The average  price PBMs obtained for drugs from retail pharmacies was about 18  percent below the average price cash-paying customers would pay at retail  pharmacies for 14 selected brand-name drugs and 47 percent below the  cash price for 4 selected generic drugs. The FEHBP plans passed  on savings generated by the PBMs to enrollees in the form of lower out-of- pocket costs for prescription drugs in certain instances, such as through  lower cost sharing for drugs obtained through mail-order pharmacies, and  a smaller increase in premiums for all enrollees than might occur absent  the PBM savings. Pharmacies Included in PBM Retail Networks Must Accept Discounted Prices and Perform Various Administrative Tasks

Retail pharmacies that participate in the PBM networks used by FEHBP  plans are affected by PBM policies and practices. Processing PBM or other  third-party prescriptions involves additional administrative requirements  compared to cash transactions, and some PBMs may draw business away  from retail pharmacies by providing savings and other incentives to  encourage pharmacy customers to use PBMs’ mail-order pharmacies. However, pharmacy association representatives  report that PBMs’ large market shares leave many retail pharmacies with  little leverage in negotiating with PBMs. PBMs shared with the FEHBP plans certain rebates that a drug  manufacturer provides a PBM associated with their FEHBP business,  although the extent to which the PBMs retained a portion of these rebates  varied, depending on the contracts negotiated between the plans and  PBMs. For example, in financial reports submitted to the  SEC, two of the PBMs we reviewed stated that manufacturer rebates and  fees were key to their profitability. Concluding Observations

PBMs are central to most FEHBP plan efforts to manage their prescription  drug benefits, and PBMs have helped the FEHBP plans we reviewed  reduce what they would likely otherwise pay in prescription drug  expenditures while generally maintaining wide access to most retail  pharmacies and drugs. In written comments, OPM generally concurred with our findings. Relationships between PBMs  and manufacturers and pharmacies for other plans were beyond the scope  of this report. Appendix I: Scope and Methodology

We examined the use of pharmacy benefit managers (PBM) by three  Federal Employees Health Benefits Program (FEHBP) plans: Blue Cross  and Blue Shield (BCBS), Government Employees Hospital Association  (GEHA), and PacifiCare of California. Together, these plans accounted for  about 55 percent of the 8.3 million people covered through FEHBP plans  as of July 2002 and represented various plan types and PBM contractors. We also obtained pricing  information from retail pharmacies, interviewed officials at the Office of  Personnel Management (OPM), the federal agency responsible for  administering FEHBP, and associations representing PBMs and retail  pharmacies, and reviewed studies regarding the use of PBMs and  prescription drug payments. We did not independently  verify the accuracy of these plan-reported prices.
Why GAO Did This Study

Rising prescription drug costs have contributed to rising employer health plans premiums in recent years. Most federal employees, retirees, and their dependents participating in the Federal Employees Health Benefits Program (FEHBP), administered by the Office of Personnel Management (OPM), are enrolled in plans that contract with pharmacy benefit managers (PBM) to administer their prescription drug benefits. GAO was asked to examine how pharmacy benefits managers participating in the federal program affect health plans, enrollees, and pharmacies. GAO examined the use of PBMs by three plans representing about 55 percent of the 8.3 million people covered by FEHBP plans. For example, GAO surveyed 36 retail pharmacies on prices that a customer without third party coverage would pay for 18 high-volume or high-expenditure drugs and compared these prices to prices paid by the plans and PBMs.

What GAO Found

The PBMs reviewed produced savings for health plans participating in FEHBP by obtaining drug price discounts from retail pharmacies and dispensing drugs at lower costs through mail-order pharmacies, passing on certain manufacturer rebates to the plans, and operating drug utilization control programs. For example, the average price PBMs obtained from retail pharmacies for 14 brand name drugs was about 18 percent below the average price paid by customers without third-party coverage. Enrollees in the plans reviewed had wide access to retail pharmacies, coverage of most drugs, and benefited from cost savings generated by the PBMs. Enrollees typically paid lower out-of-pocket costs for prescriptions filled through mail-order pharmacies and benefited from other savings that reduced plans' costs and therefore helped to lessen rising premiums. Most retail pharmacies participate in the FEHBP plans' networks in order to obtain business from the large number of enrollees covered. Pharmacy associations report that the PBMs' large market shares leave some retail pharmacies with little leverage in negotiating with PBMs. Retail pharmacies must accept discounted reimbursements from PBMs they contract with and perform additional administrative tasks associated with claims processing. OPM generally concurred with GAO's findings. The plans and PBMs reviewed provided technical comments, and two independent reviewers stated the report was fair and balanced. One pharmacy association expressed strong concerns, including that the report did not more broadly address economic relationships in the PBM industry. GAO examined relationships between the PBMs and manufacturers and pharmacies specific to their FEHBP business. However, relationships between PBMs and other entities for other plans were beyond the report's scope.