Large Employers Squeeze PBMs For Concessions

August 19, 2005 ( - A coalition of 52 large US employers is calling on pharmacy benefit managers (PBMs) to not only pass on to clients their prescription drug acquisition costs, but drug manufacturer rebates as well.

The group, which includes firms such as Caterpillar Inc., International Business Machines Corp., Starbucks Corp. and Verizon Communications Corp., collectively spends $3.7 billion a year on prescription drugs, the Wall Street Journal reported.

The coalition was organized by the HR Policy Association, a public policy group that represents 250 employers. It developed the model and list of transparency criteria earlier this year, then opened the bidding process to interested

PBMs. Although a couple of dozen PBMs submitted proposals initially, in the end only three agreed to meet all of the group’s demands: Aetna Pharmacy Management, a unit of insurer Aetna Inc.; MedImpact Healthcare Systems Inc., an independent PBM; and Walgreens Health Initiatives, a unit of drugstore chain Walgreen Co. These three say they had already been practicing some of the coalition’s disclosure requirements.

Based on the employers’ 2003 drug-spending data, the coalition estimates it could collectively save as much as 9% by contracting with one of the three PBMs certified by the group. Its organizers say they plan to open the bidding to new PBMs every year in the hope that more will join the system.

Under the new purchasing model being pushed by the employer group, rather than relying on drug makers for revenue, PBMs would charge employers a straight administration fee. The PBMs, the coalition hopes, would compete on fees and on clinical management services they provide for employees with chronic diseases, such as diabetes.

“If it were just one company demanding this, it would be easy for them to ignore,” Sidney Banwart, vice president of human services at Caterpillar and chairman of the drug-purchasing coalition, told the Journal. “But 52 companies with five million lives singing the same verse – that’s a little harder to ignore.”

Biggest PBM Effort so Far

While the current effort is not the first time employers have made a run at the PBM industry, it is potentially the biggest to date, as well as the most ambitious — particularly because it holds the PBMs to a standard of full transparency for both mail-order and generic prescriptions, two of PBMs’ most profitable areas.

The country’s biggest PBMs – Medco Health Solutions Inc., Caremark Rx Inc. and Express Scripts Inc. – have become powerful players in managed health care because of their ability to buy drugs for millions of consumers.

Many employers say the complex and opaque financial arrangements PBMs have with drug makers make it difficult to know whether they are always getting the best price and that the drug industry’s system of hidden rebates can create conflicts of interest for PBMs.

Last year, Towers Perrin, an employee-benefits consultant, and a small employer group launched a similar model, called Rx Collaborative (See Thirty Companies Join Rx Collaborative ). It selected Medco to administer it. Medco agreed to some of the terms that are in the HR Policy Association model. But when it came to mail-order generic prescriptions, Medco in many cases won the right to retain a large margin on the price.

More information about the HR Policy Association’s Pharmaceutical Purchasing Coalition is here .