Self-insured employers assume a measurable amount of risk when sponsoring their own health plans, yet this risk often pays off in the form of lower healthcare costs and consistent bottom-line savings. However, what many employers overlook is the new risks associated with fiduciary standards in pharmacy benefits management. Even though employers do not play a direct role in managing pharmacy benefits for their enrollees, they’re still on the line for a failure to uphold fiduciary responsibilities by partnering with the wrong pharmacy benefits manager (PBM).
The Critical Importance of Fiduciary Duties
Fiduciary requirements demand ethical and cost-effective pharmacy benefits management that prioritizes enrollees’ health and quality of life. This entails making clinically informed decisions, guaranteeing transparency around price and necessity, and diligently overseeing PBM activities to optimize both financial and health outcomes. Failure to uphold these duties puts self-insured employers at risk of:
Financial Losses. Overlooking fiduciary responsibilities opens the door to a host of financial risks that can strain employee budgets and employer bottom lines. The Employee Retirement Income Security Act of 1974 (ERISA) serves to protect plan sponsors and enrollees from wasteful spending, most notably in pharmacy benefits.1 Without proper oversight, PBMs engage in profit-driving practices that drive up prescription drug costs, resulting in excessive spending that undermines financial sustainability.
Legal Repercussions. Failure to fulfill fiduciary duties exposes plan sponsors to legal liabilities, as evidenced by the J&J class action lawsuit. By neglecting to negotiate drug costs with pharmacies in its enrollees’ best interests, J&J cost its employees millions of dollars in unnecessary pharmacy spend.2 For one multiple sclerosis drug that should cost an estimated $77 out of pocket, J&J’s plan paid an estimated $10,200 — a glaring example of heavily inflated pharmacy costs that enrollees should be protected from.2
Diminished Care Quality. Prioritizing profit over patient care in PBM arrangements directly opposes fiduciary responsibilities to work only in the best interests of the enrollee. When these duties are disregarded, PBMs inevitably redirect their focus to building hidden profits into contract terms — rather than finding new ways to optimize care. As a result, restrictive formularies and exorbitant prescription drug costs can lower the quality of care, leading to suboptimal health outcomes.
Loss of Trust From Plan Members. Neglecting fiduciary duties quickly erodes trust between employers and plan members. When employees perceive that their interests are not being prioritized — or protected, at the very least — they lose trust in their employers and begin to question their benefit integrity. This can substantially harm employee satisfaction, company morale, and retention, resulting in lower productivity and organizational performance.
Increased Regulatory Scrutiny. Regulatory bodies are on the lookout for self-insured employers who violate fiduciary standards — even when done unknowingly — and regularly conduct audits, impose penalties, and enforce stringent measures to root out and address non-compliance. These interventions not only disrupt operations and obstruct cash flow but also broadcast the plan sponsor’s lack of commitment to ethical benefits management.
Erosion of Employee Benefits. As healthcare costs continue to balloon, fiduciary standards play a larger role in safeguarding benefit integrity. Without these guardrails in place, plan sponsors may resort to cost-cutting measures that compromise the quality and accessibility of employee benefits, leading to poorer employee health and higher turnover rates.
How to Uphold Fiduciary Duties in Pharmacy Benefits Management
To mitigate each of these risks, self-insured employers must prioritize fiduciary oversight throughout PBM arrangements. This entails thoroughly vetting PBMs, insisting on price transparency and rebate arrangements, and conducting independent audits to assess performance and adherence to fiduciary standards. By working with a certified fiduciary pharmacy benefits manager like US-Rx Care, plan sponsors can bypass these risks and have complete peace of mind that their PBM is working in the best interests of the plan and every enrollee with aligned interests for the highest quality of care at the lowest possible cost.
In a move that exemplifies the
potential conflict of interest that some large pharmacy benefit managers have,
the nation’s largest PBM earlier this year said it would demand that rebates
remain unchanged when drug makers roll out new price cuts.
Drug makers earlier in the year said
they would start reducing prices as well as the rebates they pay PBMs to
appease lawmakers and the Trump administration, saying it would reduce the cost
of medicine for patients.
But not long after the announcement, the
nation’s largest PBM, United Healthcare, fired off a letter to drug companies
telling them that if they planned to reduce prices and rebates they would have
to give seven quarters of notice (that’s 21 months if you’re counting) when they
intend to lower prices.
The letter, which was confirmed in
news reports in the health care trade press, highlights what many critics say
is an inherent conflict of interest among some of the large PBMs operating in
the country.
Some background
When PBMs first came on the market, the services they offered were processing pharmacy claims and negotiating discounts on medications for the health insurance companies with which they contracted.
Later though, they found a new way to
make money: rebates. They would approach two manufacturers that made similar
versions of a drug and play them off against each other to elicit the largest
rebate they could. Whichever one offered the larger rebate would have their pharmaceutical
placed on the drug plan’s formulary.
The problem is that these large PBMs
do not pass on the full rebate to their clients, like health insurance companies
and health plan enrollees. Instead, they keep most of the rebate for
themselves. As a result, PBMs with this business model are not motivated to
include the lowest-priced drug on their formulary, but rather the one for which
they can receive the largest rebate check.
The latest
United Healthcare sent out the letter to drug makers after pharmaceutical manufacturer Sanofi S.A. said it would cut the price of its cholesterol-lowering drug Praluent by 60%. It did so after its competitor Amgen Inc. reduced the price of its cholesterol drug Repatha by the same amount.
United Healthcare’s demand that drug
companies give 21 months’ notice when they plan to reduce prices has caught
many drug makers off guard, since many of them have been looking to cut prices
as pressure mounts on the industry from Washington.
The dominance of United Healthcare’s
PBM OptumRX and its competitor Express Scripts means that group health plan
enrollees are often left at their mercy, as many large health insurers have
contracts with them.
If a drug company does not give the
rebate that a large PBM demands, it could lose access to patients – and patients
lose access to that drug. The only way to play the game is to offer a larger
rebate and increase prices, which in turn increases the prices that patients
have to pay.
Fortunately,
there are a number of smaller PBMs in the marketplace that have different business
models that take payers’ needs into consideration and aim to reduce the
out-of-pocket costs for patients. They contract with employers and insurers
directly to make this happen.
The Trump administration has decided not to
pursue a policy that would have put an end to rebates paid to pharmacy benefit
managers, which could put the focus again on how drug companies set their
prices.
The proposal would have barred drug
companies from paying rebates to PBMs that participate in Medicare and other
government programs. According to the administration, the proposed rules were
shelved because Congress had taken up the issue to control drug costs.
The spotlight has been harsh on some of the
country’s largest PBMs, which have been accused of pocketing a substantial
portion of the rebates for themselves while passing on only a sliver of the
rebates to the insurance companies that hire them and the health plan enrollees
that pay out of pocket for the drugs.
Rebates had become a popular target of
criticism in Washington after drug companies lobbied aggressively to cast them
as the reason for high prices. PBMs negotiate drug discounts in the form of
rebates, often keeping some of that money for themselves.
However, many pundits say that the rebate
system put in place by large, national PBMs incentivizes drug companies to keep
list prices high, which in turn defeats the purpose of the PBMs – that is, to
reduce the out-of-pocket costs that health plan enrollees pay for their
prescription drugs.
Like insurers and PBMs, some of which have
sought to undermine the practice with accumulator adjustment programs, the
Trump administration believes such coupons may be driving up health care
spending by getting patients to opt for higher-priced name-brand drugs over
generics.
The Centers for Medicare & Medicaid
Services proposal unveiled in January would have essentially blocked drug
manufacturer rebates from going to PBMs and health plans that serve Medicare
and Medicaid patients, starting next year.
Now that the push to eliminate rebates has
come to end, the focus looks like it’s shifting to how drug companies price
their products. We will keep you posted if any legislation surfaces in this
area.
