Several states are probing pharmacy-benefit managers’ business practices in government-sponsored health programs, adding to the scrutiny the middlemen face in Washington for their role in the cost of drugs.
At least three state attorneys general are investigating PBMs, in addition to other state probes looking into how the companies contract with Medicaid and other programs. CVS Health Corp., Cigna Corp.’s Express Scripts unit and UnitedHealth Group Inc., which dominate the PBM market, are scheduled to appear before the Senate Finance Committee in Washington Tuesday to discuss their role as the nation grapples with soaring drug prices.
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“I am concerned about the complexity of the system,” said Attorney General Dave Yost of Ohio, one of the states probing PBMs. “I am concerned that it is internally complex and that it may be for the purposes of deception.”
The appearance of the PBM executives on Capitol Hill marks the second major Senate hearing on drug prices this year. In February, seven big pharmaceutical companies testified before the finance panel. Sounding a familiar refrain, they put much of the blame for high drug prices on the middlemen.
“This lack of transparency for the consumer is concerning,” Sen. John Cornyn, a Texas Republican and member of the committee, said in a statement. “It should not take an advanced degree to figure out where your money is going when you buy your prescription drugs.”
PBMs, which administer drug claims for big employers and insurance companies, negotiate prices with both retail drugstores and pharmaceutical manufacturers. A trade association for the industry said PBM bargaining power helps lower costs by an average of $941 per patient annually. Numerous competing benefit managers allow clients to negotiate a desired level of transparency, the group said.
While PBMs say their profit margins are low, they’ve been criticized for enigmatic pricing arrangements. Among other tactics, PBMs sometimes take hidden markups, or “spreads,” on generic drugs. For brand-name drugs, they sometimes retain a small portion of the rebates they negotiate with manufacturers.
As the hearing began on Tuesday, CareSource, a nonprofit that runs government-sponsored health plans in five states, said it would have Express Scripts administer member drug benefits beginning in 2020, instead of CVS’s Caremark division. The change will affect prescription coverage for almost two million people.
Shares of CVS declined 0.4% to $53.92 at 10:22 a.m. in New York. Cigna shares were also lower as the House committee started its proceedings, sliding 0.5% to $166.52.
In Kentucky, the state attorney general launched an investigation into drug middlemen in March after a state report showed that PBMs took $123.5 million in fees from insurance plans that cover the state’s poor.
Also last month, Ohio’s Yost sued UnitedHealth in state court, alleging it overcharged the state by more than $15 million over several years in the state’s workers’ compensation plan. Yost said he’s now looking into other drug plans the state operates, include its Medicaid program.