Lawmakers ask the Trump administration to investigate PBM pricing practices

DATE: April 11, 2019

Published by STAT News

As pharmacy benefit managers undergo increasing scrutiny, two lawmakers have asked the Health and Human Services inspector general to investigate so-called spread pricing practices by these pharmaceutical middlemen as part of a larger inquiry into rising drug costs.

In an April 8 letter released on Wednesday night, the heads of the Senate Finance Committee pointed to instances where PBMs have purportedly used this practice to make millions of dollars in excess profits at the expense of state Medicaid programs. Spread pricing is a crucial but little-known part of the opaque pharmaceutical pricing system and refers to fees PBMs pay pharmacies and bill back to Medicaid.

Pharmacy benefit managers play a crucial but largely hidden role in the pharmaceutical chain. These companies act as middlemen by negotiating prices with drug makers while creating formularies, or lists of medicines for insurance reimbursement. In the process, the pharmacy benefit managers collect rebates from the drug makers. And they also contract with pharmacies and collect various fees.

In Ohio, Attorney General Dave Yost filed a lawsuit seeking $16 million from OptumRx, a unit of UnitedHealth Group (UNH), for allegedly failing to pass along discounts for generic drugs that were purchased by Medicaid. A report commissioned by the state found OptumRx and CVS Caremark (CVS) reaped more than $223 million by working on behalf of state Medicaid plans during a recent 12-month period. The PBMs have denied the accusation.

Other states are taking action, too. The Kentucky Attorney General has begun a probe into allegations that pharmacy benefit managers overcharged the state Medicaid program and discriminated against independent pharmacies. And the Pennsylvania state auditor recently recommended the state legislature pass laws to rework the relationships with PBMs, notably, changing fee structures.

As a result, Sen. Chuck Grassley (R-Iowa) and Sen. Ron Wyden (D-Ore.) asked the HHS Office of Inspector General to conduct a “federal-level analysis of PBM practices across state Medicaid programs.” In particular, they want the OIG to examine whether spread pricing and other practices “may allow for inappropriate profiteering and potential anti-competitive practices.”

“Given the vulnerabilities created as a result of opaque drug pricing practices employed by entities like PBMs, we believe additional transparency and oversight in this space is warranted,” they explained.

A spokesman for the Pharmaceutical Care Management Association, a PBM trade group, argued that “the health plan sponsor hiring a PBM always has the final say on contract terms.  Some health plans in state Medicaid programs select spread pricing arrangements in lieu of other PBM compensation, some instead choose pass through arrangements.”

But PBM critics argue otherwise.

“Spread pricing is being used by PBMs to artificially inflate the costs of those generics, resulting in more significant increases in overall spend,” said Antonio Ciaccia of 3 Axis Advisors, a consulting firm, and head of government and public affairs at the Ohio Pharmacists Association, which pushed state officials to audit PBMs on behalf of independent pharmacies.

“Additionally, being that PBMs also own their own community and mail-order pharmacies, spread pricing is a secretive and inherently anti-competitive practice that allows PBMs to cut reimbursement rates to pharmacies, bill higher rates back to payers, and pocket the difference.”

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