Pharmacy benefit managers marked up generic drugs for NY Medicaid, but where’d the money go?

DATE: January 24, 2019

Published by STAT News

Amid intensifying scrutiny of medicine costs, an analysis of the New York Medicaid and pharmacy data suggests that pharmacy benefit managers are increasingly marking up generic drugs, raising questions about the extent to which the profits are passed back to the state health care program.

In 2017, the pharmacy benefit managers that were contracted with managed care plans working on behalf of the state Medicaid program paid independent pharmacies an average of $10.85 for each generic prescription. But the managed care plans reported their average costs were $14.34 per prescription, which was a 32 percent markup. This was up from 11 percent in 2016.

“Any time you see that kind of growth, it begs the question — where is the money going?” said Antonio Ciaccia of 3 Axis Advisors, a consulting firm hired by the Pharmacists Society of the State of New York to conduct the analysis, and recommended that the state conduct an audit.

At issue is a contentious topic known as spread pricing, which is increasingly factoring into the national debate about the cost of medicines at the state level and the opaque pharmaceutical supply chain. And pharmacy benefit managers, or PBMs, play a crucial, but largely hidden role.

Here’s the background: State Medicaid programs contract with private health plans, which then contract with PBMs to provide prescription drug benefits. The PBMs bill the health plans and also reimburse pharmacies for medicines, collecting fees along the way.

But over the past couple of years, independent pharmacies have claimed that PBMs are increasingly failing to sufficiently reimburse them for dispensing prescriptions, while simultaneously charging health plans more.

The New York pharmacists group argued that the “unchecked PBM industry has taken advantage of a gross lack of transparency and regulatory control,” and that the findings suggest “hundreds of millions of dollars” that should have been allocated toward patient care may have been “shifted elsewhere.”

A spokesman for the New York State Department of Health wrote us that the newly proposed budget establishes fair drug pricing models in Medicaid managed care plans and increase pricing transparency. The models are supposed to ensure the plans are charged the same amount that a PBM pays to pharmacies for ingredient costs; a professional dispensing fee paid to the pharmacy; and a fair and reasonable administrative fee for PBM services.

“We look forward to a discussion on how to ensure that patients get the medicine they need and that pricing is transparent,” he added.

Meanwhile, a spokesman for the Pharmaceutical Care Management Association, the trade group, wrote us that “it’s no secret that New York’s Medicaid program wastes millions every year by overpaying drugstores. By operating more like Medicare and commercial market plans, New York’s Medicaid program could reduce pharmacy costs and save money without cutting benefits.

“By defending wasteful spending in a program that’s clearly in trouble, New York’s special interest drugstore lobby wants to rearrange deck chairs on the Titanic without offering ways to keep Medicaid afloat.”

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