On Thursday, August 16, 2018, Ohio Auditor of State Dave Yost released findings from June that pharmacy benefit managers (PBMs) charged Medicaid a nearly 9% spread across all drugs, in addition to a 31% spread among generic drug prescriptions, filled between April 1, 2017, and March 31, 2018.
PBMs allegedly collected more than $2.5 billion from plans during that period, including $662.7 million from generic drugs and almost $1.25 billion from brand-name drugs. Of the $2.5 billion, nearly $225 million was generated through spread pricing, including $208 million from prescriptions for generics.
A spread-pricing model is when a payer purchases drugs based on the difference between the retail price and the PBM’s negotiated rate. The pass-through structure, however, requires a PBM to charge a managed care plan the exact amount the PBM pays for prescriptions and dispensing fees. According to the audit, the switch to pass-through model is estimated to save roughly $16 million in annual prescription costs.
Ohio moved its Medicaid program to a managed care model in 2011, and Medicaid managed care PBM pricing saves Ohio taxpayers at least $145 million annually compared to fee-for-service pricing, the state said.
In conjunction with the release of that report, Ohio’s Medicaid program issued a mandate that managed health care plans must re-negotiate PBM contracts to transition from a spread-pricing drug purchasing model to a pass-through model. All managed care payers in Ohio are required to implement a pass-through model for drug pricing no later than January 1, 2019. Ohio Medicaid director Barbara Sears also said the managed care plans must stop working with CVS Caremark and Optum, two PMBs using the “spread pricing” model.
CVS Rebuttal
CVS Caremark, one of the state’s largest PBMs, issued a rebuttal to the auditor’s report, saying it has saved Ohio taxpayers $145 million annually by negotiating drug prices for Medicaid managed care plans. The company also said CVS Caremark passes 100% of government-mandated rebates to Medicaid managed care clients. “In other words, we do not keep any amount of a drug manufacturer’s rebate for Medicaid prescriptions in Ohio,” the company wrote.
“PBMs have saved Ohio taxpayers $145 million annually through the services they provide to the state’s Medicaid managed care plans,” CVS Health said. “CVS Health will continue to help its Ohio Medicaid clients manage their drug costs and improve their members’ health outcomes in 2019 and beyond.”
CVS also noted that the spread pricing was chosen by managed care insurers instead of paying an administrative fee. The company said the money “funds vitally important benefit management services we provide to clients, such as clinical and customer support, programs to improve medication adherence, management of the drug formulary, and other services.”
Conclusion
PBMs have been the subject of intense focus of scrutiny, from groups like the Community Oncology Alliance that are calling for more transparency, from attacks from patient representatives, and FDA Commissioner Scott Gottlieb, MD, and even getting called out in President Donald Trump’s plan to lower drug prices. It will be interesting to see if other states will follow Ohio’s lead in reviewing PBMs and whether any further action will be taken, whether on a state-by-state basis or nationally.