Selling energy on the open market was one of the bright ideas of the 1990s. The result was Enron. Another was using pharmacy benefit managers (PBM) to act as middlemen for governments and large employers, supplying prescription drugs at reduced prices to their clients' employees.
Three large companies have staked out most of the PBM market since then -- Medco, Caremark and Express Scripts. Together they control the prescriptions dispensed -- and sometimes not dispensed -- to an estimated 200 million Americans.
All are coming under increasing scrutiny by prosecutors and consumer advocates, particularly in light of New York Attorney General Eliot Spitzer's broad assault on fraud in the insurance industry.
Medco Associate U.S. Attorney Jim Sheehan has accused Medco of defrauding federal customers by only partially filling, switching and even destroying their prescriptions.
Express Scripts Spitzer has charged that Express Scripts "Lorraine" by inflating the costs of prescription drugs to New York State's largest employee health plan.
Caremark In a Florida case, Caremark is accused of reselling returned drugs and in Tennessee, a class action suit charges that Caremark violated the Tennessee Consumer Protection Act with its mail order service policy.
The hope was that PBMs would hold down drug prices by negotiating discounts from drug manufacturers but drug prices have soared for individuals and corporate clients alike, causing many to question whether the PBMs are really producing the savings they claim.
One advocacy group, Taxpayers Against Fraud, predicts the PBMs will collapse in disgrace, just as Enron did, once their inner workings are brought to light.
"What happens in these situations is that the public gets a long, hard look inside a very ugly industry and decides to simply do away with it altogether or to regulate it so severely that the game board no longer looks the same," Taxpayers Against Fraud communications director Patrick Burns said in an interview published by TheStreet.com.
The companies claim they have lived up to their promise and cite a recent study which estimated PBMs save their customers as much as 25% off their prescription bill. The PBMs are eagerly awaiting the 2006 Medicare drug benefit, expected to manage hundreds of millions of dollars worth of prescriptions for retirees.
But despite their glowing self-reviews, the companies all face regulatory and litigation challenges, with Medco perhaps most seriously threatened.
Medco faces a whistleblower lawsuit that threatens to lay bare some of the more unattractive aspects of the firm's inner workings. It follows a number of state probes that mostly ended badly for the company.
Associate U.S. Attorney Sheehan is accusing Medco of "active and constructive fraud." He alleges the company violated the False Claims Act by billing for services it did not provide and improperly dodging penalties. Fines under the Act can reach hundreds of millions of dollars.
In a recent hearing, U.S. District Judge Clarence Newcomer described as "well-pleaded" the government's allegation that the company has shorted its customers.
Medco settled an earlier case by agreeing to pay $29 million and adhere to new standards for switching patients' prescriptions. The company agreed to tell patients and doctors if it had financial incentives for suggesting a switch.
In complaints to ConsumerAffairs.com, consumers have complained of lengthy -- sometimes life-threatening -- delays in filling their prescriptions, substituting one drug for another and arbitrarily canceling prescriptions without notifying the patient.
The most frequent complaint, however, is that Medco deceives customers into paying for a 90-day supply of drugs, claiming they will save money, and then delivering only a 30-day supply for the price of 90.
"My plan says that if I go thru Medco, I can get 90 days worth of this drug for $30. So, I tried to save money and do exactly that," said Chris of El Segundo, CA. "But Medco sent me only 15 days of the medication for $30 -- the same price as the 90 day supply."
Caremark has been accused of re-selling prescription drugs that were returned by previous customers and never tested for possible damage or contamination.
Much of the information in the Caremark case has not been made public but the judge has ordered that Caremark CEO Mac Crawford be made available for a deposition no later than Dec. 15. It's highly unusual to require testimony from CEOs and the company says allegations against Crawford are "third-hand hearsay."
The Tennessee suit accuses Caremark of unfairly and deceptively representing to consumers that they must use the companys mail order pharmacy system rather than retail pharmacies.
Attorneys general from 23 states and the District of Columbia have asked for information about the company's business practices.
Sara, a retired nurse in Pasco, Washington complains that the company routinely refuses to fill her prescription for a powerful pain killer needed to keep her Reflex Sympathetic Dystrophy under control.
"They stated (the doctor) is giving me too many doses," Sara said. "One giant, rich company calls the shots as to whether I will be a bit eased of pain or not."
"It all lies in Caremark's hands and there is noting I can do about it. Once again the little man loses," she said. "I only know that I can't and won't tolerate this pain much longer."
As usual, New York's Spitzer minced no words in describing his case against Express Scripts. The company "engaged in a series of deceptive schemes," he said.
"It improperly lined its pockets at the expense of health plans and consumers, driving up the very drug costs it is supposed to lower," Spitzer charged.
Spitzer said the company inflated the cost of generic drugs, diverted millions of dollars in rebates to itself, induced doctors to switch patients' prescriptions to favor manufacturers who paid kickbacks and sold confidential data belonging to the state health plan.
"Express Scripts is successfully expanding its revenue base by adding new clients, striking new alliances, and acquiring selected businesses," according to Fitch Ratings, which has assigned a "stable" rating to the company, which reported $442 million in free cash flow during the twelve months ending June 30, 2004.
Consumers' evaluations are less glowing.
"My 6-year-old diabetic daughter was denied coverage of a potentially life saving medication, Glucose Gel," said Lorraine of Long Island, NY, in a complaint to ConsumerAffairs.com.
"I am an insulin dependant diabetic using a Metronic Insulin Pump," said Kevin of Lancaster, PA. "I have been trying (for 19 days) to get supplies" from Express Scripts, he wrote.
Consumers Happy, PBMs Claim
All the bad news and complaints are news to the pharmacy benefit managers' public relations teams.
"Consumers relying upon the mail-service pharmacy option are overwhelmingly satisfied -- with Medicare beneficiaries reporting the highest levels of satisfaction - and would recommend this option to family and friends," according to a study released earlier this week at the Pharmaceutical Care Management Association's (PCMA) annual meeting in Phoenix.
"Numerous data have shown that mail-service pharmacy is a proven avenue to providing consumers and purchasers with lower prescription drug costs, improved safety, more privacy, and greater drug therapy compliance," said PCMA President Mark Merritt. "With these findings, we now know that mail-service pharmacy consumers are also overwhelmingly satisfied on a wide range of indicators - timeliness of drug delivery, condition and accuracy of drugs received, and ease of reaching a pharmacist.
If the industry's critics agree on one thing, it is that PBMs need more "transparency" -- meaning that consumers and doctors should be able to know when the companies are making decisions because of kickbacks or other incentives offered by drug makers instead of basing them on concerns about their clients' safety and health.
The companies contend that transparency would not necessarily be helpful and might even hinder their ability to get customers the best possible prices on drugs, a stance the Federal Trade Commission (FTC) has endorsed.