Managing health care

The increasing cost of prescription drugs is a key component of rising employer health care costs. In 2001, total U.S. employer health benefits costs rose 11 percent, while prescription drug costs rose 17 percent.

To help manage prescription drug benefits, many insurers and employer-sponsored health plans contract with pharmacy benefit managers (PBMs) who, among other things, negotiate drug prices with pharmacies and drug manufacturers.

Most federal employees, retirees and their dependents participating in the Federal Employees Health Benefits (FEHB) program are enrolled in plans that contract with PBMs to manage their prescription drug benefits.

Congress asked the General Accounting Office to examine the PBMs' role within FEHB plans and address questions such as: Do PBMs achieve savings and, if so, how? How do FEHB plans' use of PBMs affect enrollees, including access to prescription drugs and out-of-pocket spending? How are PBMs compensated for services provided to FEHB plans?

Not surprisingly, GAO found that the major PBMs achieved savings for FEHB-participating health plans by using three key approaches: obtaining drug price discounts from retail pharmacies and dispensing drugs at lower costs through mail-order pharmacies; passing on various manufacturer rebates to the plans; and using intervention techniques that reduce the use of certain drugs or substitute other, less costly, drugs. An example would be the limitations imposed on the use of Prilosec and Celebrex.

The average price PBMs negotiated for the drugs from retail pharmacies was about 18 percent below the average cash price customers would pay at retail pharmacies for 14 selected brand-name drugs and 47 percent below the average cash price for four selected generic drugs.

These price savings probably overstate PBMs' negotiating success because, absent a PBM, FEHB plans would likely manage their own drug benefits and also attempt to negotiate discounts with retail pharmacies.

PBMs provide plans with even greater savings when drugs are dispensed through their mail-order pharmacies. The average mail-order price was about 27 percent and 53 percent below the average cash price customers would pay at a retail pharmacy for the selected brand-name and generic drugs, respectively.

The good news is that GAO concluded that PBMs have helped FEHB plans reduce what they would likely otherwise pay in prescription drug expenditures while generally maintaining wide access to most retail pharmacies and drugs. But I don't think we needed a GAO report to tell us that. What would be of interest is which PBMs do the best job and/or how do FEHB plans that do not use PBMs compare?

Congress did not ask GAO to look into that, so for now, we are in the dark until some bright member of Congress asks for that information.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at


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