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Lawsuit Opens a Window Into World of PBMs

Supreme Court Justice Justice Louis Brandeis said, “Sunlight is the best disinfectant.” However, the pharmacy benefit manager (PBM) market is so opaque and complicated that it is almost impossible to tell whether these companies are saving consumers money. But recently Express Scripts, one of the nation’s largest PBMs, filed a lawsuit against Kaleo, the maker of Evzio, a drug used to treat overdoses. The lawsuit is heavily redacted, but it provides important information about the PBM’s business deals, and shows that Express Scripts is contributing to higher drug prices.

In recent months PBMs and drug manufacturers have been blaming each other for increasing drug prices. Given the lack of transparency and information in health care markets, especially the PBM market, analysts usually don’t know who is at fault.

Documents from the lawsuit change all that. They demonstrate that Express Scripts is collecting fees that keep rising as drug prices go up. In 2016 Kaleo greatly increased the price of its drug Evzio, sparking widespread outrage. In January of that year, Express Scripts charged Kaleo $25,000 in administrative fees and the price was $937.50 for two injectors. Three months later in April 2016, Express Scripts then charged $130,000 in fees and Evzio’s price had increased to $4,687.50. So as Express Scripts charged higher fees, the drug’s price quadrupled. And these administrative fees that Express Scripts is demanding don’t include other fees like formulary rebates or rebates that are activated when a drug rises in price.

Theoretically PBMs are supposed to send along most of the rebates they collect from drug manufacturers to the clients they serve, usually health insurance companies and big employers. However, critics and independent analysts note that PBMs are not open about what share of the fees they keep and pass on, and they have fought bitterly against laws that make their market more consumer-friendly and accountable. Linda Cahn, chief executive of a company called Pharmacy Benefit Consultants, writes that the contracts reveal Express Scripts is only passing along 6.88% of the rebates it collects to its clients. In fact the PBM is retaining about 13 times more in administrative fees than it is sending to the companies it should be helping.

Express Scripts is therefore making very large profits. What exactly is it doing to earn that much money? We do not know. Without this lawsuit that made the documents available, we would know nothing. But consumers deserve to know more, and it is difficult to solve the problem of high drug prices until that information is available. Linda Chan said that every PBM client, the federal government, and taxpayers should demand the release of such information. All three groups are paying for these higher costs. Clients are not getting savings or better deals, government spending on health care has increased, and taxpayers are paying more both in taxes for health programs (enabling the price gouging) and in higher prices at the pharmacy.

Express Scripts is involved in other lawsuits as well. Recently Anthem filed a lawsuit against the PBM, saying it had analyzed the company’s efforts and determined that Express Scripts was overcharging it for drugs. Anthem is demanding $15 billion in compensation and will not renew its contract with Express Scripts when it expires in 2020.

With this lawsuit, we have a rare beam of light that illuminates the PBM market. Express Scripts is collecting massive fees that are a major—if not the major—contributor to Evzio’s higher price. The federal government should launch a thorough investigation and review to 1) get information about the PBM’s contracts with drug manufacturers, 2) determine whether Express Scripts is accurately reporting its data, and 3) determine whether the PBM is acting in the interests of its clients or just focusing on extorting greater profits.

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