The viability of the pharmacy benefit manager/retail pharmacy business model has come under fire again as critics accuse CVS Caremark of driving up costs for health plans and lowering quality for patients, reducing transparency and hampering oversight for health plans and compromising the privacy of health plan participants.
The 2007 merger of CVS and Caremark Rx brought together the nation's largest retail pharmacy chain and second-largest PBM. CVS Caremark is now the country's largest purchaser of drugs, filling or managing more than one billion prescriptions annually.
Labor organization Change to Win released "CVS Caremark: An Alarming Merger, Two Years Later" in November 2009, a report which details several problems with this particular PBM/retail pharmacy business model.
"CVS Caremark is currently the only major PBM that is owned by a retail pharmacy chain and this combined business model has an inherent conflict of interest," says Alex Goldschmidt, communications director with Alarmed About CVS Caremark, a Change to Win initiative aimed at educating health plan managers, trustees and consumers about the merged company.
As a PBM, CVS Caremark is expected to save plans money by negotiating lower drug prices with manufacturers and promoting lower-cost drugs to participants. "But as a retailer, CVS Pharmacy has an incentive to drive customers into its stores, fill as many prescriptions as possible, particularly those with high markup, and has little interest in saving health plans money," says Goldschmidt. "So, when a Caremark customer fills a prescription at a CVS pharmacy, which of the company's incentives win out?"
While pharmacies can act as a check on PBMs, "the merged CVS Caremark seemingly has little interest in limiting its own PBM's profits. The merger thus creates a model for pharmacy benefits that may decrease health plans' ability to provide affordable, quality care to their members," says the report.
The combined retail pharmacy/PBM model can add value for employers, says Susan Hayes, principal with Pharmacy Outcomes Specialists, but "CVS Caremark, and I would say even Walgreens, has not leveraged that value for their clients. They've leveraged that value for themselves. If you are a big chain and you buy a PBM, one of the things you could do is offer your clients lower copays if they go to your pharmacies. Or you could offer them extreme discounts if they go to your pharmacies. I don't see that kind of stuff happening."
Higher-cost drugs
Of particular interest to health plans and sponsors is the report's contention that CVS Caremark promotes the use of more expensive brand name drugs over cheaper generics.
PBMs can create lists of preferred drugs for health plan members, and can often switch patients from a specific drug prescribed by their physician to a therapeutically equivalent, but cheaper, drug that is on the preferred list. Goldschmidt says that while this practice can often lead to savings for the health care plan, "CVS Caremark and its predecessor companies have been repeatedly accused of favoring drugs and improperly switching drugs in ways that actually cost patients and plans more."
In March 2008, for example, CVS Caremark agreed to pay nearly $37 million to 23 states, the District of Columbia and the federal government to settle claims that the company improperly switched Medicaid patients to a more expensive form of an antacid, Ranitidine, to increase profits. Goldschmidt says that, according to the governments' allegations, the improper substitutions cost taxpayers as much as 400% more for each prescription than the originally prescribed form of the drug.
In its statement announcing the settlement, CVS Caremark "expressly denied any and all allegations and there has been no finding of wrongdoing or inappropriate business conduct on their part."
"It's very frustrating," says Hayes. "I talk to Fortune 50 employers and they just turn a blind eye to their PBMs and the games their PBM is playing. So some employers don't feel there's anything they can do about it. Other employers are outraged and find another PBM."
Sharon Anglin Treat, executive director of the National Legislative Association on Prescription Drug Prices, last spring urged the Federal Trade Commission to reopen its investigation of the CVS Caremark merger, citing anticompetitive conduct. Several legislators, including five Senators and over a dozen Representatives, have also sent letters to the FTC asking for an investigation into the company.
In its third-quarter earnings report, released last November, CVS Caremark acknowledged that it was being investigated by the FTC but the company "remains confident its business practices and service offerings (which are designed to reduce healthcare costs and expand consumer choice) are being conducted in compliance with antitrust laws."
Goldschmidt would like to see a more strongly regulated PBM industry, with "regulations that ensure greater PBM transparency as well as greater protection of patient privacy. We'd like to see drug switching limited to that which results in lower plan costs, and that PBMs be classified as fiduciaries to the plans they serve."
Hayes predicts CVS will eventually sell Caremark. "Didn't this just happen with Rite Aid and PCS about 10 years ago? Did you not learn your lesson that this [combined retail pharmacy/PBM] was not an effective model?" she asks. "I think CVS will realize this is just an albatross around their neck but it will take time to work through the issues. Either that, or it's a goldmine and they can really direct traffic. They do have an innovative program where you order [your prescription] through Caremark and can go pick it up at a CVS pharmacy. That's kind of cool. But what's the real intrinsic value of that?" --A.D.
Negotiating with your PBM
Plan trustees should closely oversee their PBM contract from the request-for-proposals process through to the negotiation, implementation and monitoring of the contract. In particular, plans should pay close attention to contract terms that could possibly harm the plan and its members, including:
* Allowing the PBM to retain rebates and other payments from drug companies.
* Authorizing the PBM to switch drugs without guaranteeing the switch will result in lower costs for the plan.
* Limiting the plan's access to information.
* Restricting the plan's auditing rights.
"While PBMs present themselves as health insurance companies they are not actually subject to the same rigorous standards of health insurance companies, which makes it all the more important for us to monitor our PBMs," said Connie Leyva, president of the California Labor Federation, at an event organized by Change to Win in Orlando in November 2009.
The viability of the pharmacy benefit manager/retail pharmacy business model has come under fire again as critics accuse CVS Caremark of driving up costs for health plans and lowering quality for patients, reducing transparency and hampering oversight for health plans, and compromising the privacy of health plan participants.
The 2007 merger of CVS and Caremark Rx brought together the nation's largest retail pharmacy chain and second-largest PBM. CVS Caremark is now the country's largest purchaser of drugs, filling or managing more than one billion prescriptions annually.
Labor organization Change to Win released "CVS Caremark: An Alarming Merger, Two Years Later" in November 2009, a report which details several problems with this particular PBM/retail pharmacy business model.
"CVS Caremark is currently the only major PBM that is owned by a retail pharmacy chain, and this combined business model has an inherent conflict of interest," says Alex Goldschmidt, communications director with Alarmed About CVS Caremark, a Change to Win initiative aimed at educating health plan managers, trustees and consumers about the merged company.
As a PBM, CVS Caremark is expected to save plans money by negotiating lower drug prices with manufacturers and promoting lower-cost drugs to participants. "But as a retailer, CVS Pharmacy has an incentive to drive customers into its stores, fill as many prescriptions as possible, particularly those with high markup, and has little interest in saving health plans money," says Goldschmidt. "So, when a Caremark customer fills a prescription at a CVS pharmacy, which of the company's incentives win out?"
While pharmacies can act as a check on PBMs, "the merged CVS Caremark seemingly has little interest in limiting its own PBM's profits. The merger thus creates a model for pharmacy benefits that may decrease health plans' ability to provide affordable, quality care to their members," says the report.
The combined retail pharmacy/PBM model can add value for employers, says Susan Hayes, principal with Pharmacy Outcomes Specialists, but "CVS Caremark, and I would say even Walgreens, has not leveraged that value for their clients. They've leveraged that value for themselves. If you are a big chain and you buy a PBM, one of the things you could do is offer your clients lower copays if they go to your pharmacies. Or you could offer them extreme discounts if they go to your pharmacies. I don't see that kind of stuff happening."
