Ohio Tells Medicaid PBMs That 2019 Will Be a Time for Transparent Contracts

Less than 2 months after receiving a report showing that pharmacy benefit managers (PBMs) in Ohio billed taxpayers 8.8% more for medications used by those in the state’s Medicaid program, the state this week said it is ending its contracts with all of its PBMs and starting over in transparent contracts.

The state sent a letter to all 5 of its PBMs Tuesday and said it would be moving to a pass-through pricing model as opposed to a “spread” pricing, and it will enter into new contracts with vendors who can provide services based on that model.

In June, the state received an analysis about the performance of PBMs in the state Medicaid program, showing that Medicaid paid $223.7 more than pharmacies, and the difference (or the spread) was kept by the PBMs. Independent pharmacies were reimbursed 3.6% more for brand drugs and 3.4% more for generic drugs compared to CVS pharmacies.

The firm that was hired by the state to do an analysis and write the report, HealthPlan Data Solutions (HDS), said it “could not identify any preferential pricing paid to CVS-owned pharmacies by PBM operator CVS Caremark that would create an anti-competitive advantage over independent pharmacies.”

The report followed an investigation by The Dispatch, which has run nearly 40 articles this year about prescription drug pricing in the state. 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.

Read some recent coverage of community pharmacies and PBMs.

In recent years, the annual growth in Medicaid spending on prescription drugs strained state budgets nationwide, especially between 2013 and 2015, as hepatitis C drugs with the power to cure infections from the virus became available. Medicaid spending on outpatient drugs increased 25% from $22.4 billion in 2013 to $28% in 2014 and another 13% in 2015 to $31.7 billion, according to Kaiser Family Foundation.

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.

But it is at the state level, where Medicaid costs are split with the federal government, that PBM costs are also getting a new look.

“PBMs have been allowed to function far too long as black boxes,” said Alan Sager, professor of health policy and management and director of the Health Reform Program at Boston University’s School of Public Health, in an interview with The American Journal of Managed Care^® (AJMC^®).

In its letter to PBMs, Ohio is stipulating what those new boxes paying for Medicaid pharmacy benefits will look like, so to speak. Starting next year, PBMs are only allowed to charge Medicaid exactly what it pays the pharmacy for the prescription drug and a dispensing fee, along with an administrative fee, which is estimated to cost in the range of $0.95 to $1.90 per prescription.

In addition, any rebates and discounts must be passed back to the state.

Currently, what is charged by the PBM may be different than what it pays the pharmacy and what the pharmacy charges clients. Details of the plans themselves, such as pricing structure, how much the PBM gets to keep in terms of rebates or other funds, or amount of profit, is unknown.

In his view, Sager said PBMs should not be allowed to keep payments beyond that amount, especially from pharmaceutical companies.

“We are heartened to see the action taken yesterday by the Ohio state Medicaid agency, and by Governor John Kasich’s leadership,” said Scott Brunner, CAE, senior vice president, communications and state government affairs, for the National Community Pharmacists Association.

Brunner, in an interview with AJMC^®, said the issue in Ohio started last fall, when reimbursements to community pharmacies were cut, which is what prompted The Dispatch series.

He said other states are moving to regulate how PBMs do business with their Medicaid programs as well—besides Ohio, the list includes Kentucky, West Virginia, and Virginia.

West Virginia, for example, is now handling pharmacy benefits for both state workers and Medicaid recipients through the West Virginia State University of Pharmacy, saving $38 million in its first year. Kentucky has created a robust PBM disclosure act that requires “fair and reasonable” reimbursement, he said.

In a statement, CVS Caremark said it looks forward to working with Ohio to “restructure” its contracts.

Sager, the Boston University health reform professor, said that “states seem to be becoming more sensible to the idea that PBMs work for them.”

The difference, he said, is that these decisions only affect people who are on Medicaid, and in other Western democracies, government healthcare finance decisions affect everyone, not just the poor.