Pa. legislators passed a law to regulate pharmacy middlemen. But the state doesn’t enforce it.

(Getty Images)

In September 2016, Eric Pusey’s Olyphant pharmacy received notification that he owed CVS Caremark $143,594.75.

The problem was with a series of prescriptions that Pusey had filled and charged to Caremark, a pharmacy benefit manager or PBM, a representative had written. The prescribing doctor had written instructions that the drug should be taken every six hours. What Pusey wrote on the patient’s bottle was “4 times a day.” 

PBMs are pharmaceutical industry middlemen hired by insurance companies to oversee the prescription drug side of health care plans. When a patient picks up an expensive drug from a pharmacy and only pays a copay, it’s the PBM’s job to reimburse the pharmacy for the rest of the drug’s cost, plus a small dispensing fee. 

In that role, it’s common for pharmacy benefit managers to audit individual pharmacies and ensure the drugs they’re being billed for were appropriately prescribed and dispensed. That’s what led to Pusey’s pharmacy being charged over $143,000.

Because the wording Pusey put on the bottle may have resulted in more medicine being taken and dispensed, Caremark wanted back the entire cost of the medicine, and six refills — which cost Pusey around $22,000 per bottle. 

“That literally was putting me out of business,” Pusey said. “I mean that one audit, on that one set of prescriptions.”

(Getty Images)

Within months, the practice would become illegal — at least theoretically. And even with new legislation working its way through the general assembly, the problem is likely to persist in Pennsylvania, with pharmacy benefit managers finding creative ways to account for every penny, often at independent pharmacies’ expense.

‘It had no teeth’

Audit findings like the one that led to Pusey’s charge are relatively common. So much so that lawmakers had already been working to address it.

At the time, Pusey was also the president of the Pennsylvania Pharmacy Association, and he had been lobbying for what’s known as a “fair audit law.”

The law was meant to ban PBMs from charging pharmacies large sums of money over “clerical errors.” As long as a drug is properly dispensed to a patient as prescribed, Pennsylvania law says a pharmacy benefit manager can’t request the entire amount reimbursement for the drug back.

“Everybody was ecstatic,” Pusey said about the passage of the bill.

But within a few years, Pusey began hearing from other pharmacists that they were still being asked to return massive sums of money when simple clerical errors in their record keeping were found during audits. Now, he’s reevaluated the legislation.

“It had no teeth,” Pusey said. “It was not written into the legislation that there was any enforcement.”

Rob Frankil, the current president of the Philadelphia Association of Retail Druggists, agrees.

“Not a week goes by that I don’t get a complaint about an aggressive audit from a PBM,” Frankil said.

The Pennsylvania Insurance Department said that it received 43 complaints from pharmacists regarding “aggressive” PBM audits in 2023 alone. And lawyers who represent numerous Pennsylvania pharmacies have confirmed that it’s still relatively common for PBMs to claw back money for expensive prescriptions over clerical errors despite legislation aimed at stopping the practice.

Additionally, both PBMs and the Pennsylvania Insurance Department have interpreted another section of the 2016 audit law to mean that pharmacy benefit managers can still request full reimbursements back.

That section of the law, Pusey and other pharmacists thought, was included to ensure that PBMs could still recoup full reimbursements from pharmacies in genuine instances of fraud, waste or abuse. 

But the insurance department has read it to mean that clerical errors found during what have become known as “fraud, waste and abuse investigations,” and not audits, are fair game — regardless of whether those investigations turn up anything more than record keeping mistakes.

Pharmacists say that those investigations are being used in place of audits, and that the process for both procedures are extraordinarily similar, and often lead to the same result.

Brad Gallagher, a lawyer who represents numerous pharmacies in audit disputes, confirmed the practice is relatively common in both Pennsylvania and other states with fair audit laws.

“They’ll claim that they are conducting a fraud, waste and abuse investigation, and basically every law that would apply to a PBM has exceptions for fraud, waste and abuse,” Gallagher said. “PBMs consider fraud anytime that there’s anything wrong with a claim.” 

Another lawyer who represents pharmacies for a different law firm than Gallagher agreed.

“I don’t want to say I see it very often, but I see it on a regular basis,” said Dae Lee, a lawyer who represents numerous pharmacies, including in Pennsylvania. “Pennsylvania has PBM fair audit laws, but there’s an exception to it, which is a fraud, waste and abuse investigation.”

Since the beginning of 2023, over 100 independent pharmacies in Pennsylvania have closed, according to the Philadelphia Association of Retail Druggists. They pin much of the blame on PBMs.

Prescription for trouble: Pennsylvania pharmacists say PBMs are driving pharmacy closures

The three largest pharmacy benefit managers, CVS Caremark, Optum and Express Scripts’ Evernorth, are estimated to work with roughly 70% of Americans’ insurance plans, both public and private, according to the American Medical Association. Many pharmacists feel they have no choice but to work with PBMs, otherwise they’re likely to lose all customers whose plans are tied to them. 

Even though Pennsylvania never enforced the fair audit law, lawmakers are already looking to rein in other PBM practices that pharmacists say are harming their businesses.

Spokespeople for Optum Rx and Express Scripts did not respond to requests for comment. A spokesperson for CVS Caremark directed questions to the Pharmaceutical Care Management Association, a Washington, D.C.-based trade group that represents many of the largest PBMs.

David Lumbert, senior director of public affairs for the Pharmaceutical Care Management Association, said, “Auditing terms are based on contracts between pharmacies and plan sponsors, so PCMA can’t comment on specifics related to the audits.”

How the fair audit law failed

Pusey blames the fair audit law’s failure on its lack of an enforcement mechanism, something he didn’t realize was an issue when it was initially passed.

The language of the bill tasks the Pennsylvania Insurance Department with promulgating rules to ensure its enforcement and with investigating instances of audit abuse.

However, Adrian Sipes, a spokesperson for the Pennsylvania Insurance Department, told the Capital-Star that the agency hasn’t written any such rules. Moreover, Sipes says the department’s interpretation of law means that “nothing in the Act gives PID the authority to directly regulate or audit PBMs.”

Sipes attributes this largely to federal laws that set standards for most of the nation’s health insurance plans and ensure some uniformity in how states regulate the industry. Pharmacy benefit managers’’ lawyers have argued in courts across the country, sometimes successfully and sometimes not, that those laws preempt many state-level regulations of their clients.

“It is important to note that the Department may only investigate and enforce the provisions of the law insofar as the actions or inactions being investigated relate to prescription drug coverage under a health insurance policy,” Sipes wrote. “This does not include coverage through self-funded employer plans, Medicare, Medicaid, Medicare Advantage, or other government-sponsored coverage.”

FTC chair says big drug middlemen aren’t cooperating in antitrust investigation

According to Sipes, those laws mean more than 75% of health care plans in Pennsylvania are not covered by the fair audit law.

The department did not answer follow-up questions about its enforcement of the fair audit law for the PBMs it does have regulatory authority over, or why it never promulgated rules.

“We have an entire department in Harrisburg — the entire floor of an office building — the insurance department of Pennsylvania, that only has authority over commercially insured people who are not self funded,” Frankil said. “It’s absolute nonsense, but that’s their statutory authority.”

Lee said that Pennsylvania’s fair audit law has given him a tool when negotiating penalties from audit or investigation findings with PBMs on behalf of pharmacies.

“I’m not sure whether [the law] made PBMs recoup less frequently on clerical errors, but it certainly gave the pharmacies ammo when disputing PBM audits,” Lee said.

Pusey hired an attorney at $500 per hour who was ultimately able to get the penalties against his pharmacy dropped, in exchange for an agreement that Pusey would contact prescribers in any future instance when he would rewrite dosing directions. The total cost, which Pusey estimates at around $15,000, was far cheaper than what Caremark sought from him.

Lumbert, the spokesperson for the pharmacy benefit manager trade group that represents many of the largest PBMs, directed questions regarding whether fair audit laws apply to fraud waste and abuse investigations to the Pennsylvania Insurance Department.

The Insurance Department said it had no authority over what it called “investigative audits.”

Lumbert said in a separate statement that “Pharmacy audits protect patients by reducing health care system abuse and other patient dangers. While most pharmacies are responsible stewards, not every pharmacy does the right thing. PBMs work to minimize abrasion when performing these audits and bolster patient safety by catching evolving schemes.”

What’s next for PBMs in Pennsylvania?

Like many issues with pharmacy benefit managers, a number of lawmakers from both sides of the aisle have lined up to cry foul.

Gov. Josh Shapiro has also announced his support for PBM reform, tweeting out his desire to sign a bill reining them in as recently as June 12

Even Sipes, the Insurance Department spokesperson, voiced his desire to see some sort of change in the status quo.

“[The Insurance Department] and the Shapiro Administration know that one of the most pressing challenges facing people today are high prescription drug costs,” Sipes wrote in a statement. “These high costs impact how Pennsylvanians receive the medicine they need and the independent pharmacies who are being forced out of the market – and PBMs are part of the problem.”

A comprehensive PBM reform bill moving through the House clarifies that the companies cannot request full reimbursements back over clerical errors, but it’s unclear whether the insurance department could enforce that aspect.

“There’s nothing I can really do as a state elected official on that issue other than encourage my friends at the federal government to take action,” Rep. Jessica Benham (D-Allegheny), the bill’s primary sponsor, told the Capital-Star.

The bill also aims to set standards for how PBMs determine reimbursement costs for drugs with the aim of making sure pharmacies aren’t losing money when they dispense medications. And it would limit a practice called “patient steering” — when PBMs push patients to use pharmacies in many cases owned by the same parent company.

Another key tenet of the bill would require PBMs to report more information to the insurance department about where the companies make their money and the payments they receive from drug manufacturers.

“Having a sense of what’s happening there is really helpful and could lead to potential future regulation,” Benham said. “We don’t know what more is needed, until we have a little bit more transparency.”

Rep. Valerie Gaydos, the bill’s primary Republican co-sponsor, believes that part of the bill will be both the easiest to enforce and the most likely to have future impact.

“There are a lot of things that are in this bill that prohibit certain practices, but at the end of the day, nothing is going to matter if there isn’t transparency in the insurance department,” Gaydos said.

But Gaydos is also aware that the bill’s effectiveness will come down to enforcement.

“If the [insurance] department doesn’t use their legal team to follow up on it and they let it go … What else can we as legislators do,” Gaydos said.

She pointed specifically to Shapiro’s office as being the final arbiter of whether or not the state focuses its legal resources on ensuring pharmacy benefit managers comply with any legislation. For his part, Shapiro has asked lawmakers to send a bill to his desk.

“Nearly every independent pharmacy owner that I have talked to, has said they only have a couple of years before they can no longer afford to stay in business,” Benham said. “I think that there is an urgency on this issue that is striking no matter what part of Pennsylvania you live in.”

The post Pa. legislators passed a law to regulate pharmacy middlemen. But the state doesn’t enforce it. appeared first on Pennsylvania Capital-Star.