Precept Employee Benefits Blog

A story was reported in the Wall Street Journal recently that could have a big impact on employers.  As reported in the WSJ on October 6, 2006, ("How Quiet Moves by a Publisher Sway Billions in Drug Spending"), First DataBank raised the Average Wholesale Price (AWP) that pharmacies get paid for dispensing brand names back in 2002 by an average of 25%, in some cases doubling what pharmacies should have been paid to dispense the brand name drugs.  This AWP inflation was made in conjunction with McKesson, the largest wholesaler of brand drugs.  The practice was exposed this year, a settlement is in the works, and corrected pricing will save about $7 billion in 2007. 

End of story?  No, it shouldn’t be.  First of all, health plans and pharmacy benefit managers (PBMs) which look out for employers’ interests should have acted when the inflated pricing occurred.  Several health plans apparently objected, including United HealthCare, but no action was taken.  And so far there have been no efforts by health plans or PBMs to address five years’ worth of pharmacy over payments.

Since McKesson is the largest supplier of drug pricing, it seems likely that other AWP pricing vendors would have used the same faulty data, so even if the health plan or PBM doesn’t use First DataBank, the same overpayment has probably occurred.  So far this issue has not been addressed by the health plans or PBMs.

And there has been no discussion of collecting the overpayment from pharmacies which benefited from the deception.  Based on the WSJ article, it’s probably about $5 per brand prescription (generics are priced differently), so the direct impact for self-funded employers is meaningful.  And it undoubtedly contributed to the premium escalation for insured employers, since the rise in pharmacy costs was one of the factors cited for increasing premiums in recent years.

These issues have to be addressed by health plans and PBMs.   The silence we have heard so far should concern us all.