Union Charges PBMs With Price Inflation

March 19, 2003 (PLANSPONSOR.com) - A public employee's union has sued four pharmacy benefit managers (PBM) for allegedly inflating the price of prescription drugs.

The American Federation of State, County & Municipal Employees (AFSCME) filed the suit against AdvancePCS, Medco Health Solutions, Express Scripts and Caremark Rx.   T hese for-profit organizations attract fees from contracts with the different drug companies, based on the amount of certain prescription medications they dispense to their clients.  By pooling millions of prescription requests into a single order for a particular medication , the PBM can also secure a steep discount from the regular retail price of these prescriptions.

However, AFSCME alleged the companies routinely inflate drug prices in California by secretly keeping rebates paid by drug makers to feature their products instead of passing those savings along to health plans. The union is asking that the companies stop the alleged illegal practices and pay health plans the profits they amassed over the past four years in a lawsuit filed in the Los Angeles Superior Court, according to an Associated Press report.

Additionally, the suit accuses the PBMs of receiving kickbacks from drug companies to recommend higher-priced drugs rather than more affordable alternatives and using inflated wholesale prices when figuring how much health plans owe for drugs purchased by the members. The prices are often slightly higher than the prices charged to pharmacies, resulting in a “spread” of about 2%.

The chargest represents another black eye in a series of criticisms of the PBM industry. In January, nine states and the District of Columbia said they would organize a nonprofit group to purchase medicines to eliminate the PBMs they claim inflate drug prices and drive up health care costs (See  9 States and DC Team Up to Assume PBM duties ).