The Lehigh County Controller’s Office reviewed Lehigh County’s prescription drug plan administered through Highmark which lost savings of almost $1.6 million, while battling a lack of transparency and openness about drug costs. The report sheds light on the middlemen of the insurance world, Pharmacy Benefit Managers or PBMs and their power.
PBM’s directly negotiate with pharmacies to determine how much they will reimburse them for the cost of their drugs and receive rebates from pharmaceutical companies to improve the likelihood that consumers will utilize a preferred drug. These rebates should in theory be passed back to the insurer, in this case, Lehigh County. However, this process does not always occur and savings can depend in large part on the negotiation of the contract.
Lehigh County elected to choose a fixed discount structure, meaning that it received a flat rate savings for each employee on its healthcare plan. Lehigh County is self-insured. It could have elected to take full rebate value which results from savings passed from the pharmaceutical company to the Pharmacy Benefit Manager, but chose not to do this. In 2019, Lehigh County found that the actual rebate value exceeded the fixed discount by $700,000!
If you are a self-funded employer who has relinquished rebates to the non-fiduciary PBM in exchange for a credit of some sort, whether to the medical or pharmacy benefit, you may want to seriously reconsider that decision. Heed the words of Controller Mark Pinsley who said, “I feel like it’s just a false narrative. It’s just what they have created, like you either get this or you get this. That’s their decision. There’s no rule that says it has to be that way.” Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the U.S. pharmacy distribution and reimbursement system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction.
“This audit exposes what many of us have known, that our healthcare system is wasteful, lacks transparency and is subject to the greed of Pharmacy Benefit Managers that are more interested in profit,” said Controller Mark Pinsley.