Ohio’s recent efforts to address pharmacy benefit manager (PBM) practices may have implications for further state and federal reform, according to a perspective published in the Journal of the American Medical Association.
PBMs have been the focus of increasing scrutiny as many blame their unregulated practices for contributing to increasing prescription drug costs. The perspective, which addresses several areas of concern and provides insight into PBM pricing practices, suggests that reform may lead to drug cost savings.
According to the authors, a 2018 independent audit examined the impact of Ohio Medicaid’s switch in 2011 from a fee-for-service model to a managed care model to administer its outpatient prescription drug benefits. To date, the Ohio audit is the first comprehensive review of PBM practices and incorporated 39 million drug transactions, the authors said.
Overall, the audit indicated that the switch to a managed care program, which uses PBMs, saved the Ohio Medicaid program $415 million annually. The savings were largely driven by the lower prescription claim prices billed to plans by PBMs, according to the report.
However, the authors noted that despite these savings, Ohio pharmacists expressed concerns surrounding the opaque pricing practices employed by the PBMs.
“For example, PBMs were providing preferential pricing to affiliated pharmacies over independent pharmacies,” the authors explained.
Additionally, some PBMs used “spread pricing,” which charges Ohio Medicaid high prices while paying pharmacies lower prices for the same drugs. This pricing difference could produce significant profits for PBMs, according to the study.
The authors used a recent Ohio Medicaid analysis as an example, in which the 2017 fourth-quarter cost to a pharmacy for a 3-day supply of the generic leukemia medication imatinib mesylate was $3859, with a cost to Ohio Medicaid of $7201. The analysis showed an 8.8% spread between the cost PBMs billed Medicaid managed care plans and the amount paid to pharmacies, which amounted to $223.7 million in the audit year, according to the authors.
Following the audit, Ohio state regulation took steps aimed to mitigate the role of PBMs. Effective January 2019, Ohio managed care plans were directed by Medicaid to end their contracts with PBMs and were asked to adopt a transparent “pass-through” pricing model. In this pricing model, managed care plans pay the PBMs the exact amount paid to the pharmacy for a prescription drug plus a dispensing fee and an administrative fee.
“The Ohio Medicaid experience provides an important window into pharmacy benefit manager practices,” lead author Trevor Royce, MD, MS, MPH, assistant professor of Radiation Oncology at UNC School of Medicine and UNC Lineberger, said in a press release. “Efforts to address drug pricing tend to focus on the pharmaceutical company or drug manufacturer, while traditionally the pharmacy benefit managers may be overlooked. This is likely changing as a growing number of states have introduced bills pertaining to pharmacy benefit manager practices and more are surely to come.”
According to the authors, other states have become increasingly active in addressing PBM reform, with approximately 233 bills referencing PBMs filed by state legislatures as of March 5, 2019.
Additionally, assessing the effect of these reforms is crucial to establishing the direct benefits and costs of pursuing these efforts.
“The effects of other state efforts on spending, patient out-of-pocket costs, and ultimately on patient outcomes, including regimen adherence and clinical response, deserve close observation and continued study,” the authors concluded.
Royce TJ, Kircher S, Conti RM. Pharmacy benefit manager reform lessons from Ohio. JAMA. 2019. doi:10.1001/jama.2019.7104
Reforming pharmacy benefit manager practices may lead to drug cost savings [news release]. UNC Lineberger Comprehensive Cancer Center. https://unclineberger.org/news/reforming-pharmacy-benefit-manager-practices-may-lead-to-drug-cost-savings/. Accessed June 24, 2019.