Two more big states take aim at PBM pricing practices, which one lawmaker calls ‘the wild west’

Published by STAT News

The controversial role that pharmacy benefit managers play in prescription drug pricing is under fresh attack in a pair of new reports issued by two of the largest states by population in the U.S. — New York and Massachusetts — both of which are exploring ways to curtail various business practices used by these little-understood middlemen.

The efforts come as a growing number of states are grappling with the rising cost of medicines, a pocketbook issue that is vexing Americans and straining government budgets. In response, state lawmakers are pursuing legislation and regulations targeting not only drug makers, but also PBMs, which occupy an important but perplexing part of the opaque pharmaceutical supply chain.

PBMs negotiate prices with drug makers while creating formularies, or lists of medicines for insurance reimbursement, on behalf of health plans. In the process, PBMs collect rebates from drug makers. At the same time, they may collect fees from both managed care organizations, which contract with state Medicaid programs, and pharmacies. And this function is the subject of the new reports.

In New York, a Senate committee report released last Friday urged state officials to audit Medicaid managed care organizations; it also recommended several measures that are designed to improve state oversight. At the same time, PBMs would be forced to become more transparent about pricing and accept a fiduciary responsibility to lower drug costs, among other things.

“There is a massive problem with PBMs ripping off taxpayers, consumers, and pharmacies, and this has been borne out in every state that’s taking a hard look at this,” said state Sen. James Skoufis, who heads the Committee on Investigations and Government Operations, and is pushing one of four pending bills to rein in PBM practices. “They operate as if in they’re in the wild west.”

In Massachusetts, a report issued on Wednesday by the state Health Policy Commission was more about numbers as it dug into PBM pricing practices and found overcharging. But the agency also used its findings to reinforce recommendations made earlier this year to bolster PBM oversight, which have been adopted in the fiscal year 2020 budget strategy by the administration of Gov. Charlie Baker.

In a statement, the Pharmaceutical Care Management Association, a PBM trade group, took issue with several points in the New York report and maintained it “attempts to undermine the only industry that is reducing prescription drug costs.” The organization also argued that the Massachusetts report relied on “flawed methodology.”

The missives arrive as PBM practices are undergoing federal scrutiny, as well. Two months ago, the Republican and Democratic leaders of the Senate Finance Committee asked the Department of Health and Human Services Inspector General to investigate spread pricing. And last month, the Centers for Medicare and Medicaid Services released guidance to help states monitor this pricing maneuver.

Spread pricing, in particular, is a highly contentious topic. It refers to what pharmacy benefit managers pay pharmacies for medicines and then bill back to state Medicaid programs, while capturing the difference. Recently, though, a growing number of states are trying to clamp down on the practice after concerns surfaced about overcharging.

“More states across the country are trying to get a better grasp of what’s happening with drug costs in Medicaid and other programs. These reports put an exclamation point on the federal reforms being pursued,” said Antonio Ciaccia, a PBM critic and head of government and public affairs at the Ohio Pharmacists Association, which pushed state officials to audit PBMs on behalf of independent pharmacies.

“Here we have two of the largest states — and New York has the largest managed Medicaid program — pursuing changes. I think that’s very significant.” We should note Ciaccia is also a partner in 46Brooklyn, a research firm whose data was used, in part, by Massachusetts officials. And he is a partner in 3 Axis Advisors, a consulting firm, whose recent work for New York pharmacists was cited in the Senate report.

In New York, the Senate committee report urged the state to take such steps as licensing and registering PBMs; prohibiting PBMs from requiring patients to use retail or specialty pharmacies, given that some of the largest PBMs own such businesses; passing through rebates and discounts received from drug makers; and regulating spread pricing.

It is worth noting, by the way, that in the process of conducting its investigation, the Senate committee reported, the three largest PBMs — Express Scripts, OptumRx, and CVS Caremark — “abruptly” pulled out of discussions and the apparent cause was that “other government stakeholders interfered. A spokeswoman for Skoufis declined to comment. We asked the PBMs for comments and will pass along any reply.

The PBM trade group, for its part, argued that “employers, insurers, and other plan sponsors are best positioned to choose how to structure the coverage they provide for their enrollees. The concept of spread pricing is not unique to PBM contracts.”

The Massachusetts Health Policy Commission, meanwhile, found that, for some drugs, the markup was nearly $16 above a generally accepted benchmark. And even though prices for some widely prescribed generics were falling, the rate at which PBMs charged the state rose. For example, from early 2016 to late 2018, the average cost for buprenorphine fell by 60% while the price charged by PBMs rose by 13%.

“The fact that the pharmacy benefit managers have increased the prices charged for this drug in the MassHealth managed care program, at the same time that the acquisition cost of the drug has decreased significantly, raises particular concerns and questions regarding the appropriateness of these pricing practices,” HPC Commissioner Martin Cohen said in a statement about the state’s Medicaid program.

Over the past year, spread pricing has generated controversy in Ohio, where authorities alleged PBMs pocketed portions of payments that should have been paid to state programs. The state attorney general is now suing OptumRx for allegedly failing to pass along discounts for generic drugs that were purchased by one state agency. OptumRx denied the allegation.

Separately, California recently took steps to remove PBMs from the state Medicaid program, which is called Medi-Cal.

Meanwhile, the Kentucky attorney general recently began a probe into allegations that PBMs overcharged the state Medicaid program and discriminated against independent pharmacies. And the Pennsylvania state auditor recommended the state legislature pass laws to rework the relationships with PBMs, notably, changing fee structures.

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