More PBMs agreeing to pricing transparency

November 19, 2007

Transparency in Pharmaceutical Purchasing Solutions: The HR Policy Association's Pharmaceutical Purchasing Coalition has 13 PBMs agreeing to five criteria creating pricing transparency for certification.

The PPC includes about 55 employers, with more than five million covered lives. The certification process-named Transparency in Pharmaceutical Purchasing Solutions (TIPPS)-requires PBMs to disclose to their clients the actual acquisition costs for retail and mail-order drugs. The PBMs are required to pass drug company rebates directly to their clients. The PBMs also agree to be audited by the employers. "That, we believe, is the most important criterion," said Marisa Milton, PPC executive director.

"This is a complicated business," said Kristin Begley, Pharm.D., pharmacy practice leader for Hewitt Associates, which wrote the TIPPS standards for the PPC. "PBMs have traditionally had two customers: employers and the [drug] manufacturers. The goal was to align PBM incentives to provide the service they are hired by plans and employers to provide: lower drug costs."

"When we originally reached out to the PBMs three years ago, only three agreed to be certified," said Todd Bisping, manager of pharmacy plan design and administration at Caterpillar Inc., a leading PPC member. "We believe that what's changed is that PBMs talked to their clients as contracts came up for renewal and got some pushback about their pricing policies."

A Medco spokesperson said, "In the first year of TIPPS [2006], Medco felt the requirements were not reflective of the true PBM market and capabilities. In the second year [2007)], HRPA modified and expanded the requirements to reflect marketplace realities."

Aetna Pharmacy Management was one of the three initial PBMs to agree to TIPPS, along with Med-Impact Healthcare Systems and Walgreens Health Initiatives. "We were one of the first and we've maintained TIPPS standards ever since," said Ed Pezalla, M.D., the company's national medical director. "We believe it is good business to make it clear how much drugs cost and what our clients are getting for their money, and from the beginning we've demonstrated strong leadership on this issue."

PBMs make much of their profit-to an excessive degree, say PPC members-on rebates from manufacturers and by what is called "the spread," i.e., the difference between the drug ingredient cost billed to the employer by the PBM and what is paid to dispensing pharmacies. Rebates and spreads vary, depending on the drug, the manufacturer, and PBM contracts with payers.

The profitability transparency inherent in TIPPS represents an industry trend, said Perry Cohen, president, The Pharmacy Group LLC, in Glastonbury, Conn. "After employers began examining the way PBMs made their money and found out about the spread, they felt lied to, so the PBMs lost credibility," he said. "No employer by itself could make change happen. But when employers got together, checkmate."

Perhaps so, said John Rector, general counsel and senior VP of the National Community Pharmacists Association. But he believes TIPPS does not achieve public PBM pricing transparency. "The question is, Who exactly gets access to [pricing] information? We prefer the Maine law, which requires complete public access to pricing information. TIPPS does not provide public access, but the more daylight there is, the better it is for plans and providers. We can't complain about efforts toward more transparency."

THE AUTHOR is a writer based in Gettysburg, Pa.

Thirteen PBMs agree to TIPPS certification

The 13 PBMs that have agreed to HR Policy Association's Pharmaceutical Purchasing Coalition's Transparency in Pharmaceutical Purchasing Solutions certification are:

Aetna Pharmacy Management
BlueCross and Blue Shield of Alabama
CVS Caremark
Catalyst Rx, a HealthExtras company
CIGNA Pharmacy Management
Express Scripts
Humana Pharmacy
Medco Health Solutions
Prime Therapeutics LLC
RESTAT LLC
SXC Health Solutions
Walgreens Health Initiatives
WellPoint NextRx