When new Gov. Mike DeWine goes to work on his top priorities in January, continuing reform of the Medicaid program’s pharmacy benefit should be high on the list.
We’ve learned a lot over the past year about one glaring problem: an enormous lack of transparency in the deal taxpayers are getting from pharmacy benefit managers, the middleman companies that control what drugs Medicaid will pay for and who will pay how much.
In Ohio, a big piece of that will change in January, with a new rule requiring more transparency in those contracts. That’s a significant improvement, but it won’t guarantee an end to abuses that stem from the PBM model. The state should continue reform efforts. In particular, it should look to West Virginia, where that state’s Medicaid program has shed PBMs altogether, relying instead on a state university to do the work.
To date in Ohio, the private managed-care companies the state hires to act as insurance companies for Medicaid patients have brought in PBMs to handle pharmacy claims under contracts kept secret, even from state bureaucrats. Besides deciding which drugs Medicaid would even cover, PBMs have had free rein to set price lists — how much to bill the state for a given drug and how much to reimburse the pharmacies that dispense it.
Also secret are the rebates the PBMs negotiate with drugmakers. PBMs are happy to point to the tens of millions of dollars they extract in rebates; their purported role is to save taxpayers money through their purchasing power. But no one knows how much they keep versus how much they pass on to their taxpayer-funded clients.
Pharmacists who want to handle Medicaid prescriptions often have to pay fees to the PBMs and sign agreements promising not to reveal how much the PBMs pay them for drugs. In some cases, that meant not being allowed to tell a customer that the PBM-dictated insurance co-pay for her drug is higher than if she just paid for the drug without insurance.
Sometimes, the PBM-set reimbursement for pharmacists is so low that they lose money dispensing certain drugs.
Ohioans still might not know of such abuses by PBMs except that some pharmacists, fed up and worried about being able to stay in business, breached their confidentiality promise to tell Dispatch reporters about the problems.
Following a series of Dispatch stories and growing concern around the country, the state commissioned an audit of the Medicaid pharmacy benefit, which found that CVS Caremark and Optum Rx, the two PBMs used in the program, charged taxpayers $224 million more for prescriptions than they paid to pharmacies in reimbursement.
Under new contracts the state now is requiring between the managed-care companies and PBMs, the middlemen must pay pharmacists exactly what they charge taxpayers for each drug, eliminating so-called “spread pricing.” Their compensation for filling the prescription will be a set fee. PBMs also will be required to disclose other payments they receive through the contracts, such as participation fees from pharmacies and rebates from drug manufacturers.
They’ll be banned from putting pharmacists under gag orders.
Still, experts warn, as long as PBMs are given control over so many aspects of providing prescription drugs, opportunities for padding will remain. For example, the definition of “rebate” can be squishy, and in choosing which drugs Medicaid should cover, a PBM could favor those that promise it the greatest profit — not necessarily the most effective or best value.
PBMs have been able to build advantages and padding into their contracts with Medicaid because they handle so many services. The new contracts won’t allow them to skim excess profits through spread pricing, but excess could be built into other PBM services, such as setting the formulary, consulting with prescribing physicians and handling special requests to cover drugs not on the formulary.
West Virginia’s new model shows a lot of promise. Instead of a profit-motivated PBM, the West Virginia University’s School of Pharmacy helps set the drug formulary and evaluates requests to cover drugs not on the list.
In Ohio, both the nonprofit Cleveland Clinic Pharmacies and the Ohio State University Wexner Medical Center have said that, with appropriate resources, they could handle that work for the state Medicaid program. Especially in the case of Ohio State, which as a public university is required to act transparently, that would lessen likelihood of maximizing profits over patient care.
And by breaking up the other functions of PBMs, such as processing claims, into separate, simpler contracts with multiple private companies, West Virginia is better able to monitor them.
Some question whether Ohio’s much-larger Medicaid program could operate like West Virginia’s, but the idea deserves study and consideration.
Contracting with private companies such as the five managed-care organizations that currently handle Medicaid in Ohio can be the best way to deliver government-funded services. But the PBM model turned a big part of the Medicaid program into a profit playground for a few companies, at the expense of taxpayers and patients.
State leaders should keep scrutinizing and reforming as long as opportunities for such abuse remain.