Pharmacy Clawback Issue

What is the Pharmacy Clawback issue? 

Pharmacy benefit managers will assign a price to the prescription claim that is much more expensive that the pharmacy’s acquisition charge, then reduce future payments to the pharmacy that take back a portion of the copay that the pharmacy collected to slightly over the acquisition cost of the medication by the pharmacy. Neither the initial amount paid by the patient, or the amount clawed back by the PBM, appear to have no relationship to Average Wholesale Price, Wholesale Acquisition Cost or any other terms that the pharmacy may or may not contract for in terms of reimbursement from a PBM.

What is an example of this clawback situation?

Pharmacy submits a claim for a prescription drug, typically a generic prescription drug. The pharmacy is instructed by the PBM to collect a copay of $100. The acquisition cost of the generic medication is $25. The PBM reduces, in the next reimbursement to the pharmacy, this same claim by $73 and shows the “negative funding” as an adjustment to the original claim. Therefore the pharmacy is reimbursed $27 (all from the patient), makes a $2 profit and the PBM retains $73.

Why is this occurring?

It is difficult to ascertain the exact reason this is occurring. It appears from antidotal situations that it occurs either when the patient presents a discount card or is in a front end deductible. In either case, the patient is paying a larger amount than in needed and the PBM is retaining these excess amounts.

Why is this clawback situation a problem under a discount card?

Discounts cards represent to the patient that the patient will save significant amounts if the card is used. However, this is clearly not the case as the pharmacy, without use of the card, would charge the patient slightly over acquisition cost. In this case, the patient is being deceived that they are saving money when in reality the patient is being charged an excessive amount for the prescription.

Why is this clawback situation a problem if under a front end deductible?

Employers set deductibles so that patients can make wise selections and use the most cost effective medications available for their conditions. Inflating the cost of these drugs does not achieve these goals and end up costing the consumer. Further, by inflating the costs, patients reach the front end deductible earlier than they would had if the cost not been inflated and reach the cost share (copay) level of the benefit plan making it easier for the patient to purchase the drugs had the claim not been inflated. This practice encourages over utilization of medication. Insurers pass on these additional costs to policyholders through increased premiums. Insurers and PBMs benefit from increased utilization, additional rebates and of course the additional profits made by clawing back copay amounts.

Some PBMs have argued that the discounted arrangements in contracts with employers only pertain to the “funded” portion of the benefit and not the portion paid by the patient, since the PBM has no obligation to the patient. However, rarely (never) do the contract terms discuss that discounts are not applied to claims in a front end deductible and in fact this lack of omission of intent to not discount these claims allow employers to believe that ALL claims are applied to the overall aggregate discounts in PBM/employer contracts.

Is the clawback situation fraud?

Fraud is defined as the intentional deception to gain financially. Health care fraud is defined as “deceiving a public or private health insurer into paying claims that are not owed or recklessly submitting claims…the essence of fraud is concealment, misrepresentation, misstating the truth, withholding information that would allow the truth to be known, or engaging in practices that will mislead others.”

While fraud is ultimately determined by a judge or jury, it seems that the clawback situation has the elements of fraud. The patient is being deceived into paying a higher amount than needed because the patient believes they are paying a discounted cost for the drug. The pharmacy is being deceived by believing that they are getting the full copay, only to have it taken away on the next reimbursement from the PBM. The employer is being deceived into believing that members are paying a true cost for the drug, but instead are paying an inflated cost with a large portion retained by the PBM, unknown by the employer. Only the insurer, who can pass back the costs in the form of additional premiums in the next renewal, and the PBM who immediately benefits financially is not being deceived and in fact are the parties who benefit from the clawback. In addition, both the PBM and insurer benefit through additional rebates (on subsequent use of brand drugs) paid by pharmaceutical manufacturers.

Susan Hayes has over 35 years’ experience in the health care and pharmacy benefit industries. She is a licensed pharmacy technician and is an Accredited Health Care Fraud Investigator.  She is a frequent lecturer on pharmacy topics and has been quoted in and authored numerous articles on pharmacy benefit programs. In June 2009, she testified to Congress on transparency issues in the pharmacy benefits industry. She has a Bachelor’s Degree in Criminal Justice from Northeastern Illinois University and is currently pursuing her Master’s Degree in Criminal Justice from Boston University, Metropolitan College.