ERISA

PBM Industry Could Face Major Challenges From ERISA Suits

A lawsuit filed by an employee against Johnson & Johnson could signal that significant changes in the legal obligations of commercial plan sponsors and PBMs around drug pricing are coming, experts say. The suit alleges that J&J violated its fiduciary obligations as a health plan sponsor under the Employee Retirement Income Security Act (ERISA) of 1974 by overpaying the plan’s PBM for employees’ medications.

If it’s successful, the suit could expose plans, plan sponsors and PBMs to significant, ongoing legal risk, experts say. However, they add that the opacity and complexity of drug pricing dynamics mean that the suit’s success is far from certain.

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News Briefs: U.S. Pays 278% More for Drugs than Other Countries

U.S. patients paid an estimated 278% more for prescription drugs than patients in other high-income countries did for the same drugs in 2022, according to a RAND Corp. study. U.S. gross prices for brand-name originator drugs were 422% higher than drugs in the comparison countries, RAND found; after rebates were applied, brand-name drugs still cost more than three times the amount paid in other countries. Unbranded generics were the only category that were not “substantially higher” in price than drugs in other countries. As RAND pointed out, unbranded generics account for 90% of U.S. drug volume but just 8% of total drug spending at manufacturer gross prices.

A Johnson & Johnson employee sued the firm over allegations that the medical manufacturing giant overpaid for prescription drugs dispensed by the firm’s employee health plan — which she alleges is a violation of J&J’s fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA). The suit is part of what some legal experts have predicted will be a “” of litigation against plan sponsors that may have paid more than they should have for certain health care services and products, potentially including prescription drugs or pharmacy benefits. The plaintiff in the suit is Ann Lewandowski, a health care policy and advocacy director at J&J, STAT reported.

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More States Eye Drug Affordability Boards, PBM Regulations

PBM and drug pricing regulation will continue to be hot topics at the state level after several years of busy lawmaking, experts predict, even as PBM reforms are diluted and stalled in Congress. They predict that more states than ever will continue to embrace or pursue policies like drug affordability review boards.

“I do think the momentum is still strong, because states have the ability to do a lot more,” Kate Sikora, associate principal at Avalere Health, tells AIS Health, a division of MMIT. “Federal bills typically get a little bit watered down by the time they actually pass. So some of these state laws are a little bit heartier — a little bit more robust — in terms of what they attempt to do.”

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More States Eye Drug Affordability Boards, PBM Regulations

PBM and drug pricing regulation will continue to be hot topics at the state level after several years of busy lawmaking, experts predict, even as PBM reforms are diluted and stalled in Congress. They predict that more states than ever will continue to embrace or pursue policies like drug affordability review boards.

“I do think the momentum is still strong, because states have the ability to do a lot more,” Kate Sikora, managing director at Avalere Health, tells AIS Health, a division of MMIT. “Federal bills typically get a little bit watered down by the time they actually pass. So some of these state laws are a little bit heartier — a little bit more robust — in terms of what they attempt to do.”

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Fresh Off New Funding Round, PBM SmithRx Targets ‘Underserved’ Market

Last year, as the country’s three dominant PBMs faced an unprecedented amount of scrutiny, smaller firms saw an opportunity to step into the spotlight. Thus, they founded Transparency-Rx, a coalition of PBMs with “transparent” business models and a shared goal of pushing for the reform their larger rivals were resisting.

One of the members of that new coalition, SmithRx, announced on Jan. 23 that it closed a $60 million Series C financing round led by the health care venture capital firm Venrock. The latest funding infusion, which builds on a $20 million Series B round raised in 2022, positions SmithRx to continue fixing a “broken” pharmacy pricing system, according to its founder and CEO, Jake Frenz.

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PBM Transparency Bill Passes House, But Reform Advocates Think Bigger

In a move decried by the major PBM trade group but hailed by employer plan sponsors and a pro-reform coalition of smaller PBMs, the U.S. House of Representatives on Dec. 11 passed legislation that would usher in a host of new transparency requirements for what has become a heavily criticized industry.

The Lower Costs, More Transparency Act (H.R. 5378) passed on a 320-71 vote, but an uncertain fate awaits the measure in the Senate. The bill was initially due to be voted on in September but was tabled amid concerns over lawmakers’ support and the House’s focus at the time on passing a stopgap government spending package.

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Large-Employer Groups Dispute PCMA Claim That Some Firms Prefer Spread Pricing

In a recent report, the Pharmaceutical Care Management Association (PCMA), the trade group representing the largest PBMs, claimed that employers often choose spread pricing when they set up their PBM contracts. But employer plan sponsor groups, which have pushed for years for a federal ban on spread pricing, tell AIS Health that the way PCMA describes employers’ pharmacy benefit options is misleading — instead, the plan sponsor groups say, PBMs manipulate employers into spread pricing arrangements.

PBMs are under intense scrutiny in Congress: Legislators from both parties seem likely to pass more aggressive regulation of the industry this year. A ban on spread pricing is one of the key policies under consideration. Spread pricing is the business practice in which PBMs pay pharmacies dispensing a drug less than what they charge payers, with the PBM pocketing the difference. This can result in substantial revenue for the PBM, as the “spread” for the same pharmaceutical product can vary widely from pharmacy to pharmacy.

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News Briefs: Kraft Heinz Sues CVS for Fiduciary Breach

The Kraft Heinz group has sued Aetna, alleging the insurer “leveraged its role as the third-party administrator or ‘TPA’ to enrich itself to Kraft Heinz’s detriment” and breached its fiduciary duties to the employer. The lawsuit contends that Aetna “(a) paid millions of dollars in provider claims that never should have been paid, (b) wrongfully retained millions of dollars in undisclosed fees, and (c) engaged in claims-processing related misconduct to the detriment of Kraft Heinz,” which contracted with the insurer to provide medical and dental benefits for the company’s employees, retirees and their family members. The firm is asking the court to force Aetna to reimburse it for losses linked to the insurer’s alleged fiduciary breach, along with any related profits.

Blue Cross Blue Shield insurers are again set to collect major payouts from the Affordable Care Act’s risk adjustment program, STAT reported based on an analysis of new federal data. The risk adjustment program transfers funds from ACA marketplace insurers that have lower-risk enrollees to those with higher-risk enrollees. STAT found that more than two dozen Blues insurers are projected to collect over $4.7 billion in risk-adjustment transfers for 2022, with Florida Blue, Health Care Service Corp. and Blue Shield of California due the largest amounts.

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End of COVID Bump, Negative News May Have Dented PBM Satisfaction

Plan sponsors are reporting less satisfaction with their PBMs than they have in prior years, according to a recent survey. While industry experts differ regarding what may be driving that trend, they also have plenty of ideas about what PBMs — or failing that, their regulators — can do to improve how the industry performs.

The 2022 Pharmacy Benefit Manager Customer Satisfaction Report is the 25th annual version produced by the Pharmaceutical Strategies Group (PSG), an EPIC Health LLC subsidiary. In an Oct. 19 press release unveiling the findings, the organization wrote that “there was a notable downturn in overall satisfaction levels” with PBMs in this year’s survey, “as well as in some core measures of general satisfaction such as likelihood to recommend.” Measured on a scale of one to 10, plan sponsors’ overall satisfaction with PBMs was 7.8 in 2022, down from 8.2 last year — and at the lowest level it has been since 2016.

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Employers Shift More Drug Cost Control Efforts From PBMs to Medical Plans

In 2021, prescription drugs accounted for a median of 21% of large employers’ health care costs, and a full 100% of firms said they were concerned about prescription drug spending trends, according to the Business Group on Health’s 2023 Large Employers’ Health Care Strategy and Plan Design Survey.

Yet the rising cost of specialty medications — which are often covered by medical rather than pharmacy benefits — has forced companies to think differently about how to curtail drug spending, the organization found. According to the survey, specialty medications account for 56% of all pharmacy spending by polled employers.

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