some
critics have questioned whether the companies are cooperating
manufacturers to maximize their own profits rather than
cost-saving interests of their customers - corporations,
employers, union welfare plans, health maintenance
organizations and other
purchasers of health care.
Some of the drug plan managers' biggest customers are now
demanding a more
complete accounting. General Motors (news/quote), which spends
more than $1
billion each year on drug benefits, is second-guessing its
manager, Merck- Medco, and closely monitoring drug purchases.
direct spending for drugs rose $143 million in 2000 and the
probably exceed $180 million this year, a G.M. spokesman said.
every drug in the top 100," said Cynthia Kirman, director
of pharmacy at G.M.
Verizon Communications (news/quote) is encouraging Merck-Medco,
benefit manager, to pay less attention to making deals with
manufacturers and to focus more on getting the right drug to
Prodded by customers like Verizon and General Motors, Merck-
physicians and patients to urge them to switch to fluoxetine,
version of Prozac, after it became available last year.
Jim Astuto, a regional manager in charge of employee health
care at Verizon,
said he did not count on rebates passed on by a pharmacy
benefit manager to
lower his company's $500 million in annual drug costs.
"We declared the
rebate strategy dead a couple of years ago," he said.
Officials of at least 20 states are going further, working on
plans to stop
using drug plan managers altogether or manage central elements
of their own
drug plans themselves for state employees and Medicaid
In a study last summer for a group of legislators from eight
states - New York, Connecticut, Pennsylvania, Maine, Rhode
Massachusetts, Hampshire and Vermont - Health Management
(news/quote), a consulting firm, projected potential savings
of $1.8 billion
a year on drugs for Medicaid patients if the states created
their own joint
pharmacy benefit manager, or P.B.M.
"The P.B.M. model has failed," said Peter E. Shumlin,
president of the
Vermont Senate and chairman of the Northeast Legislative
Prescription Drug Prices. "The P.B.M.'s often negotiate
secret kickbacks that
don't benefit the purchaser."