Prescription Drugs - Medicine & Money
The truth about prescription drug costs.
PBMs
- Pharmacy Benefit Manager
- Report PBM Fraud
- What Are They Hiding?
- PBM Record Profits
- 10 Questions to Ask
- Bait and Switch
- Lawsuits
Record Profits
Pharmacy benefit managers (PBMs) are making off like bandits with record profits despite multimillion dollar fines and settlements for fraud and other abuses. These invisible middlemen in the healthcare cash continuum began innocently enough as claims processors.
PBMs are not purchasing agents—they don’t buy drugs. They aren’t insurance companies—they don’t incur risks. They don’t serve consumers face to face. Yet they make an astronomical amount of money by playing a shell game with businesses and consumers—securing rebates but refusing to share them or even reveal them.
Not all middlemen are bad. When they serve to bring together the purchasing power of numerous smaller businesses, they provide a valuable service. For example, banks are a worthwhile “middleman" between savers and lenders, and travel agents even in light of our ability to go online to purchase travel, provide a valuable “middleman” service.
But while the Internet, deregulation and relentless corporate cost-cutting have squeezed middlemen elsewhere, the health-care middlemen are prospering. They continue to get fat on health care dollars like a tick on a dog. The three largest pharmaceutical benefit managers, for instance, had net income of $1.9 billion last year.
Medco
Medco Health Solutions Inc., the biggest U.S. drug-benefits manager, reported
a 29 percent jump in fourth-quarter earnings and raised its 2007 forecast
on sales of more profitable generic prescriptions. Revenue rose 1.2 percent
to $10.9 billion. Medco's sales have risen for seven-straight quarters.
Medco's shares had their biggest percentage gain ever after the company
said net income increased to $228.8 million, or 77 cents a share, from $176.8
million, or 57 cents, a year earlier. Profit excluding certain items beat
analysts' estimates by 7 cents.
Caremark
Caremark reported that for the 2006 fourth-quarter, the company earned 71
cents a share on net revenue of $9.27 billion, compared with 64 cents a
share on net revenue of $8.37 billion in the year-ago quarter. Revenue for
its mail order pharmacy rose 5 percent to $3.2 billion even though claims
were down 1 percent from a year earlier primarily due to contract terminations.
Medicare and other new prescription claims pushed retail pharmacy claims up 1 percent to 112.8 million. Retail revenue rose 14 percent to $6.0 billion.
For fiscal 2007, Caremark expects adjusted earnings per share of between
$2.89 and $2.92, a 19 percent to 21 percent increase over fiscal 2006. The
company forecast first-quarter earnings per share of 68 cents.
Express
Scripts
Express Scripts announced record fourth-quarter net income of $147.2 million,
or $1.07 per diluted share, compared with 75 cents per diluted share for
the same quarter last year. Excluding non-recurring items in both quarters,
earnings per diluted share was $1.02, a 32 percent increase over the fourth
quarter last year.
For the year, the PBM reported net income of $474.4 million, or $3.34 per diluted share, compared with $2.68 per diluted share for 2005. Excluding nonrecurring items, earnings per diluted share was $3.29, a 27 percent increase. Gross profit for the fourth quarter increased 14 percent to $414.5 million, and for 2006 increased 25 percent to $1.497 billion.
Express Scripts also raised its 2007 diluted earnings per share guidance
to a range of $4.08 to $4.20 because of higher generic utilization, stronger-than-expected
claims volume and lower retail and home delivery drug purchasing costs.
The nation’s pharmacy benefits managers handle about 75 percent of the $235 billion spent on prescriptions every year. These companies have become increasingly important gatekeepers in Americans’ health benefits. PBMs administer the drug benefits coverage to the employees or members of its customers—big corporations, unions, government agencies, insurers and other organizations
In the case of Caremark, that distribution network is 60,000 pharmacies around the country and seven mail-order pharmacies. Last year, it processed more than 530 million prescriptions. Caremark currently has the contract to handle pharmacy benefits services for 4.5 million federal employees, retirees, and dependents.