Legislators’ Group Defends Pharmacy Benefit Contracts

Published April 1, 2007

In December the American Legislative Exchange Council (ALEC) approved a resolution opposing recent efforts by advocacy groups and state legislatures to force pharmacy benefit managers (PBMs) to disclose proprietary and business transaction information to the public.

“The background and rationale for our bill was that 20-plus states considered legislation to force PBMs to divulge contractual information, and I believe all were defeated,” explained Jonathan Shore, director of ALEC’s Commerce, Insurance, and Economic Development Task Force.

“I am aware that some groups have called for resolutions that would call on states to force this type of contract disclosure,” Shore continued. “ALEC’s stance is that this violates any concept of free markets–and while it is dressed up to protect consumers, they aren’t really affected either way, since PBMs contract directly with health plans.”

Pharmacy benefit managers act as middlemen between health benefit purchasers and drug manufacturers by negotiating drug prices and formulary placement for the insurer. PBMs are contracted by self-insured companies, managed care organizations, and government programs such as Medicaid.

ALEC resolutions serve as statements of official ALEC policy, and can be modified by any legislator to be introduced as bills in their own states.

Targeting PBMs

In an effort to force prescription drug prices down, states and consumers filed lawsuits in 2002 against PBM companies such as Advance PCS, Express Scripts, and Merck-Medco Managed Care. The lawsuits alleged PBMs are working not in the interest of their clients but their own bottom lines.

For instance, plaintiffs alleged PBMs were promoting more expensive drugs in place of generic or other low-cost medications in the same category. The lawsuits also have accused PBMs of keeping rebates from drug manufacturers instead of passing them on to their clients.

The key to preventing this from happening, the plaintiffs claimed, would be full public disclosure of PBM negotiations with drug manufacturers.

Misguided Intent

According to the Pharmaceutical Care Management Association (PCMA), a Washington, DC-based group that represents PBMs, full disclosure would violate contractual laws and raise prices.

“There is a misguided intent in forcing PBMs to disclose proprietary and contractual information,” said PCMA spokesman Charles Cote. “There is the assumption that this would lead to greater efficiency and lower costs. But it would really lead to additional costs.

“We are hired to find the best benefit plans for millions of people,” Cote continued. “If drug manufacturers want to drive the market share to their products, they have to create incentives that give consumers great deals. And they have to make those deals with us. If contractual information were disclosed, the competitiveness between the companies would no longer exist, and they would have the upper hand in pricing.”

The PCMA cites the promotion of generic medicines, mail-service pharmacies, and preferred drug placement on formularies as ways PBMs save consumers money.

Aricka Flowers ([email protected]) writes from Chicago.

For more information …

American Legislative Exchange Council, http://www.alec.org/2/4/talking-points/7.html

The Prescription Project, http://www.prescriptionproject.org/

Pharmaceutical Care Management Association, http://www.pcmanet.org/