Complaints Fill Hearing About Federal Employees' Health Plan

By Joe Davidson
Thursday, June 25, 2009

With about 8 million members, you'd expect the Federal Employee Health Benefits Program to swing a big stick in the prescription drug marketplace.

Yet the federal retirees, workers and their dependents -- including President Obama and members of Congress -- who participate in the nation's largest employer-sponsored health plan don't enjoy the low drug price competition and market dominance they theoretically should bring.

Members of Congress complained at a hearing yesterday about the lack of clarity in the pricing of medications for FEHBP members. "But that will change starting today," said Rep. Stephen F. Lynch, chairman of the House Oversight and Reform Committee's subcommittee on the federal workforce, the U.S. Postal Service and the District of Columbia.

Change will mean clearing away the smoke and mirrors that surround the employee program, which is run -- though in a way that leaves something to be desired -- by the Office of Personnel Management. It does not regulate or negotiate drug prices as other federal programs do. "Instead, it relies on competition among the various carriers and pharmacy benefit managers to keep prices low," Lynch (D-Mass.) said. "However," he added, "prices are not low." Health insurance plans rely on the managers to negotiate drug prices and provide administrative services.

Lynch said federal employee plans pay substantially more for drugs than other agency programs, including those run by the departments of Veterans Affairs and Defense, and Medicare, Medicaid and the Public Health Service. "Some research even shows that Costco and offer better prices for drugs . . . in spite of the fact that the federal program has the buying power of 8 million members," he added. "That's especially troubling."

Susan Hayes, a principal of the consulting firm Pharmacy Outcomes Specialists, said drug pricing through the pharmacy benefit managers system is "overly complex and hidden to purchasers, designed to confuse plan sponsors." These managers often get large rebates, as much as 50 percent, from drug manufacturers but "are never passed back to the plan sponsor" such as the OPM, she added. The OPM, of course, represents federal workers and taxpayers generally.

If that's not bad enough, pharmacy benefit managers routinely sell patient drug histories to drug companies without the knowledge of patients, doctors or plan sponsors, Hayes said. Her voice was soft, but her testimony was damning, even as she said the managers provide a "very valuable service" but have been allowed to run rampant without control.

Rep. Gerald E. Connolly (D-Va.) complained about the "shield of secrecy" that he said hides the full scope of the pharmacy managers' operations, and OPM Inspector General Patrick McFarland said that the contracts the employee health plans have with the managers organizations make auditing them "almost insurmountable."

For example, pharmacy benefits managers "have refused to allow us to determine the actual rebate amounts paid to the PBM," McFarland said, adding, "There's a good chance we are not getting a good deal because of the lack of transparency."

Despite this, Nancy Kichak, an OPM associate director, told the panel that the OPM contracts with insurance companies require them "to use standards which provide for PBM transparency, integrity and performance."

She questioned "whether increasing transparency alone will lead to lower pharmacy costs," a statement that was echoed by Mark Merritt, president of the Pharmaceutical Care Management Association, which represents the pharmacy benefit managers. He said transparency could increase costs by letting companies know what their competitors charge.

Kichak's statement did not sit well with Lynch.

The current system, he said, "is actually structured in a way and operated in a way to block oversight and block auditing. We cannot have that anymore." He was clearly perturbed when he added the drug pricing program is structured to "hide information from the consumer and auditors and the United States Congress."

Lynch said the OPM could declare the pharmacy benefits managers to be federal contractors, which would subject them to much greater transparency by law. Kichak said she didn't think the OPM had that power, because the managers contract with insurers and not the government. If the OPM does not have that authority, Lynch said he would introduce legislation that would define the managers as contractors.

Earlier in the day, the subcommittee approved legislation that would provide relief to the ailing Postal Service with a bill that would allow the agency to pay for the health benefits of current retirees out of its Retiree Health Benefit Fund instead of its operating budget.

The Postal Service estimates the measure would save the agency at least $2 billion a year for each of three years.

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