Increased Use of Pharmacy Benefit Manager Tools Could Save Medicaid Billions

Full use of PBM tools could result in significant savings for the states and the government.

Findings from a recent report suggest that the full arsenal of tools pharmacy benefit managers (PBMs) have are not being used in Medicaid.

More widespread implementation of the tools could potentially lead to significant savings for the program, according to a report published by the Pharmaceutical Care Management Association (PCMA). The full use of PBM tools has been slow compared with the uptake in the commercial market, the PCMA noted.

With the expansion of Medicaid programs under the Affordable Care Act, the use of PBM tools have increased, but many are still not using its full range.

Investigators in the report estimated the potential results of implementing the full range of PBM tools in Medicaid programs. They looked at key areas, including pharmacy reimbursement, encouraging generic use, reducing fraud, and using lower-cost options.

Medicaid programs traditionally reimburse at a higher combination of unit prices compared with market-based programs, according to the report. The US Centers for Medicare and Medicaid Services recently implemented a policy that requires paying a higher dispensing fee that is typically over $10.

The new policy may result in pharmacies being paid a higher dispensing fee without reductions in ingredient costs. If Medicare programs were to align reimbursements with competitors, Medicaid could potentially save more than $9 billion over the next 10 years.

Some states also require managed care organizations to implement a formulary list created by the state instead of allowing them to create their own formularies. This also presents an opportunity for cost savings.

Generic drugs present another opportunity for cost savings. Optimizing the use of generics and affordable brand drugs is a strategy used by PBMs for commercial plans.

Since clinically appropriate generics are usually cheaper than branded drugs, Medicaid programs could see savings of $26.5 billion over 10 years from encouraging the use of generics alone, according to the PCMA. In most cases, this strategy would also not prevent patients from receiving the appropriate treatment.

States could also adopt a policy that focuses on maximizing manufacturer rebates, and could save more than $2.4 billion over 10 years, according to the report. However, by increasing the use of generics, manufacturer rebates could be reduced, but the savings will still be significant.

Medicaid programs have their own strategies to prevent fraud, waste, and drug abuse. The implementation of PBM tools in this area, such as step therapy and audits, could save $1.9 billion in drug diversion, polypharmacy, fraud, and waste over the next 10 years.

All drugstore pharmacies are eligible to participate in Medicaid programs, unlike in commercial plans where PBMs have preferred pharmacies. By using competitive pharmacy contracting processes that emulate Medicare Part D and commercial plans, states could save $11.4 billion over 10 years.

Additional savings could be achieved through including specialty and mail-service pharmacy options. The Medicaid program in Pennsylvania included a specialty pharmacy in its network, and saved 16% on specialty drugs and in overall expenditures for these patients, according to the study.

Some states allow PBMs to use a broader range of cost saving tools, and some restrict their use. According to the report, there is no concrete evidence that finds restricting these tools would benefit patients.

The broad use of PBM tools could save $51.1 billion in the next 10 years, which boils down to $33.4 billion in federal savings, and $17.7 billion for the states. There would be increased administrative costs, but these would be offset by the savings, according to the PCMA.

Overall, the savings each state would experience would vary depending on how many tools they chose to implement. If all states used the full range of tools, the nationwide savings for 2017 would be $3.5 billion, the study concluded.