Lawsuits targeting employers’ work with PBMs put HR on alert

Despite recent efforts to lower the price of US prescription drugs, most Americans are still worried about affording them, according to a KFF poll.

Several lawsuits highlight employers’ role negotiating health plan contracts with pharmacy benefit managers (PBMs) that include pricey prescription drugs, and seek to hold them accountable under the Employee Retirement Income Security Act of 1974 (ERISA).

The most recent lawsuit was filed by JPMorgan employees on Mar. 13, alleging the company mismanaged its health plan benefit funds, leading to higher healthcare premiums and out-of-pocket drug costs.

In one example cited in the complaint, the multiple sclerosis drug teriflunomide was priced at $6,229 (for one 30-day prescription) under JPMorgan’s plan, which was negotiated with CVS Caremark, even though it could be purchased for as little as $29 through ShopRite Pharmacy.

Similar lawsuits were filed against Johnson & Johnson and Wells Fargo, though the latter case was dismissed by a federal judge on Mar. 24.

The allegations against these companies speak to the complexities of the PBM system, which is inherently opaque, experts working in the space told HR Brew.

How prices can skyrocket under PBMs. When employers negotiate a health plan for their workforce, they typically work with health consultants and brokers, as well as a PBM, which serves as a middleman between drugmakers and insurers. PBMs negotiate prices and process claims, but employers don’t often see the complete picture of how drugs are priced under their plans, HR Brew previously reported.

“The PBM has a lot of responsibility regarding negotiation of discounts, rebates, fees—a whole host of financial activities,” David Dross, national leader of HR consulting firm Mercer’s managed pharmacy consulting practice, previously told HR Brew. “Yet the plan sponsor really doesn’t know a lot of the detail associated with those financial arrangements—in fact really [doesn’t] know much of any of them.”

In a typical PBM contract, drugs are priced at the aggregate level, meaning “they don’t necessarily have individual pricing for specific drugs,” said Lloyd Fiorini, general counsel and chief compliance officer at Capital Rx. This model results in “some really irrational pricing for drugs that shouldn’t be anywhere close to that price,” he added.

Capital Rx is one startup positioning itself as an alternative to the big three PBMs—CVS Caremark, Express Scripts, and Optum Rx—by advocating for a framework that provides more visibility into the individual price of specific drugs, with consistent pricing across plans. Fiorini, who previously worked for OptumRx and CVS Caremark, said the lack of transparency in drug pricing has been an issue with PBMs since he started with Caremark back in 2003: “That’s what those lawsuits are trying to get at, is that nobody knows what the price is.”

What HR can do to avoid legal scrutiny. HR departments face a challenge when negotiating with PBMs, particularly if they don’t have teams staffed with pharmacists or other clinical experts to advise them, said Eric Levin, CEO of Scripta, a pharmacy navigation company. A PBM may help them ink a contract that’s within their budget, but the tradeoff is employees may then encounter “really big imbalances” in drug pricing.

The increasing pressure on employers to better manage their contracts with PBMs has been a “big tailwind” for Scripta, which is an employee benefit that helps patients identify lower-cost prescription drugs. The product is offered as a “fiduciary protection program,” and is one way employers can provide “documentary evidence” they’re working with a company to monitor prescription drug price trends, Levin suggested.

Segal, an HR consulting and benefits firm, is seeing more employers completing fiduciary training to address this issue, in some cases creating specialized committees to make PBM-related decisions, said Kathryn Bakich, SVP, health compliance. The firm also advises clients to do “market checks” in order to “see whether the deal [they’re] getting from that PBM is as good as you could get if [they] went out in the marketplace,” she said.

The ERISA doesn’t require employers to bid PBM contracts, meaning firms can go years without changing their PBM. But doing so without carefully monitoring one’s contract would be a mistake, Bakich suggested.

“It’s all about vigilance, monitoring, due diligence, and potentially auditing the contract to make sure that what your people are getting is the best approach you can possibly get them,” she said. It could be that “one drug is going to be priced differently” under your company’s health plan, “but it’s such a fluid industry, you have to just monitor it very carefully, and almost continuously.”