October 16, 2013 – An audit by the City of Houston Controller’s Office concludes that the City lost millions of dollars in its self-insured prescription medication program.
For municipalities, as for any other self-funded company, there are often hidden costs to doing business with a PBM. The City of Houston’s agreement with CIGNA, for instance, allowed the company to charge the City one price for any given medication, but then to remit less to the pharmacy. CIGNA kept the difference. These so-called “spreads” cost the city’s plan participants $3.7 million in potential rebates.
“Our audit indicates that the City should… not rely solely on the plan administrator – CIGNA – to make decisions that should inherently benefit the City,” said Houston City Controller Ronald Green. “In the agreement with CIGNA, the average wholesale price and the qualification or preferences of generic and brand drugs were not in the best interests of the City.”
The Controller’s audit reviewed approximately 517,497 claims from the first year of a three-year agreement between the parties. The plan’s cost of drugs was $10.4 million, compared to the market average wholesale price of $8.4 million. As always, the devil was in the details, the contract allowed CIGNA to apply “positive margin” pricing, something not typical in a large PBM agreement.
Additionally, the Controller noted, “In the contract, CIGNA is permitted to choose the preferred drug based on the rebate, not on the efficacy-effectiveness of the drug nor the cost/benefit ratio of the medication. Clearly, the City should have significant input into the formulary offered to its employees and their dependents, and it appears we did not have that input.”
Read the full press release here: