The state Attorney General's Office -- along with counsel from 19 other states -- has settled an unfair trade practices claim with pharmacy benefits manager Medco Healthcare Solutions Inc.
Washington's share of the pot is around $700,000, but experts say the scope of the PBM's work and the number of residents in the state affected is quite large. What's more, the state's Health Care Authority reached it own settlement with Medco last month for $1.6 million.
Medco, which until recently was owned by pharmaceutical giant Merck, is among the world's largest PBMs, providing services to more than 62 million people nationwide -- nearly 1 million of those are Washington residents, according to Bob Lipson, Washington's assistant attorney general.
In addition to Medco, Caremark Rx Inc. and Express Scripts round out the top of the field.
PBMs -- which process about two-thirds of all prescription drug spending in the United States -- essentially oversee drug benefits programs for dozens of state employees' health plans and businesses health plans, such that of General Motors. In recent years, as many as 37 states provided some level of drug benefits to state employees through a PBM.
While Medco has yet to admit any wrongdoing, the attorneys general allege that the PBM encouraged prescribers to switch patients to different prescription drugs, but failed at times to pass on the resulting savings to patients or health plans. In addition, Medco did not tell prescribers or patients that switches would increase rebate payments from drug manufacturers to Medco, state officials allege.
Legal experts say that the Medco settlement has broad implications for employers, health plans and the marketplace itself.
"The multistate settlement is going to have a positive impact on the PBM marketplace, in general," says Assistant Attorney General Lipson. "Obviously [it will have an impact] in respect to Medco. We feel real strongly that it will help move the marketplace in a direction of increased transparency, and that will help the plans purchased by employers, directly or indirectly."
Currently, industry practices are extraordinarily opaque, Lipson said.
"In the past, people did not understand with any degree of certainty how the system worked, and who was profiting," he said. "There's nothing wrong with profiting, but the dynamics of the financial arrangements need to be known by all the parties because it could affect their decision-making process. Plans need to know what rebates are being made and what the PBM is getting."
Rebate payments were an issue with the state's Health Care Authority, the agency that runs the Uniform Medical Plan, which covers 99,385 state employees in Washington. The $1.6 million Medco agreed to pay the Health Care Authority last month will be applied toward lowering UMP members' monthly premiums in 2005, agency spokespersons said.
The state also switched PMBs. Express Scripts took over that role at the start of 2004, a situation that has more to do with a regular competitive bidding process rather than the Medco allegations and settlements, spokesperson Dave Wasser said.
Nevertheless, officials amended the old contract when signing on with the new company, specifically requesting Express Scripts to disclose any business arrangements with drug manufacturers, including rebates and financial interests.
Businesses might take a cue from the UMP settlement, and take a closer look at any contracts signed with PBMs, pharmacy experts suggest.
"The PBMs have fostered this notion of complexity and employers are probably not truly understanding the health-care system -- how it all works, [including] rebates, escalating costs and why that is happening," says Rod Schafer, CEO of the Washington State Pharmacy Association and member of the commission that will decide how the state's $700,000 settlement fund is used.
Corporations such as Microsoft -- with 56,000 employees worldwide -- and Boeing currently use Medco as a PBM. A Microsoft spokesperson declined comment on the Medco settlement. But some major companies are at work on a plan to partially bypass the PBMs, negotiating directly with manufacturers to get lower drug prices.
Spearheaded by the Washington, D.C.-based Human Resources Policy Association, a coalition of 52 companies (including Caterpillar, IBM, Florida Power & Light and unnamed Washington state organizations) representing over 5 million people across the country, have begun to assess if direct negotiations with pharmaceutical manufacturers make sense.
Ken Sperling, a health-care market leader with Hewitt Associates, a benefits consulting firm that is working with the coalition, says part of the group's overall health-care goals includes addressing the issue of the uninsured and promoting cost transparency and quality.