Medco's Talking Cure

Meanwhile, competitor Caremark still faces a multistate probe of its own.

Moreover, the company has been losing some business as well. At least two state groups, including the giant California Public Employees' Retirement System, have recently abandoned Caremark in favor of seemingly more transparent PBMs.

Alan Kellogg, a consultant who helps big organizations negotiate with PBMs, says that Caremark actually walked away from an existing contract covering 300,000 people instead of answering a call for so-called pass-through pricing.

"Everybody is moving toward transparency," says Kellogg, a principal at the consulting firm HealthLinX. "So unless Caremark changes its strategy, I think it could have problems."

Still, PBMs seem to be relying less on manufacturer rebates -- and far more on specialty drug sales -- for their future growth. Following a recent flurry of deals, all three of the major PBMs now operate big specialty pharmacies that supply especially expensive drugs.

Kellogg has already caught one PBM playing games in this high-stakes arena.

The PBM was trying to dispense Imitrex Injectable, a migraine treatment, at specialty rates rather than via traditional mail service billing, he explains. "This increased their reimbursement by 7 points," Kellogg says. "That's quite an increase for no additional work."

The specialty pharmacy business brings in much higher margins than more traditional PBM work. However, Medco at least has portrayed that difference as justified.

"The two business models are very different, with specialty requiring more services and an infrastructure to support these services," Medco's Ann Smith says. "This high-touch, coordination-of-care business model requires higher margins to support the delivery of these additional services."

Smith points to the specialty pharmacy business as a "very important part" of Medco's growth strategy right now. And she believes that business, with its 20%-plus growth rate, will "absolutely" become even more important as time goes by.

Abrams, who has been studying PBM transparency for some time, fears that PBMs will now seek to fatten their profits -- at their customers' expense -- on the drugs that cost the most.

"We've just been catching up with the last conflict," he declares. "And now there's this new one."