Medco's Clash With Clarity

Last year, an upstart pharmacy benefit manager for the first time snagged the kind of huge account that normally goes to industry giants like Medco Health Solutions (MHS) and Caremark Rx (CMX).

Envision Pharmaceutical Services won over an international labor union and a big health insurance network, in large part by promising so-called transparency. That is, Envision pledged to disclose and turn over all the incentives it receives from drug manufacturers in exchange for a flat administrative fee.

The Sheet Metal Workers International Association, negotiating on behalf of some 150,000 members and their families, felt that the deal made sense.

"There are so many hidden costs, hidden charges, hidden rebates [in the PBM industry] that -- if you don't know exactly what's going on -- your members start to suffer," says Thomas Kelly, the union's general secretary-treasurer. "It's kind of simple this way. Why complicate things?"

Indeed, critics contend that big PBMs like Medco, Caremark and Express Scripts (ESRX) enrich themselves at the expense of their clients, by taking in multiple sources of revenue -- such as manufacturer rebates -- that they never disclose. The PBMs insist that they are simply protecting trade secrets that, if divulged, would hurt them competitively and drive prescription drug prices up.

For its part, SMWIA was simply searching for ways to hold down health care costs so that its members might continue to enjoy affordable medical coverage. The union spotted prescription benefits -- where prices have really rocketed -- as an obvious target.

Kelly says he figured out that big PBMs earn tons of money through transactions that benefit customers less than the PBMs themselves. So the union started searching for alternatives.

Specifically, it looked for a PBM willing to reveal -- and ultimately pass through -- all the manufacturer payments it receives. The union says it chose Envision because the PBM "demonstrated the purest model as it related to transparency, full disclosure, auditability and accountability." Moreover, it says that the big three never even bid on the contract.