An anticipated class-action settlement involving prescription medicine pricing could result in drug-spend savings of 0.7% to 1.6% for plan sponsors. Employers must beware, however, as some pharmacy benefit managers are attempting to reduce or eliminate the savings by changing pharmacy contracts.

Average wholesale prices — the base prescription drug prices from which PBM discounts are negotiated — are published by First DataBank and Medi-Span. The two firms currently are in the process of settling a class-action lawsuit that alleges they colluded with McKesson to inflate the AWPs of more than 450 prescription drugs — representing thousands of national drug codes — over most of this decade.

One provision of the settlement is intended to provide substantial relief to plan sponsors. First DataBank and Medi-Span will lower the AWPs of drugs that the suit alleges were inflated. Because plan sponsor pharmacy costs are based on discounted AWPs, reducing the AWPs should reduce plan sponsor costs. For example, in the case of a 30-day prescription for 60mg capsules of the antidepressant Cymbalta, assume:

• The pre-settlement AWP for the prescription is $140.40.
• The AWP discount is 18%.
• The dispensing fee is $1.50.
• The member copay is $25.

The pre-settlement cost for this prescription is $91.63. If the post-settlement AWP for the prescription is $134.78, then the post-settlement cost is $87.02, a more than 5% savings. The savings generated from reducing inflated AWPs is the most significant way that this settlement will benefit plan sponsors.

In response to the settlement, some PBMs are proposing contract modifications that reduce or eliminate plan sponsor savings. A self-funded plan sponsor, for example, may receive a letter stating that because of the settlement, the PBM will reduce their aggregate retail brand discount guarantee from 16% to 14%.

Revisiting the example above, let's consider the post-settlement costs if your PBM changes the AWP discount for Cymbalta from 18% to 14.58% in response to the AWP reduction. Your cost would be back to $91.63 — the same as the pre-settlement cost. By lowering the discount, the PBM absorbs all of the settlement savings.

Another PBM tactic is to attempt to convert your contractual pricing to a non-AWP index, with such a change being "cost-neutral." But if the "cost-neutrality" is calibrated to the pre-settlement state, the PBM will lock in the excess revenue it is enjoying from the current AWP inflation. When the settlement ultimately lowers AWPs, it will not lower the values of the non-AWP pricing index to which your contract has been switched.

Until January 2008, it seemed imminent that the settlement would be much more far-reaching — abolishing the AWP standard itself.If the AWP standard were abolished, plan sponsors and PBMs would need a mechanism to change the AWP-based terms of their contracts. Because many contracts were negotiated during this time of uncertainty, they contain provisions giving PBMs freedom to change contractual terms in response to the settlement. These provisions are now being used to change contracts.

Self-funded employers should be concerned about any language in a PBM contract that references the AWP settlement and provides PBMs the ability to change pricing terms or refers to maintaining "cost-neutrality" or "pricing stability." The settlement should be approved in the first quarter of 2009 and its provisions implemented this year. Firms should take these steps to defend their financial interests:

• Contact a broker/consultant or other expert if you are contacted by a health carrier or PBM announcing their intent to change any contractual provisions in response to the AWP settlement.
• Maintain a copy of your pharmacy contract, and send a copy to your broker/consultant.
• Seek possible workarounds if you are prohibited from releasing your pharmacy contract to your benefits consultant or other experts (e.g. contract non-disclosure agreements). No contract can prohibit a party from seeking the counsel of an attorney.

Emil Kraft and Scott Rodgers are principals with DeepView Solutions, a Seattle-based, research-focused pharmacy consulting firm.