Indiana PBM Fraud
On March 22, 2024, the Indiana Attorney General, Todd Rokita, announced that he is filing a suit against Pharmacy Benefit Managers (PBMs) and drug manufacturers for their part in raising the price of Insulin. This drug manufacturer and PBM fraud lawsuit follows multiple actions filed by other states on the same subject including Arizona, California, and New York.
Attorney General Rokita’s lawsuit specifically names PBMs Express Scripts, CVS Health Corp., Optum RX, and CaremarkPCS Health, as well as drug manufacturers Novo Nordisk and Sanofi-Aventis, alleging that these companies colluded to inflate insulin prices. The complaint states that since 2014, for the past decade, these PBMs and drug manufacturers inflated prices in excess of 1000%, when costs associated with manufacturing were declining.
Indiana’s civil action on this subject was filed under the Indiana Antitrust Act, Indiana Code § 24-1-2-1 et seq., the Indiana Medicaid False Claims Act, and the Indiana Deceptive Consumer Sales Act. In terms of PBMs and drug manufacturers’ alleged behavior, the complaint states that the companies utilize a “complicated drug distribution scheme” to mask actions related to overcharging patients for Insulin to derive profit.
This PBM fraud lawsuit filed by Attorney General Rokita alleges and emphasizes the severe impact that increased insulin prices have, by noting that diabetes ranks 7th in leading causes of death in Indiana. Further, approximately 640,000 Indiana residents are currently living with diabetes. Despite the prevalence of diabetes and the lethal nature of the disease, the cost of insulin, which is essential to treating diabetes, has increased from $20 to between $300-$700 in the past 35 years.
The Attorney General of Indiana spoke to the severity of this issue detailed in the PBM fraud suit and noted, “Diabetes is a public health crisis for Hoosiers. This is a serious condition that requires insulin, putting patients in the impossible position of choosing between health and financial security.”
“Our office hopes this case will also set a strong precedent for other pharmaceutical companies who want to take advantage of everyday Hoosiers,” Attorney General Rokita said. “Families are suffering enough already with the economic decline. Targeting and scheming against those who have a medical condition like diabetes is absolutely unethical.”
What are the key functions of PBMS in the Pharmaceutical Industry?
A Pharmacy Benefit Manager (PBM) is a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, and government employee plans, among others. PBMs play a crucial role in managing prescription drug benefits on behalf of health insurers, employers, and government entities. Some of their key functions are:
- Drug Benefit Administration: PBMs design and administer prescription drug plans, including formulary management (the list of covered drugs), drug utilization review, and medication therapy management.
- Negotiating Drug Prices: PBMs negotiate with drug manufacturers, pharmacies, and wholesalers to secure discounts, rebates, and other price concessions on prescription drugs. These negotiated discounts can affect the overall cost of prescription drugs for health plans and patients.
- Claims Processing: PBMs process prescription drug claims submitted by pharmacies and facilitate reimbursement to pharmacies on behalf of health plans or employers.
- Pharmacy Network Management: PBMs maintain networks of contracted pharmacies where plan members can access prescription medications. They negotiate contracts with pharmacies, set reimbursement rates, and monitor pharmacy performance.
PBMs faced criticism for their role in contributing to rising drug prices, lack of transparency in pricing practices, and potential conflicts of interest due to their involvement in various aspects of the pharmaceutical supply chain.
How can PBMs collude with Drug Manufacturers to raise insulin prices and commit PBM fraud?
- Rebates and Kickbacks: PBMs negotiate rebates and discounts from drug manufacturers in exchange for preferential placement on formularies, which are lists of drugs covered by insurance plans. Drug manufacturers may inflate the list prices of insulin, knowing that PBMs will negotiate discounts, allowing them to maintain high profits while appearing to offer discounts.
- Exclusionary Tactics: PBMs may engage in practices that limit competition, such as excluding certain insulin products from their formularies or implementing restrictive contracts that prevent competing manufacturers from entering the market.
- Complex Supply Chain Dynamics: The complex supply chain in the pharmaceutical industry, involving multiple intermediaries such as wholesalers, distributors, and pharmacies, can obscure pricing practices and make it difficult for regulators and consumers to identify instances of collusion or fraud.