Complexity May Help Mask Practices

But Cahn asserts the definition manipulation takes place in the highly complex world of PBM contracting, which includes terms such as "branded generics" and "multi-sourced brands" - both of which provide wiggle room in categorizing products.

Categorizing a drug as a brand or a generic is integral to how a PBM determines its payment formulas and guarantees. Payments, in turn, are generally based on a drug's average wholesale price (AWP). PBMs use AWP listings from data warehouse companies — such as First DataBank Inc. and Medi-Span — to establish the pricing discounts and rebate levels that they provide to Rx payers. For example, a PBM may charge an Rx payer AWP minus 15% to 18% for a brand drug, and roughly AWP minus 60% for a generic drug that has been placed on a maximum allowable cost (MAC) list.

Using these formulas, Cahn contends, PBMs will switch definition of brands and generics for the purposes of:

Invoicing the client. The PBM may call the dispensed drug a brand because the contract allows far higher charges on brands than generics, typically around AWP minus 18% for brands and around AWP minus 58% for generics, she says;

Deciding whether to pass through rebates to the client. The PBM may label the drug as a generic, which would enable the PBM not to pass through any rebates since PBM contracts almost always state that rebates will be passed through only on brand drugs, Cahn adds; and

Demonstrating a high generic fill rate. The PBM may count a brand drug as having been generic to demonstrate a generic fill percentage rate, she says.

When asked by DBN to respond to these allegations, the country's three largest PBMs touted their transparency of pricing, and said they follow uniform industry standards in defining brands and generics.

Medco Health Solutions, Inc. "has one of the most transparent business models in the industry in which pricing is clearly laid out for our clients," said spokeswoman Jennifer Leone Luddy. "As such, we are not aware of any of these issues," she says.

CVS Caremark Corp. uses indicators contained in the regularly updated Medi-Span Master Drug Database (Medi-Span) and its associated files, or another nationally available reporting service of Rx drug information, to determine the classifications of drugs as either branded or generic, the company said, adding that this is in line with industry standards. "We work directly with our [PBM] clients as necessary to address any specific requirements they may have with respect to how brand and generic drug classifications are determined," CVS Caremark says.

Express Scripts, Inc. uses a consistent, uniform approach to defining brands and generics for all clients, says Michael Fondell, vice president of sales and marketing operations. "These definitions are an important part of our contracts with clients," he adds. "This is another example of our business model and commitment to ensuring clients and their plan members maximize the benefits of increased generic fill rates by using proven programs such as step therapy and zero-dollar copay."