When the government audits Pharmacy Benefit Managers (PBMs), self-funded plans should take note. The Office of Personnel Management (OPM) Office of Inspector General (OIG) recently audited Express Scripts Inc (ESI), and the results highlight the need for self-funded employers and plan sponsors to thoroughly audit PBMs. The OIG released a report in November 2024, evaluating ESI’s handling of the Compass Rose Health Plan (Carrier) pharmacy benefits from 2017 through 2022. Compass is a Federal Employee Health Benefits Program (FEHBP). The OIG found more than $15 million in overcharges.[1] Plans must understand that this is not a unique finding, and similar overcharges are endemic in the typical pharmacy benefit design.
Key Findings
Claims Spread: The OIG found that the FEHBP did not receive the pass-through pricing for retail drugs as promised under the contract. ESI overcharged the FEHBP by $5.8 million (not including lost investment income). According to the OIG, ESI was supposed to charge the FEHBP the same amount that ESI reimbursed pharmacies (a “no spread” arrangement). However, the OIG determined that the reimbursement rates ESI paid to retail pharmacies was less than ESI charged the Carrier, resulting in claims “reimbursement spread.” The spread between the charges to the Plan and the reimbursement to the pharmacy results in additional compensation for the PBM. The OIG further commented that ESI “was already paid a service fee to cover profit and administrative costs under the transparent pass-through pricing arrangement.” Thus, OIG believed it paid ESI for a pass-through model, but according to OIG, ESI took spread in addition to the administrative fees.
Retention of Drug Manufacturer Rebates: The OIG also found that ESI did not pass-through all drug manufacturer rebates as required under the contract. Specifically, in just two and a half years, from June 1, 2019, through December 31, 2021, ESI’s sister company and rebate aggregator Ascent Health Services (Ascent) retained $9.5 million more in rebates than it passed on to the Carrier and the FEHBP. In other words, Ascent collected approximately $70 million in drug manufacturer rebates but only passed approximately $60 million along to the Carrier and the FEHBP. Interestingly, the OIG reported that the $9.5 million was the result of internal agreements between ESI and Ascent wherein ESI allowed to keep a portion of the rebates. Ultimately, ESI re-credited the FEHBP the $9.5 million in rebates retained by Ascent.
A Systemic Issue
To emphasize, these findings are not unique – the OIG had similar findings when it audited the Postal Workers Union Health Plan.[2] These findings suggest systemic issues within the management of pharmacy benefits. What’s worse is that the OIG’s audit was limited in scope and period, hinting that similar, if not more egregious practices may be occurring in the commercial and self-funded plan sectors. All plan sponsors should conduct thorough audits of their PBMs to prevent spread and rebate retention. Such audits are also necessary for Plans to fulfill the fiduciary duties owed to members.
How Frier Levitt Can Help
Frier Levitt represents self-funded employers and Plan Sponsors in their dealings with PBMs. Our deep understanding of the legal landscape and PBM practices uniquely positions us to conduct comprehensive audits. We assess contract compliance, financial accuracy, and performance metrics to ensure that your PBM arrangements align with fiduciary standards and your company’s financial interests.
Contact Frier Levitt to learn how our PBM audit services can fortify your defense against fiduciary breach claims and secure the financial health of your employee benefits plan.
[1] The full audit report can be found here: https://www.oversight.gov/sites/default/files/documents/reports/2025-01/2023-SAG-019.pdf.
[2] https://www.oversight.gov/sites/default/files/documents/reports/2024-10/2022-SAG-029.pdf.
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