[First in a series on healthcare reform]

Those who read my personal blog know that I have a special place on my hit list for Pharmacy Benefit Managers, or PBMs. This stems from: a) My personal experiences and ongoing struggles to force Caremark to honor their contract and cover prescription ADHD medications which are necessary and which are prescribed by a qualified physician after the proper diagnosis was made, and b) My professional experience as a third-party pension administrator with more than 20 years time in the business and a better-than-average understanding of ERISA and employee benefit plans.

In our current healthcare system, PBMs are viewed as a cost-saving mechanism to deliver prescription medications to insureds under contracting health insurance plans. Let’s be clear:  They are an invention of the major insurance companies, who separated themselves from pharmacy benefits in order to continue to realize profits on one of their largest profit centers while becoming non-profit corporations.

In fact, PBMs create an additional layer of administrative costs while serving as a pathway to deny legitimate benefits to insureds while keeping the insurance companies’ involvement at arms-length. They are the unclothed emperor of the health insurance industry, but there are some who are calling them what they are.

Recently, I wrote that Caremark dodged a legal bullet when a Federal Appeals Court ruled that Caremark had no fiduciary liability for denying benefits to covered individuals, defining them as a contract administrator only. I disagree with this ruling for a number of reasons, despite the party line that the Caremark employee-commenters like to leave about how the insurance contract dictates the benefits, Caremark merely carries out the contractual arrangement and so on. The fact is that it is Caremark and Caremark employees, qualified or otherwise, which make the determination as to whether or not to deny access to a “prior authorization required” medication. I have copies of letters proving that, where a gastroenterologist who has not practiced for two years denied my access to ADHD medications.

Now it seems, the courts and state legislators are waking up to that fact. Over on the Health Plan Law blog, they report that PBMs just lost a significant decision, and that there is legislation pending to regulate PBMs in 36 States and the District of Columbia. They report:

Thus, state lawmakers are taking seriously the allegations of fraud and abuse by PBM’s and are doing something about it.

In this particular case, the courts continued to hold that PBMs are not fiduciaries under ERISA. (Note: That determination does not preclude them from being considered fiduciaries under a less restrictive standards. ERISA is one of the most restrictive definitions of fiduciary on the books). This particular aspect of the ruling went to the benefit of the PBM, since it stands to release them from any liability for arbitrary and capricious denial of benefits.

What was good about this particular ruling was the larger issue: State regulation of PBMs.  It paves the way for states to force transparency and disclosure, which is definitely a victory for insureds who are subject to their whimsical claims denials, as well as unbridled rebating practices and other methods of lining executives’ pockets.

In other litigation involving Caremark and Medicaid, it seems that Caremark was denying claims for Medicaid reimbursement, because the insureds were not presenting a Caremark card and therefore not compliant with the pharmacy benefit plans they administered. But here’s the catch: The insureds in the TennCare plan could not comply with the card presentation requirement because the agency responsible for Medicaid benefits did not have a card. Further, Medicaid is the final payor if there is other coverage present. In other words, all other avenues for payment have to be exhausted before Medicaid will make a claim for benefits. When TennCare would file with Caremark for reimbursement, they were denied on the basis of not presenting a card and not filing a timely claim.

Caremark effectively constructed a Catch-22 that insureds could not navigate their way through:  They created compliance requirements that the insureds could not meet.

The court ruled that the requirements were discriminatory against Medicaid; however, Caremark has still weaseled away from any liability by passing it through to the insurance company it serves. If Caremark has the power to deny payment of benefits and is subsequently found to be liable for those benefits, the cost for the benefits pass through to the insurance company.

All of this leads back to this question:  What good is the PBM?

The answer: Not much. On the Health Plan Law Blog again, an excellent analysis of the utility (or non-utility) of the current PBM structure.

PBM’s promise to deliver cost savings to health plans through plan design, effective purchases of appropriate pharmaceuticals, disease management and various ancillary services. The PBM’s dictate the formularies that drive traffic toward certain drugs and away from others based on reimbursements that the PBM’s specify. Inasmuch as the big are posed to get even bigger, these current events present an occasion to reflect on the utility and effect of the PBM mechanism in the American health care system.

The entire post should be required reading for anyone interested in our current healthcare delivery system and the corrupt structure of the PBMs. It points out that the use of rebates is rarely passed through to the consumer, though the price for acquisition of prescription medications is increased in the United states by 50-70%, mail order savings are not passed through to the consumer, there is non-transparency of price fixing on generic medications, bloated costs associated with an additional layer of administration, and the liability for claims denial skips the PBM and lands at the feet of the employer and insurer anyway. Those factors say to me that the answer to whether PBMs help or hurt the healthcare system is clearly “NO”.

If we are to have any hope of arriving at meaningful healthcare reform, it’s going to be necessary to shed the idea that there are sacred cows which cannot be sacrificed. There isn’t much dispute that the current system is broken, and rather than putting a bandaid on it, we’d do better to look hard at each piece of the current system and make a decision about whether it should remain in a reformed system. I do not believe there is a place for PBMs in the reformed system. Claims management for pharmaceuticals should follow a standardized procedure that encompasses all claims, with no special carve-out for pharmacy benefits. I would be much more supportive of a system that applied fair and non-discriminatory standards to prescription drug coverage than the arbitrary, capricious, and profit-taking system we have now.

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