GAO says health benefit managers help curb insurance premiums

Pharmacy benefit managers are not to blame for the rising health care premiums many federal employees have faced in the past few years, according to a new report from the General Accounting Office.

In fact, pharmacy benefit managers help keep premiums in check by negotiating good deals with drug manufacturers and encouraging beneficiaries to use cheaper drugs when possible, the report (GAO-03-196) said.

The average premium for government workers enrolled in the Federal Employees Health Benefits Program, the largest employer-sponsored health insurance program in the United States, rose by 11 percent in 2001, largely because of rising prescription drug costs, which increased 17 percent over the same time frame, according to the report. The Office of Personnel Management, which administers the FEHBP, has also attributed increased premiums to escalating drug costs.

But Sen. Byron Dorgan, D-N.D., became skeptical that this was the only factor playing into the higher premiums, which rose by 13.3 percent in 2002 and by 11.1 percent in 2003. He requested the GAO report in July 2001 to provide "an independent, critical review" of whether the pharmacy benefit managers used by the majority of FEHBP plans contributed to higher premiums by failing to pass along a reasonable portion of the savings produced in their negotiations with drug manufacturers.

Pharmacy benefit managers have become prevalent in the health insurance industry and are used heavily in nongovernment plans as well as the FEHBP. The managers negotiate drug prices on behalf of the health plans, process claims and provide additional administrative support. In 2001, almost 200 million Americans were enrolled in health plans that use pharmacy benefit managers, according to the GAO report.

From Sept. 2001 to Dec. 2002, GAO reviewed three plans within the FEHBP that use pharmacy benefit managers and represent more than half of the program's 8.3 million enrollees. The report concluded that the benefit managers did help the government save money on prescription drugs and consequently, kept health care premiums lower.

The average price negotiated by benefit managers for 14 brand name drugs from retail pharmacies was about 18 percent below the over-the-counter price customers would pay at the pharmacies, the report said. For four generic drugs, the price negotiated by the benefits managers was 47 percent below the over-the-counter price.

GAO cautioned that this figure overstates the savings achieved by pharmacy benefit managers because health plans that chose not to use a pharmacy benefit manager would "likely manage their own drug benefits and also attempt to negotiate discounts with retail pharmacies."

FEHBP beneficiaries who used the mail-order services encouraged by pharmacy benefit managers received an even better price for prescriptions, according to GAO. The average mail-order price negotiated was about 27 percent below the cash price pharmacies would charge customers for brand name drugs and 53 percent below average cash price generic drugs.

In addition, the benefit managers passed along certain rebates, GAO said. Across the three plans studied, rebates reduced total drug spending by 3 percent to 9 percent from 1998 to 2001.

But Dorgan said he is "very disappointed" that the report did not get to the bottom of what he considers a crucial issue: whether the pharmacy benefit managers are passing along a reasonable portion of the rebates and cost-savings negotiated to the plan beneficiaries.

"Virtually every week, I read in the papers about [pharmacy benefit mangers] being sued or being fired by states or large employers because of allegations that they aren't passing along savings that they should be and are actually pushing higher-cost medicines to the detriment of their payer clients," he said in a statement. "Clearly these payers are coming to understand that the questionable arrangements between [benefit managers] and drug manufacturers have an adverse impact on overall drug spending."

OPM officials generally agreed with GAO's report.