If you think the labyrinth of U.S. government agencies and congressional subcommittees is complicated, be grateful you are not a pharmacy owner! Just to get your drugs reimbursed, you must navigate a river of upstream, midstream, and downstream suppliers, health plans and insurers, employers and other payers (including federal and state governments), rebate aggregators, “white and brown baggers,” and an alphabet soup of entities/concepts called things like PSAOs, GPOs, NADACs, ASOs, MLRs, AWPs, WACs, U&Cs, MACs, BERs, GERs, DFERs, GDRs, NDCs, DIRs, and ERISAs.

Many have not heard of pharmacy benefit managers (PBM), but much of the news about pharmacies today centers on their widening role and control of almost 80 percent of U.S. processed prescriptions. PBMs provide formulary development, pharmacy network design, and drug utilization management, but a growing chorus of pharmacists, patient advocates, lawmakers, and private and public watchdogs accuse them of inflating drug prices, limiting drug choices, steering patients to remunerating pharmacies (“self-dealing”), and reducing competition.

Pharmacies often do not know the amount they will be reimbursed by PBMs, the “big three” of which are CVS Caremark, Express Scripts, and OptumRx, and even operate at a loss. Several states have enacted PBM reform laws that include:

1. “Duty of care” requirements (putting patients first)
2. Limits on PBM “spread pricing” (paying pharmacies less than plan sponsors are charged)
3. Transparency (disclosing rebate, mail order, offshore “rebate aggregator” and other profit centers)
4. Prohibitions on discrimination against unaffiliated pharmacies
5. Limiting patient co-pays charged by PBMs

Similar federal legislation is pending.

I recently spoke with Bill Nulman, a 28-year pharmacy benefit industry veteran, about the problem of illegal FDA-unapproved medications. Coverage of these medications is widespread in formularies and in pharmacy utilization, regardless of client size, type, or location, and creates patient health and safety risks, plan sponsor fiduciary and financial risks, and multiple risks to dispensing pharmacies, says Nulman.

MR: Please tell me about the FDA-unapproved drug problem.

BN: PBMs and insurance carriers standardly charge plan sponsors and patients for FDA-unapproved medications without the required FDA-issued NDAs (new drug applications), ANDAs (abbreviated NDAs), or BLAs (biologics license applications). Most PBM contracts include the term “FDA approved,” so PBMs and carriers that process and charge for FDA-unapproved medications are often in direct violation of the plan sponsor contract. For PBMs that own mail-order facilities, violations of state boards of pharmacy regulations and state laws occur. The OIG (Office of Inspector General) has confirmed the issue, and CMS (Centers for Medicare & Medicaid Services) concurs with their resolutions. The FDA has published that one to two percent of all prescriptions are unapproved, and the following:

• Inclusion in the NDC (national drug code) directory does not indicate that FDA has verified the information provided or that the products are FDA approved. The content of each NDC directory entry is the responsibility of the labeler submitting the SPL (structured product labeling) file.
• Assignment of an NDC number does not denote FDA approval of the product. Such impressions are misleading and violate federal law.
• Inclusion in the NDC directory or assignment of an NDC number does not mean a product is a drug as defined by federal law or covered or eligible for reimbursement by Medicare, Medicaid, or other payers.

MR: How does this happen?

BN: It is not a complex process for a manufacturer to apply for and obtain a labeler code, which is the first five digits of a drug’s NDC. Drugmakers can then submit products into the national drug databases, and claims for these drugs will adjudicate, be charged to plan sponsors and patients, and be dispensed, regardless of their FDA approval status.

Whether it’s a state Medicaid plan or a small or large commercial plan sponsor, FDA-unapproved drugs are found 100 percent of the time.

MR: Why doesn’t the FDA stop this?

BN: The FDA has no access to data and does not validate the information submitted by manufacturers into national drug databases.

MR: Doctors prescribe such drugs and patients take them?

BN: If the doctor writes a prescription for an FDA-unapproved drug and the pharmacy fills it, then that claim will process––the plan sponsor and patient will pay––and no one shall be the wiser. PBMs and insurance carriers should be creating formularies with legal, safe, and effective drugs, which is required by the federal Food, Drug, and Cosmetic Act.

MR: Aren’t there penalties?

BN: Yes. Each state has a board of pharmacy that governs licensed pharmacies, and there are specific and applicable state laws and regulations, including from the federal act––anything from license suspension and license revocation to civil and criminal fines. One goal is to support pharmacies and eliminate their risk and exposure.

MR: Can you give examples of unapproved drugs?

BN: Examples start with NP Thyroid, phenobarbital, and many prenatal vitamins and dietary supplements. There are thousands more across many therapeutic drug classes. There is a prevalence of unapproved dietary supplements billed to plan sponsors for $1,200–$3,300 per month, for example.

MR: In September, Pharmacists United for Truth and Transparency (PUTT), Minnesota Independent Pharmacies, and four other groups demonstrated in front of the Eden Prairie, MN, headquarters of UnitedHealth, whose PBM is OptumRx. What factors drove this demonstration?

BN: More pharmacies, especially independents, have closed this year than in any other year. From what I have read, contributing factors include lower reimbursement rates, clawbacks, and various fees. There has also been an increase in PBM-owned retail, mail order, and specialty pharmacy utilization, diverting prescriptions from independent pharmacies.

MR: How big are the risks from this situation?

BN: The problem of FDA-unapproved drugs is universal, and the risks from coverage influence the entire life cycle of a prescription, from prescribing by physicians to claim adjudication, to plan sponsors’ payments, to pharmacy dispensing, and most importantly, to consumption by patients unknowingly.

Martha Rosenberg is a health reporter and the author of Big Food, Big Pharma, Big Lies and Born With a Junk Food Deficiency.