In recent years, legislators and regulators have ramped up pressure and scrutiny on Pharmacy Benefit Managers (PBMs) and their self-interested practices that increase the cost of drugs. Substantial light is also shining on PBM-owned rebate aggregators (also called group purchasing organizations). Aggregators purport to negotiate drug manufacturer rebates for prescription drug plans, but in the end, substantially increase drug costs to employers and employees.
A Primer on Rebate Aggregators
Drug manufacturer rebates can be an important tool for controlling the rising costs of prescription drugs. Most manufacturers offer a rebate program through which they agree to return a part of the drug’s list price to plans in exchange for access to the plans’ drug “formulary”. Rebates are intended to flow through to the plan sponsors and benefit patients, reducing their overall drug spend.
In reality, the rebate process has been hijacked by PBMs and their sister-aggregators. PBMs utilize rebate aggregators to negotiate drug manufacturer rebates on behalf of the plans they administer. In 2022, just three PBMs along with their rebate aggregators, controlled 79 percent of the market.[1] Some of the largest rebate aggregators include Zinc (owned by CVS Caremark), Ascent (owned by Express Scripts), and Emisar (owned by United Healthcare).
Rebate aggregators perform the rebate function for their parent PBMs, but the true terms of what the manufacturer has paid to the aggregator are kept strictly confidential by the PBM. The “retained rebate” is unknown to plans. A complex corporate structure is used to hide the aggregators’ “retained rebate”. PBM-owned rebate aggregators skim a substantial portion of manufacturer rebates that belong to plan sponsors.[2] However, plan sponsors remain in the dark as to the dollar value of the siphoned rebate. Rebate aggregators economically harm plan sponsors and their employees. Not all plans are sitting idly back.
The Ohio Lawsuit
Earlier this year, David Yost, the Attorney General of the State of Ohio, sued the PBM Express Scripts and its rebate aggregator Ascent, seeking damages and injunctive relief for their role driving up drug prices for all Ohioans. See Ohio ex rel. Yost v. Ascent Health Services, LLC, et al., S.D. Ohio No. 2:23-cv-1450. The Ohio Attorney General’s complaint describes how Ascent manipulates the rebate system for the PBMs’ profit and forces manufacturers to raise prices.
Specifically, the complaint explains that, even though Express Scripts’ agreements with plan sponsors promised 100% full pass-through of rebates from manufacturers, Express Scripts evaded this contractual requirement by renaming the rebate payments received by Ascent as “administrative service fees,” “inflation fees,” or “service fees.” The amount of these “fees” received by Ascent is not disclosed to plan sponsors.
The role of these rebate aggregators within the broader scheme of deceptive business practices employed by PBMs has been publicly exposed in recent years, and garnered significant attention from legislators on Capitol Hill and regulatory agencies.[3],[4] Future regulatory and legal enforcement actions are likely to be brought against the rebate aggregators in the future.
Self-funded Plan sponsors must take action to avoid liability. It is the responsibility of the Plan Fiduciaries to ensure that PBM contractual arrangements are “reasonable” under ERISA. The Consolidated Appropriations Act of 2021 (CAA) strengthens the rights of Plans and promotes transparency in PBM-Plan agreements and prescription drug costs. The CAA amended ERISA to allow Plans to review and audit the prescription drug data as well as the compensation paid to the PBM and its subsidiaries.
How Frier Levitt Can Help
Frier Levitt attorneys combat abusive behavior by PBMs and rebate aggregators. Our experienced attorneys collaborate with legislators at state and federal levels to shape legislation aimed at addressing PBM abuses for various industry stakeholders. Frier Levitt’s Plan Sponsor Practice Group has a proven track record of obtaining favorable results for health plans and plan sponsors in various areas, including, but not limited to, analyzing PBM contracts and initiating actions against PBMs to access Plan data to ensure PBM compliance or recover savings wrongfully withheld by the PBM. Contact us to learn more.
[1] See https://www.drugchannels.net/2023/05/the-top-pharmacy-benefit-managers-of.html.
[2] See https://oversight.house.gov/wp-content/uploads/2023/09/Tesimony-to-House-Oversight-Reilly.pdf.
[3] See, e.g., S.B. 127, the Pharmacy Benefit Manager Transparency Act of 2023 https://www.grassley.senate.gov/imo/media/doc/pharmacy_benefit_manager_transparency_act_of_2023_-_summary.pdf.
[4] See https://www.frierlevitt.com/articles/ftc-expands-pbm-investigation-to-pbm-owned-rebate-aggregators-gpos/.
