In July, a Marin County woman named Megan Schultz went to her local CVS drugstore to fill a prescription for a generic drug. She forked over $164.68, the co-pay designated by her health plan.
Schultz feels she got ripped off. What she didn't know, according to a federal lawsuit she filed this week, was that she could have acquired the drug at the same store for only $92, if she had chosen to pay cash instead of using her pharmacy insurance benefit. But her pharmacy didn't clue her in.
"CVS remained silent and took her money," her lawsuit states, "knowing full well that no reasonable consumer would make such a choice."
Schultz alleges that she's the victim of a practice known as a "clawback," instituted in her case by CVS and OptumRX, a pharmacy benefit manager, or PBM, that functions as a middleman between her insurance plan and pharmacies. PBMs negotiate drug prices with drug companies on behalf of insurance companies and other payers, then communicate those prices to druggists at the retail level. The druggists are expected to charge consumers whatever portion their insurers designate as a co-pay.
Most insured consumers assume their co-pay is a discount from the full drug price. But that's not always so. What happens if the negotiated price is less than the co-pay? Much of that, the lawsuit alleges, is passed by the drugstore back to the PBM — as a "clawback."
According to the arrangement in effect for Schultz's prescription, the lawsuit says, "the consumer pays the amount negotiated by the PBM and CVS even if that amount exceeds the price of the drug without insurance." The drugstore, the lawsuit asserts, "remits the excess payments back to the PBMs."
The allegations point to an obscure aspect of America's drug distribution system that hampers efforts to force prescription prices down: the role of PBMs.
As middlemen occupying the space between drugmakers and insurers, and between insurers and retail drugstores, PBMs "are sitting at the center of a big black box," drug marketing consultant Linda Cahn told me in June, in connection with my earlier reporting on PBMs. "They're the only ones who have knowledge of all the moving pieces."
PBMs originated as intermediaries to help process claims for health plans and allow insurers to combine their customer bases for greater leverage in negotiations with drug manufacturers.
But over time, they became just another special interest. Today the firms extract billions of dollars in price concessions and obscure fees from drug companies eager to remain in their good graces, as well as rebates and other fees from drug retailers. "PBM corporations are inserting costs into the system on virtually everyone in order to fuel their profits and reward shareholders," B. Douglas Hoey, head of the National Community Pharmacists Assn., which represents independent drugstores, complained last year.
The extent of clawbacks is unclear, in part because of the confidentiality of contracts tying insurers, drug companies, retailers and PBMs together. The biggest PBM, Express-Scripts, says it doesn't engage in clawbacks, which it calls an "anti-patient practice."
Other firms in the system say co-pays are set by insurance companies, not PBMs or drugstores. CVS says the Schultz lawsuit is "without merit." It says prescription co-pays "are determined by a patient's prescription coverage plan, not by the pharmacy. … CVS has not overcharged patients for prescription co-pays." The company says CVS Caremark, its PBM subsidiary, doesn't engage in clawbacks.
OptumRX, which is not named as a defendant in the Schultz lawsuit, says it does not "require pharmacies to charge the member the copay amount even when the cash price is lower. Pharmacists should never charge our members more than the cash price, which is a price set by the pharmacy and what an individual without insurance would pay the pharmacy for a prescription."
The company says its contractual policies with retail drugstores "are designed to ensure pharmacists always charge the lowest amount outlined in a member's health plan when filling prescriptions."
But that leaves unsaid whether pharmacists feel empowered to volunteer information to customers that a cash price would be cheaper. Some 59% of independent pharmacists answering a survey by the National Community Pharmacists Assn. said they were subject to "gag clauses" prohibiting them from volunteering such information. "In other words," the organization said, "the patient has to affirmatively ask about pricing."
Even if the gag rule isn't explicit, implicit warnings about circumventing co-pays abound. An OptumRX "provider manual" filed with Schultz's lawsuit compels pharmacies in the OptumRX network to charge customers using their insurance the required co-pay "and only this amount." Waiving the co-pay is "strictly prohibited."
And UnitedHealth Group, the parent of OptumRX, said in May in a motion to dismiss a clawback lawsuit filed in Minneapolis federal court that the insurance enrollees who brought the case "are entitled to pay the member contribution amounts set forth in their plans — nothing more and nothing less."
Just because "there might be some other lower price [the customers] might wish to pay" doesn't give them grounds for a lawsuit, the company argued.
Some state legislatures plainly feel that customers are vulnerable to abuse via PBM contracts with drugstores. Anti-clawback laws have been enacted in Louisiana, Georgia, North Dakota and Maine — and most recently, Connecticut passed a law barring insurers or PBMs from prohibiting or penalizing pharmacists from disclosing such information to customers as "less expensive methods of purchasing the prescription, including paying the cash price." Such action by a Legislature in a state that's home to several major insurers is a clear indication that the problem exists.