Drain the Pharmaceutical Benefit Managers’ Swamp Before it Drains Us Dry

A recent patient has severe, debilitating dry eyes, but she is perfectly treated using Restasis eye drops (on the market since 2003) two times each day. Her new insurance company denied her prescription refill pending prior authorization. Her pharmacy informed her the average wholesale price for a three-month supply of the drops is $2007.72 ($8,030.88 yearly or $5.50 per drop), and she is a “covered” patient. If that doesn’t make you tear up, nothing will. Imprimus, a California pharmaceutical company, can compound these drops and mail them to her house for less than $50.00 per month (41 cents per drop). It is better for her NOT to use her insurance and pharmacy “benefits.” This nonsense must end.

Recent actions addressing escalating drug costs spark optimism. Senate Finance Committee chair Senator Chuck Grassley (R-IA) held a hearing on drug pricing in America. House Oversight Committee chair Congressman Elijah Cummings (D- MD) held a hearing on drug company price increases. Both committees, from two separate chambers of Congress led by chairmen from two separate political parties simultaneously met to address the same problems: sky-rocketing drug costs and dangerous drug shortages. Senator John Cornyn (R-TX) asked the most significant question of the panel of expert witnesses on drug pricing in America: “Can anybody on the panel explain to me why we have a general prohibition against kickbacks, call them ‘rebates,’ under the Social Security Act, but we nevertheless allow it for prescription drug pricing? What’s the sound public policy reason for excluding prescription drug pricing from the anti-kickback rule under federal law?”

That same heartening day, an op-ed by Health and Human Services (HHS) Secretary, “Alex Azar: Why drug prices keep going up- and why they need to come down,” https://t.co/UtoLS3zQtv appeared in STAT News showing he is committed to addressing the root cause of the problem not perpetuating a farce. February 6, the Office of the Inspector General of HHS published a proposed rule in the Federal Register that would amend the Anti-Kickback Statute that currently excludes GPOs and thus PBMs from having to comply with Anti-Kickback law.


This is encouraging, because both chambers of Congress and Executive Branch appear focused on the issue that adds 30-50% to drug costs, causes drug shortages, and enables PBMs to create drug formularies for insurers based not on what drugs doctors and patients deem best but on a complex, secret pay-to-play system of rebates (kickbacks), administrative fees, sole-source contracts, and perks. Drug makers must play to earn a preferred tier for their medications or to even get on a formulary at all.

In spite of appalling hyper-partisanship, divisiveness, and derangement on Capitol Hill, perhaps one single, one-page, bipartisan bill can be passed in Congress and signed by the President. Anyone who does not support a bill making GPOs and PBMs comply with Anti-Kickback law like everyone else is either a member of the GPO/PBM industry, uninformed, misinformed, confused, bought off, or afraid for their political, financial or physical well-being. Who sponsors the bill will be supremely telling. Who votes for the bill will be illuminating and instructive. We cannot fix healthcare unless we fix this law.

The law is the Medicare Anti-Kickback Statute (Section 1128B(b) of the Social Security Act (42 U.S.C. 1320a-7b(b)), previously codified at sections 1877 and 1909 of the Act) that provides criminal penalties for individuals or entities that knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business reimbursed under the Medicare or State health care programs. A regulation went into effect July 29, 1991 that excluded Group Purchasing Organizations (GPOs) from the anti-kickback statute. Translation: government created an uneven playing field. Government created law then selectively enforced it. This is a license to steal. I read the final rule https://t.co/yJVI3Ift82 including government responses to comments from the proposed rule to understand how this happened. The final rule “implements section 14 of Public Law 100-93, the Medicare and Medicaid Patient and Program Protection Act of 1987, by specifying various payment practices which, although potentially capable of inducing referrals of business under Medicare or a State health care program, will be protected from criminal prosecution or civil sanctions under the anti-kickback provisions of the statute.” This is a “get out of jail free card” granted to GPOs and then extended to PBMs via another act of rule and regulation shenanigans. Ironically, no financial analysis was done. HHS determined that a regulatory analysis was not required, because they certified the final rule would not have a significant impact. They did not think the rule would result in an annual effect on the economy of $100M or more, or a major increase in costs or prices for consumers, individuals, industries, Federal, State, or local government agencies, or adverse effects on competition, employment, investment, productivity, innovation, and so on. They were wrong. Of significance is a requirement that written agreements exist for HHS Secretary to inspect upon request if GPO/PBM fees exceed 3%, the customary fee in 1991 when the regulation excluding GPOs from anti-kickback law was signed. Ensuing unintended consequences of flawed law result now in nearly a quarter trillion dollars racketeered annually through this faulty, perverse drug supply chain. The Secretary of HHS, DOJ, and OIG must look into these secret contracts. I bet they have.

If the GPO exemption goes, so does the PBM’s. Three major PBMs, UnitedHealth Group, CVS Caremark, and Express Scripts, control over 80% of the PBM market and more than 70% of all prescriptions dispensed in the U.S. These three reported net revenue of $303.7 billion in 2016 alone. CVS Caremark, the largest PBM, is in process of buying Aetna, the nation’s largest health insurer. To protect $250B annual profits, net revenue, GPO/PBM supporters obfuscate and use tricky financial maneuvers in a money laundering operation, disguised as a supply chain. They do deals then change language to disguise what is actually happening. For example, a drug manufacturer offers the PBM a 40% rebate to land a good spot on the formulary of the company represented by the PBM. Don’t let them fool you when they say the rebates go 100% back to employers. What really happens in this version of legalized organized crime goes something like this: the PBM agrees to accept the drug manufacturer’s 40% rebate to put them on a formulary, but half of it (20% overall) shall be renamed “administrative fee.” While they can technically say 100% of the rebate went back to the large employer sponsor, in reality, 100% of 20% went back, while the PBM pocketed 20% that was renamed “administrative fee.” Drug makers must play or go out of business. To afford paying off PBMs, they must in turn raise drug costs in a vicious cycle that increasingly harms patients and taxpayers.

I call on both chambers of Congress and Executive Branch to act now. This is a bipartisan issue of epic proportion. Who can honestly defend this? Sadly, with $250 billion yearly at bay, many stakeholders will not only defend these practices, but they will lie insisting PBMs save money, discredit whistleblowers, work against politicians who want to fix the law, and will fund their political opponents. $250 Billion goes a long way in this regard, especially when those of us fighting them have nothing but our moral compass, knowledge of the law and its effects, and love of our patients and country.

I call on Senate Finance Committee members, Senators Grassley and Cornyn, Wyden and Warner. I call on Senior House Oversight Committee members, Elijah Cummings and Jim Jordan, to come alongside freshman members, Alexandria Octavio Cortez and Chip Roy, expose and end this now. A one-page bill is all it takes. Legislative language exists for both House and Senate.  Introduce legislation now. If you will not, then tell the American people why not.

Congress and HHS must stop pulling weeds and address the root problem. We do not want a partial fix that saves a few billion dollars that looks good on the surface but retains hundreds of billions underground for the continued organized crime spree and its players.

GPOs and PBMs: shame on you for intentionally deceiving and exploiting the American patient and fleecing the US economy.

Big insurance companies that are being acquired by, acquiring, or starting your own PBMs- you are worst of all. You take government subsidies, the people’s money, and money directly from people and their employers. Instead of working for the good of the people by refusing to play the game and exposing the cartel, you join in, taking kickbacks and individual perks.

This must end. Drug costs will plummet and drug shortages will disappear in short order. Wake up America! Save the patients and the people not the PBMs and their dysfunctional “healthcare system” that are draining us dry.


1 thought on “Drain the Pharmaceutical Benefit Managers’ Swamp Before it Drains Us Dry

  1. We are often able to buy inexpensive bulk generic medications that are of benefit to our patients. Those can be dispensed as samples in small quantities but Texas is one of the few states in the nation that prohibits physicians from selling drugs from their practices.

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