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Lawmakers Urge State to Lock In Pharmacy Benefit Savings

Warning that hundreds of millions of dollars in taxpayer savings will be lost if Treasury officials don’t move quickly on new contract

pharmacy drug store

New Jersey lawmakers are pushing administration officials to quickly rebid a $6.7 billion, three-year contract for pharmacy benefit services that a state court tossed out earlier this year. The lawmakers warn that delays in reaching a new deal could imperil millions of dollars in ongoing taxpayer savings — something state officials dispute.

The Senate Budget and Appropriations Committee voted unanimously to advance legislation that would require the state Treasury Department to redo by mid-January the complex bidding process it expedited last year to contract with OptumRx, the prescription service created by insurance giant UnitedHealth.

An Assembly panel is slated to vote on a companion bill later this week, which outlines the steps the state should take to find a firm that can conduct another high-tech reverse-auction process, which it would use to identify and oversee the work of a new company hired to manage drug benefits.

Lawmakers in both parties are concerned that if Treasury officials don’t take action soon, the state will not be able to lock in the same kind of beneficial deal it has now, which supporters said has saved hundreds of millions of dollars already and could reduce the taxpayers’ tab by some $1.6 billion over three years.

Sen. Joseph Lagana
Credit: NJTV News
Sen. Joseph Lagana

“We believe that if we employ the innovative reverse auction procurement method that we used for the previous contract, we will realize additional savings in excess of the amounts we saved through the existing contract,” said Sen. Joseph Lagana (D-Bergen), the sole sponsor of the Senate bill. Lagana warned the state stands to lose millions each week if a new contract isn’t in place by mid-January 2019.

Treasury officials advise caution

But Treasury officials cautioned against rushing this process, noting that the court had also flagged problems it said arose as a result of the expedited timeline used the first time around. Pushing a new deal through in three months will lead to further confusion and possibly more lawsuits, and could even curtail savings taxpayers are getting in the current deal, they said. The Optum contract remains in place until the rebid is complete, allowing the savings to continue, they stressed.

“Conducting a reverse auction to select a Pharmacy Benefits Manager is a crucial component in our ongoing efforts to produce taxpayer savings through the more efficient and effective delivery of healthcare,” said Treasury spokesperson Jennifer Sciortino. She said the department has taken the lead on this process, including advertising last month for the first requirement — a company with the technology to conduct the reverse auction — and that it plans to select the vendor next month.

Taxpayer savings

“However, we must make sure it gets done right and we are concerned that is simply not feasible under the timeframe allotted in this bill,” she said.

The massive, $6.7 billion contract with OptumRx, announced in late June 2017, grew out of a novel approach the state took to cut prescription benefit costs for the more than 800,000 current and retired public workers, including state, county and school staff. Labor leaders worked with Senate President Steve Sweeney (D-Gloucester) on the enabling legislation that passed in November 2016; former Gov. Chris Christie signed it the same day, creating what is thought to be the first state-system for a reverse auction nationwide.

Company serves as a middleman

The law required the administration to expedite the process of hiring a new PBM, or pharmacy benefits manager, the company that serves as a middleman between the insurance and drug industries to handle drug claims. To do so, it called for New Jersey to contract with a separate technology firm that could assess potential PBM contractors, help the state obtain a more favorable deal, and establish a system to monitor the claims payment process going forward.

That led the state to hire Truveris, considered the primary player in the PBM-oversight sector, for $11 million, to assist with the contracting and management process. Treasury then started searching for a PBM itself in February 2017. Three companies submitted bids for the work on June 12 — Express Scripts, Optum and Caremark — and, with input from Truveris, which used its technology to predict how each bidder’s pricing would impact claims based on data culled over two years, the state selected Optum two weeks later.

But the state’s process — and Optum’s submission — did not sit well with Express Scripts, the nation’s largest PBM, which previously had held the state contract since 2009. In July 2017, Express Scripts appealed the state’s decision to administration officials, who denied their claim; it then filed a lawsuit in state appellate court requesting the bid be dismissed.

After wading through the 600-page-plus contract and months of expert testimony on PBM operations, the appellate court ruled in May 2018 on behalf of Express Scripts. The judges found that the state should not have accepted the Optum bid since it contained a “material deviation” from the original contract — in particular, added language that would have enabled Optum to change major aspects of its pricing structure if the state altered the design of benefit plans and drug formularies, something state officials said is likely at some point.

‘Staggeringly’ large contract

“The reason is obvious; manipulation of a price term poses one of the clearest threats to the major objective of our bidding laws to promote the honesty and integrity of those bidding and of the system itself,” the judges wrote, adding, “The hallmark of this staggeringly large Contract is its anticipated (plan) Design Changes. Potential bidders were warned of it in the very first section of the Solicitation.”

The court’s three-judge panel also made multiple references in their 74-page ruling to the speed at which the entire process — from legislation to contract award —progressed, given the cost and complexity of the deal. These warnings have resonated with Treasury officials, who noted that the court did not set a specific timeline for the rebid, but left it up to the state to plan and carry out the process.

The legislation (S-3074/A-4589) — which did not appear to be posted on the Legislature’s website until Tuesday, a day after the vote — was introduced on Monday and passed the Senate committee the same day. The measure calls for state officials to either extend the contract with Truveris or hire a firm with similar technology by November 1, and it spells out in detail the capabilities that contractor must have to assist the state with the hiring of another PBM.

The bill then requires that firm to use a reverse-auction system to help New Jersey identify the most effective PBM and to oversee this company’s work, providing “real-time, electronic, line-by-line, claim-by-claim review of invoiced PBM prescription drug claims” with an automated platform that allows for such comparisons. The legislation also echoes Sweeney’s original bill in allowing the state to circumvent aspects of its usual timeline and process for securing and reviewing bids, in order to ensure the system is up and running quickly.

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