Wednesday, November 09, 2005

Current events: Federal appeals court upholds Maine law regulating pharmacy benefit managers

A federal appeals panel has upheld a Maine law that imposes disclosure and other duties on pharmacy benefit managers (PBMs). What's a PBM? Here's a summary largely drawn from the court's opinion:

PBMs act as middlemen between pharmaceutical manufacturers and pharmacies and health benefit providers (e.g., my HMO, your insurance company, etc.). PBMs use their market power to negotiate volume discounts and rebates with drug manufacturers. PBMs may also have "therapeutic interchange programs" that allow them to substitute a drug for the one your doctor actually prescribed.

What's good for a PBM, though, may not be good for your HMO. For example, in cases of "therapeutic interchange," a PBM may substitute a more expensive brand name drug for an equally effective and cheaper generic drug so that the PBM can collect a fee from the manufacturer for helping to increase the manufacturer's market share within a certain drug category. Or a PBM might get a discount from a manufacturer on a particular drug but not pass any of it on to your HMO, keeping the difference for itself.

Under the Maine law, PBMs must act as fiduciaries for their clients (i.e., HMOs, insurance companies, etc.): they must disclose conflicts of interest, disgorge profits from self-dealing, and disclose certain financial arrangements with third parties.

The Boston Globe describes the lawsuit this way:
The association had argued that Maine's Unfair Prescription Drug Practices Act was unconstitutional and could end up harming consumers because benefit managers use confidential information to get drug companies to compete with each other by lowering their prices. But supporters view the law as a means to promote transparency by giving health plan clients access to information about discounts, drug switching programs and any conflicts of interest involving benefit managers.

Link to Boston Globe story.

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