Smaller “Transparent” PBMs have legal tools to challenge the Mega PBMs in the Request for Proposal Process
The United States drug supply chain is dominated by three vertically integrated Pharmacy Benefit Managers (“PBMs”) that are owned under the same corporate umbrella as the largest insurance companies, specialty pharmacies and chain pharmacies. In fact, “95% of total U.S. equivalent prescription claims” were processed in 2020 by six PBMs. The Top 3 (CVS Caremark, Express Scripts, Inc., and OptumRx) processed approximately 77% of all claims. Rising drug prices reveal that the primary benefit of this controlled drug environment is enjoyed by the PBMs. The logical result of the vertical integration is that drug pricing is completely opaque and lacks transparency as it relates to PBM “spread pricing”, generic drug pricing and whether Plan Sponsors really receive the full benefit of rebates paid by drug manufacturers. “Transparency” is the cure to the problem plaguing our system. Smaller PBMs can effect real change, so long as they understand how to challenge Requests for Proposals (“RFPs”).
Despite the increasing public outcry and recent legal actions against PBMs, Plan Sponsors (including Self-Funded Employers and Government Agencies) continue to award PBM contracts, through the Request for Proposal (“RFP”) process, to a select few PBMs. Plan sponsors should consider “transparent” PBMs who may be able to challenge RFPs that have been awarded to the major PBMs.
Several key factors explain why the major PBMs are able to procure RFP Awards. Plan Sponsors use “brokers” to handle the RFP process. Savvy PBMs provide secretive financial incentives to persuade brokers to recommend the large opaque PBMs. The intelligent use of brokers by large PBMs in the RFP process certainly disadvantages the smaller “transparent” PBMs. But, the smaller PBMs should know that they have tools to level the playing field.
Transparent PBMs must more often challenge RFP Awards through either the administrative process or legal action. For example, with respect to PBM contracts for government-funded plans, the Plan Sponsor is required to comply with certain statutory bidding standards and instruction. “Competitive bidding standards” or “public procurement standards” are derived from statutory law and judge made case law. Where a PBM contract is awarded in violation of these governmental bidding standards, the “losing bidder” may dispute the RFP Award by commencing a dispute in the administrative process in accordance with state statutes and laws. Where the administrative process proves unsuccessful, the losing PBM bidder may file a lawsuit to overturn the RFP Award. Even major PBMs challenge RFP Awards. More specifically, in Express Scripts Inc. v. Delaware State Employee Benefits Committee, Express Script alleged that Delaware State Employee Benefits Committee’s (“SEBC”) RFP Award was contract to RFP and Delaware State procurement law. Smaller PBMs must learn from their much larger competitors in this regard.
All Plan Sponsors must understand that major PBMs do not guarantee cost savings. Indeed, several states have commenced legal actions against major PBMs and Plans for overcharging the prescription claims paid by states and taxpayers. Transparent PBMs should more often challenge RFPs and Plan Sponsors should more carefully consider the RFPs of transparent PBMs.
How Frier Levitt Can Help.
Ensuring a legal RFP process is an important first step toward ensuring transparent contractual arrangements between Plan Sponsors and PBMs. Frier Levitt’s Plan Sponsor Practice Group provides a panoply of legal services to Plan Sponsors and transparent PBMs including, without limitation, healthcare policy review and analysis, auditing (and where necessary litigating against) major PBMs to verify that Plans have been paid the proper rebates, and challenging RFP Awards. If your organization is a Plan Sponsor or a Transparent PBM, contact us today.
 The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation, Drug Channels, available at: https://www.drugchannels.net/2021/04/the-top-pharmacy-benefit-managers-pbms.html
 See Express Scripts Inc. v. Delaware State Employee Benefits Committee, Case No. 2021-0434, in the Court of Chancery of the State of Delaware.
 See, e.g., Ohio Department of Medicaid, et al. v. Centene Corp., et al., Case No. 21-cv-01502, in the United States District Court for the Southern District of Ohio.