The Employer's Guide Blog for Overseeing PBMs

The Definition of Oversee: to watch over and direct (an undertaking, a group of workers, etc.) in order to ensure a satisfactory outcome or performance.

Generic Drug Field Full of Pricing Traps

Foreword: The zero-spread full pass through pharmacy benefits manager (PBM) program you were promised may not be all that it appears. The only way to guarantee (or at least have grounds for indemnification) is to do business with a fiduciary PBM; one that contractually agrees to always put its clients’ needs first. By the way, I predicted both the rising cost of generic drugs and increased number of drug tiers last year!


A friend of mine, a diabetic, stumbled on to another booby trap in the pricing of generic drugs. In my last column I described the new two-tiered arrangements insurers are pushing on patients. You can choose a non-preferred generic and pay more, maybe a lot more, or a preferred generic and get a price break. That’s the same pricing scheme insurers use for the expensive brand-name drugs.

Rising costs are a direct result of demand

Consumer groups, doctors, and insurance carriers have encouraged patients to choose generics over the name brands as a way to help lower the nation’s healthcare tab. So for many years my friend has been using a generic drug called Gemfibrozil that diabetics often take to lower triglycerides and cholesterol.

It has worked for him. No nasty drug interactions. No nasty side effects. And the price has been low–$2.71 for 60 pills. In August the price more than doubled to $6.14. He was still OK with that.

He was not OK when he got a bill in September from Express Scripts, the pharmacy benefit manager for his Medigap carrier whose plan is offered by his former employer, the City of New York. (PBMs, as they’re called, manage the drug benefits for employers and insurers and supposedly help hold the line on prices.)

Express Scripts wrote his doctor without consulting my friend, the patient, suggesting that for reasons of “safety and efficacy,” he should switch his patient to a different drug, a generic called Fenofibric acid. His share of the cost would now be $156.70 for 90 pills. Fenofibric acid costs $1.74 per pill compared to Gemfibrozil’s 10 cents a pill resulting in an out-of-pocket cost increase of 1,640 percent.

Why the switch, my friend asked his doctor. The doctor pointed to the reasons given in the letter about an increased risk of skeletal muscle effects and said maybe it was advisable to try the new drug. He was, however, astounded by the price, but my friend said it was clear the doctor wasn’t going to fight the PBM.

My friend spoke to an official at New York City’s employee benefits office who said her office has never heard of a PBM recommending that a more expensive generic drug replace a cheaper one.

I rang up John Rother, former chief lobbyist for AARP and now head of a group called the National Coalition on Health Care. The Coalition is waging a campaign to educate the public about the exorbitant prices of drugs, particularly the Hepatitis C drug Sovaldi and other specialty drugs in the pipeline that will carry super high price tags.

“Generic drug prices have been rising steeply, and there doesn’t seem to be an explanation for it,” Rother told me. He said he could only guess that some generic drug makers are leaving the market and the ones remaining will have less competition and the power to increase market share and raise prices.

Maybe there are medical reasons my friend should make the switch, but so far his doctor hasn’t been persuasive. Has the PBM discovered new side effects for the drug he’s been taking? Who’s treating the patient—the doctor or the PBM? And how does this big price jump fit in with the PBM’s purported mission: to save money for insurers and employers? Was my friend caught in a tussle between the clinician and the bean counters? How does he know who’s right without doing extensive research himself?

Since individuals can’t negotiate prices with drug companies, and Congress has prohibited Medicare from negotiating prices when it passed the prescription drug benefit law in 2003, my friend says, “companies have carte blanche to rip people off. In situations like this no one ever talks straight, but someone is making a lot more money.” He’s trying to get back on Gemfibrozil or a similar generic that’s cheaper than the one the PBM suggested.

Rother looks at the big picture now coming into focus from the sharply rising prices of generics. “Four years after we passed what we thought was universal health coverage, you can’t get the medicines you need because of the prices. It’s tragic,” he says.

By Trudy Lieberman, Rural Health News Service

Click here to register: “How To Slash the Cost of Your PBM Service, up to 50%, Without Changing Providers or Employee Benefit Levels.” [Free Webinar]

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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