“We explored the possibility of auditing the Express Scripts contract with the State but found that certain contract language prohibited us from accessing the information necessary,” State Auditor Doug Hoffer wrote in an email to lawmakers on the House Health Care Committee.
St. Louis-based Express Scripts is one of the largest pharmacy benefit managers in the United States – netting $1.3 billion in profits last year — and it holds the VSEA contract as well as a contract with the state’s largest private health insurer, Blue Cross Blue Shield of Vermont.
The House committee has proposed legislation that would require greater transparency from pharmacy benefit managers and ban certain practices.
Lawmakers on the committee have said the proposals are necessary to determine what portion of pharmacy costs go toward the provision of care versus benefit managers’ overhead.
The proposals are already seeing pushback from industry lobbyists, who argue greater regulation will ultimately lead to higher costs.
In his note to lawmakers, Hoffer said his office had hoped to determine whether that would actually be the case for the state employees’ health plan.
“Specifically, we wanted to assess whether the state achieved the lowest cost prescription plan as a result of selecting the ‘traditional’ vs. ‘pass-through (transparent)’ prescription pricing model,” Hoffer writes.
A “pass-through” model charges a flat fee for administrative services on each claim or on a per member, per month basis. Any savings from discounts a manager negotiates with pharmacies or rebates from drug makers pass through to the health plan. The rebates occur when the members of a health plan buy a certain amount of drugs the manufacturer has made eligible for a cost incentive.
Under the “traditional” model, a manager is under no obligation to pass on discounts or rebates to the health plan.
A pass-through plan is considered more transparent because it requires the manager to disclose all revenue streams.
The projected costs were a “significant component” of Vermont’s decision to hire Express Scripts and go with a traditional contract model, according to Hoffer.
The purpose of an audit would be to check the math and make sure the state is receiving a lower-cost prescription drug benefit, he said.
When Hoffer’s office attempted the audit, it discovered that, “certain contract language prohibited us from accessing the information necessary to answer the question.”
His office had hoped to do its own cost analysis in advance of VSEA’s signing another contract with Express Scripts last year. Hoffer alerted the attorney general and department of human resources, but the state went ahead and inked a two-year, $60 million contract containing the same audit-proof language.
Statute already requires the state’s pharmacy benefits manager to report the information Hoffer would need, but there’s a loophole that allows for the reporting to be bypassed as part of contract negotiations.
Hoffer told lawmakers that the state was “unwilling or unable” to remove that language in its last round of negotiations with Express Scripts.
An Express Scripts spokesman told VTDigger that one of the problems with transparency measures generally is that they could require a company to disclose proprietary pricing information.
Hoffer suggested lawmakers could update the statute to close the reporting loophole for the VSEA pharmacy benefits manager, but require that the information remain confidential, thereby allowing the contract to be audited.
Rep. Chris Pearson, P-Burlington, said the Health Care Committee plans to introduce legislation to close the loophole.
“The state dropped the ball on this contract,” Pearson said, “You shouldn’t sign anything that doesn’t allow you to know whether you’re getting a good deal.”
Kate Duffy, commissioner of the human resources department, which negotiated the contract, said Express Scripts offered the best bid in the state’s competitive bidding process.
Her focus during the negotiations was to procure excellent benefits for state employees at the most affordable rate for taxpayers, she said, and she believes the state came away with the best deal possible.
“We did have discussions with the auditor and were interested in achieving the desired language,” Duffy said. “We did not, however, have the ability to compel a more favorable bid, to demand lower prices, or to unilaterally write the contract.”
Legislation that the Health Care Committee has already added to a larger health care reform bill would preclude aspects of traditional model contracts and require reporting on others.
That’s caught the attention of the large national corporations that dominate the pharmacy benefits management industry.
Lobbyists for CVS Caremark and Express Scripts testified before the committee, saying that transparency will be expensive and the proposed regulations would drive up health care costs in Vermont.
Blue Cross Blue Shield of Vermont’s contract with Express Scripts uses a traditional model. Going with a pass-through model offered by Catamaran, a smaller pharmacy benefits manager, would have cost an additional $3.5 million, BCBSVT said.
That added cost isn’t entirely representative of the additional costs of a pass-through plan, however, because Express Scripts’ larger number of covered lives allows it to negotiate lower prices with drug makers.
The regulations under consideration at the Statehouse are likely to face continued resistance from that lobby, not because Vermont or its insurers are large clients, but because the state frequently drives the national conversation with its laws and regulations.
Rep. Sarah Copeland-Hanzas, D-Bradford, one of the lawmakers on the Health Care Committee leading the push for greater regulation, said she’s not concerned about pushback from the industry.
“As a matter of public policy, transparency and assurance that we know where our health care dollar is going is more important than protecting corporate profits,” she said.
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