If you suffer from a hemorrhaging health fund, talk to your local broker about prescribing P-B-M: a new way of paying pharmacies.

Warning: PBMs are not transparent. Side effects may include secret profits, ruptured local health care retailers and in some documented cases, increased costs.

An aggressive PBM seemed like necessary medicine to Blount County brokers in the summer of 2015. The county’s health insurance pool had been draining for years, and it was quickly getting worse. A fifth of the fund, more than $1 million, had been lost in just 12 months.

Faced with the prospect of a collapsed health fund — a disaster for the thousands of public sector employees and family members who depended on it — the county’s newly hired broker, Cole Harris, of CBIZ Inc., selected CVS Caremark among competing bids to act as the county’s new PBM.

Without CVS Caremark, and other plan adjustments, Harris said the county health fund was on track to be completely drained by the summer of 2016.

Harris’s plan worked. CVS Caremark’s contract guaranteed a certain amount of savings to the county, and combined with increases to premiums and deductibles for employees, the county’s plan narrowly avoided collapse.

Instead, by the middle of 2016, the fund contained $736,416 — a fraction of the $6 million it held just three years prior, but better than nothing. Slowly, the fund recovered.

Harris and CBIZ do not know the specifics of the deals CVS Caremark leverages to get its results. They do not need to. “Our goal is to save Blount County and its employees as much as possible,” he said, later adding that quality is another consideration.

Harris said the county could find another arrangement where the pharmacies make more money, “but that would be on the backs of employees and taxpayers.” He stressed that this is not just a CVS problem or a Blount County problem, but a nationwide problem with PBMs.

“We’re self-insured,” Blount County Mayor Ed Mitchell said in a call last week, “which means we pay for the prescriptions with taxpayer dollars.”

He said he knows local pharmacies have issues with CVS Caremark’s practices, and is frank that he does not fully understand the mechanics of the PBM market. (That’s a confession shared even by some experts, who say the market is unnecessarily complicated).

“But the bottom line is, we’re spending taxpayer money. We have to make sure we’re saving and getting the best bang for our buck,” Mitchell said, adding that he appreciates all that local pharmacies do.

Harris has pegged annual savings to the county at $1 million by using CVS Caremark.

It is difficult, however, to document a link between what the county is charged and what is paid out to the pharmacies. The difference between the two is the “spread,” and that represents the self-determined profit the PBM is taking.

Spread pricing is an acknowledged practice by CVS Caremark.

Against the claim that PBMs are inappropriately profiting from the arrangement, CVS spokeswoman Christine Cramer said many clients request it because it provides more stability and certainty of drug prices. “Under this model, we make money on some drugs, but lose money on others.”

She adds that the spread is not profit, but is actually used to cover administrative costs, such as benefit services to plan sponsors and clinical programs for patients.

“In reality, when these services are accounted for, the net profit per prescription is far lower than what is being reported and is an appropriate, and often lower, margin compared to other industries,” she wrote.

The scattering prism — how PBMs make a money trail hard to follow

Without knowing the profit margin of PBMs, it is impossible to definitively tie the county’s savings to the “squeeze” on local pharmacies.

CVS Caremark and other major PBMs have designed it this way. They sit over a complicated web of exchanges, reimbursements and rebates between drug manufacturers, pharmacies, insurers and other financial middlemen. All are bound by nondisclosure agreements to avoid sharing figures.

In this case, Phil LaFoy of Blount Discount Pharmacy and other pharmacists are not allowed to share with Blount County how much CVS Caremark reimburses them on a given prescription. In turn, Blount County is not allowed to disclose how much they pay CVS Caremark for a particular claim.

A public records request for claims data, which would help efforts to document the spread for the Blount County health plan, were denied on the grounds that it could violate the Health Insurance Portability and Accountability Act (HIPAA).

Few concrete figures are available. Among them: Employer’s Health, another financial middleman whose contract was bundled with CVS Caremark, gets a 50-cent commission per prescription claim that goes through CVS Caremark. Additionally, CBIZ gets a 95-cent per-member, per-month commission fee, which although paid through CVS Caremark, would apply to any PBM used.

Going past CVS Caremark and other PBMs’ blanket use of nondisclosure agreements, there is a second complication to tracing dollars as they pass from health plans to PBMs and then pharmacies: Almost all the contracts work by aggregating hundreds and sometimes thousands of other parties.

Consider that Blount County does not have a contract with CVS Caremark. It instead has a contract with Employers Health, which holds Blount County as a client in a group of 160 entities that collectively have a contract with CVS Caremark. The roughly $5 million that Blount County had in pharmacy spending last year is shuffled in with the millions shared from others in the group.

And on the other side, the local pharmacies also do not deal directly with CVS Caremark. Instead, they deal with an intermediary firm that similarly groups them together by the hundreds.

In the middle, CVS Caremark has the power to play with reimbursement rates to pharmacies while maintaining guaranteed rates to health plans. To balance out uneven returns, they can always take money from one bucket and put it in another.

Think of the PBM as a prism that scatters information. Not only is it impossible to track a given prescription through the reimbursement network, it also is impossible to determine how much profit CVS Caremark is taking.

The only accountability leveraged on PBMs is whether they return the guaranteed savings. There is no audit of the spread.

The potential for problems is not hypothetical.

In Ohio, PBMs charged the state a spread of more than 31 percent for generic drugs, state auditors found. This was nearly four times the reported average across all drugs.

Earlier this year in Arkansas, after reports surfaced that local pharmacies were being systematically under-reimbursed compared to CVS retail stores, lawmakers passed a law requiring PBMs to submit to state oversight.

An investigation by Bloomberg, a financial publication, published in September found markups of $1.3 billion by PBMs on the $4.2 billion spent by state Medicaid insurers on the top 90 best-selling generic drugs. For example, Aripiprazole, an antipsychotic drug, dropped rapidly in price during 2017 to about $20 a month. But state Medicaid programs in New York, Texas and other states continued to pay more than $140 a month for the drug, data showed.

The analysis was, due to constraints outlined above, unable to separate out how much of that markup went to pharmacies and how much was kept by the PBM.

Some pharmacists have taken it into their own hands. Dawn Butterfield, a pharmacist in Florida who is a board member of Pharmacists United for Truth and Transparency, an anti-PBM group, told The Daily Times that through the state Medicaid patient portal, she was able to compile a spreadsheet of drug reimbursements and profits. The most striking difference is between independent pharmacies and those of CVS. For her own pharmacy, she said there was an average spread of $77 per script for reimbursements paid to her by CVS Caremark under the state Medicaid program.

“It’s set up perfectly to make them a boatload of money,” she said.

Mike Zucarelli, a pharmacy consultant with CBIZ, said the conversation over the PBMs and independent pharmacies tends to see a “cherry-picking” of data. “They don’t talk about the claim(s) they make a 100% or more margin on,” he emailed, characterizing the business relation as actually net beneficial for many independent pharmacists. “They wouldn’t be accepting these contracts if they weren’t making money.”

He adds that he is “definitely not” a fan of PBMs. “But I do believe it’s important that everyone (...) continue to understand the full supply chain before targeting 1 entity.”

Mike Stull, the chief marketing officer for Employer’s Health, said the industry is more complicated than it needs to be. “I think everyone agrees there has to be a better way to do this,” he said, “Independent pharmacies are not in an enviable position.”

Joe Paduda, the director of a trade group of small PBMs for workers’ compensation programs, echoed the sentiment.

“There’s no easy fix,” he said. PBMs are entrenched as a near-necessity now for health care providers, and although the push for accountability is a step in the right direction, “asking for transparency only addresses part of the issue of pharmacy pricing and access.”

He points to the fact that life-saving drugs that cost thousands of dollars in the United States are sold for far less in countries where the government takes a more active role in the drug market. He points to Harvoni, a drug that effectively wipes Hepatitis C from the body, costing $1,000 in the United States, but $4 in India.

“It’s like trying to fix a broken-down engine by fixing the spark plug,” he said of the focus on PBMs. “Well that’ll fix the spark plug, but not the engine.”

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