Changes to the way pharmacy benefit managers price the drugs they cover recently went into effect, with far-reaching consequences for both PBMs and the many employers using their services.

On Sept. 26, the U.S. District Court of Massachusetts implemented a settlement agreement against drug wholesaler McKesson Corp. and publishers First Databank and Medi-Span, alleging that they artificially raised the prices of hundreds of prescription drugs by 5%. Additionally, the plaintiffs in the class-action lawsuit were awarded a $350 million settlement.

The details around the court-approved settlement have been well documented. In summary, these publishers of average wholesale price made an arbitrary upward adjustment to the pricing index that PBMs used to set prices for their clients. The settlement requires the publishers to roll back the pricing adjustment on a defined number of drugs (approximately 1,400 national drug codes).

As a result of the settlement, PBMs must roll back the AWP in a manner that maintains "economic neutrality" for all parties and find a replacement for AWP, now that First DataBank and Medi-Span have announced they will cease publication of the entire index over the next two years.

A June survey by Pharmaceutical Strategies Group reveals a high level of anxiety among employers regarding the settlement's implementation. Roughly 70% indicate they are concerned that a change in the AWP index will increase the cost of their pharmacy benefit.

Employers also are concerned about the lack of clear communication from their PBMs regarding the approaching implementation deadline. Only 15% indicate that their PBM has contacted them with specific information about a proposed adjustment method; 35.1% have received general information, while the majority (44.8%) have not received any communication whatsoever from PBMs.

Employers are understandably skeptical of claims of "economic neutrality" and "transparency" from an industry with a history of opportunistic business practices coupled with a lack of complete transparency.

Employers contracted with a PBM should carefully review their contract for language addressing the AWP pricing change, along with alternative pricing practices in the future. Many contracts do not specify key definitions or methods for calculating adjustments or resolving disagreements that might arise during this process, which could leave employee plan sponsors in a less favorable position than before the change in AWP. In addition, contract language changes should only address the relative economics of the PBM relationship.

It would not be appropriate for PBMs to use the AWP settlement/judgment as a rationale to make changes elsewhere in the contract, or pricing adjustments that over time would fail to maintain economic neutrality. A detailed evaluation of contract language regarding these issues should be completed as soon as possible.

Further, a validation of the relative economics clause should be completed, including agreement on specific changes to pricing terms (based on each employer's specific utilization) and contract language.

There are significant differences in how PBMs have proposed defining economic neutrality and in the specific approach they have proposed in dealing with this issue. Failure to understand these issues could result in economic loss or less favorable contract terms. -E.B.N.

As of press time, AWP was set to be reduced by 3.5 to 4 percentage points, thanks to a lawsuit against drug wholesaler McKesson Corp. and publishers First Databank and Medi-Span alleging that they artificially raised the prices of hundreds of prescription drugs by 5%.

Employers need to audit their PBMs to ensure that this change is made in a price-neutral manner, says Jennifer Kingsley Wilson, founder and CEO of pharmacy benefit consulting firm ARMSRx. "If a client is paying $100 for a drug today, they must be paying $100 for a drug tomorrow."

However, John Jones, senior vice president of professional practice and pharmacy policy for pharmacy benefit manager Prescription Solutions, says such a drop in the percentage of what PBMs are paying the pharmacy networks will "simply not be sustainable," and he doesn't believe the lawsuit will result in a long-term change.

"As far as a big change in the way drugs are priced, even though there will be an alteration in how the benchmarks are calculated, I believe most of the PBMs recognize that the networks would be unsustainable if they were forced to that lower price," says Jones. "It's probably not going to result in a big change. It will probably be an adjustment, but people will be where they are today rather than a different place in the future." -Elizabeth Galentine