Federal authorities move to close giant drug pricing loophole – Ohio Capital Journal

Years after potential abuse was reported in Ohio, the federal agency that oversees Medicaid is moving to plug a loophole likely worth billions to prescription drug brokers.

The Centers for Medicare and Medicaid Services on Friday proposed a new rule it said would help ensure compliance with a requirement under federal law that Medicaid dollars should be spent in “fair and efficient” ways. Interested parties will have until the end of July to comment on the proposal.

At issue is whether intermediaries known as pharmaceutical benefit managers or PBMs are mistakenly mixing profits with what they actually pay for drugs when billing state Medicaid programs.

If they were, it wouldn’t just be a huge boost to corporate bottom lines. It would also improperly inflate taxpayer costs to provide health care to the poor and disabled.

The largest PBMs are part of some of the largest corporations in the United States, and the three largest are estimated to control over 80% of the market.

Corporations contract with insurers that are often part of the same corporation to administer prescription drug benefits. They create lists of covered drugs, negotiate huge discounts with drug makers in exchange for putting their drugs on those lists, and reconcile transactions over the pharmacy counter.

Crucially, PBMs also build pharmacy networks and determine how much to reimburse them for drugs. For years, pharmacies that aren’t under the same corporate roof as PBMs have complained of being forced into take-it-or-leave-it contracts under which they often make little or no money. They say they have no real choice about signing the deals because not doing so would cost them most of their business.

In Ohio and elsewhere, pharmacies have complained that CVS, which owns the largest PBM AND the largest retail chain uses an opaque refund determination system to put competitors out of business. CVS categorically denies the claim, but the Federal Trade Commission is investigating it and other large PBMs to see if they are engaged in anti-competitive practices.

Another practice in which large PBMs are known: “spread pricing”. That’s where they reimburse pharmacies at one rate and then turn around and bill the insurer, Medicaid, or whoever pays another, often substantially higher rate.

A 2018 analysis The Columbus Dispatch of confidential 2017 reimbursement data determined that CVS’s PBM, which handled the vast majority of Medicaid drug transactions in Ohio, charged 12 percent more for drugs than it did pharmacies.

This prompted the state Department of Medicaid to obtain all data and submit it for independent analysis. It found that CVS’s PBM charged taxpayers nearly $200 million more for prescription drugs in 2017 than it paid to the pharmacies that dispensed them.

CVS denied it was rigging taxpayers, but the analysis concluded it was overcharging at least three times the current rate.

In the proposed rule, CMS cited a separate investigation by then-Ohio auditor Dave Yost into the same issues. He showed that CVS Caremark and OptumRx were inflating generic drug costs by nearly a third when billing taxpayers.

“For example, an analysis of Ohio’s Medicaid managed care program by the Ohio Auditor of State revealed a $208.4 million spread within the PBM transactions of their managed care claims plans of generics between April 1, 2017 and March 31, 2018,” the proposed rule says. “For the time period analyzed, this amount of PBM prevalence represented 31.4 percent of total generic drug spending within the state’s Medicaid managed care program.”

Current Attorney General Yost in March sued the other PBM giant, ExpressScripts, claiming it engaged in anti-competitive practices.

Now the federal agency that oversees Medicaid is trying to prevent another possible abuse. It has to do with PBMs hiding profits and increasing the cost of the program.

The Center for Medicare and Medicaid Services requires Medicaid contractors to adhere to a “medical loss report.” According to it, at least 85% of what contractors charge must go directly to providing assistance. This limits profits and administrative expenses to 15%.

But how can we know what PBMs really cost for drugs if we don’t have all their pricing information, which they consider trade secrets? In the Ohio case, PBMs forked out a year’s worth under pressure from state officials amid bad publicity.

In its proposed new rule, CMS cited a lack of transparency as a major obstacle to meeting the legal requirement that program expenditures be as efficient as possible.

“This information deficit results in a lack of accountability and transparency with the Medicaid program, which we believe is contrary to the proper and efficient functioning of the state Medicaid program and potentially creates conflicts of interest in connection with the payment of” prescription drugs, he said. stated.

Secretly paying pharmacies for drugs far less than they charge Medicaid can create problems as well as allow PBMs to pocket more profits than the law allows. It would also increase the overall cost of Medicaid while doing nothing to improve the health of poor and disabled Americans.

This is because mislabeling the profit as a direct patient care expense would be integrated into the overall cost of care for Medicaid patients in any given year. That amount would be used to set the following year’s “capita rate,” the per-patient amount that a state Medicaid program would pay a managed care provider.

In other words, the money for hidden profits has to come from taxpayers somehow, and this would inevitably lead to higher Medicaid costs.

Medical Loss Ratio” calculations are used to develop capitation rates paid to Medicaid managed care plans, so their accuracy is critical to ensuring that Medicaid payments are reasonable, appropriate, and necessary for health care services when using a Medicaid-managed care plan,” the CMS proposed rule says.

Even if enacted, the rule is unlikely to be enough to keep PBMs from playing the Medicaid system.

They have also been known to reimburse pharmacists a fee and then go back and ask for some of the money to be reimbursed. Some Ohio pharmacists claimed that such “claws” have cost them up to 7% of their annual income.

So what do PBMs report when they bill taxpayers and how much do they say went into patient care and how much profit did they make? Is this the amount they initially paid to pharmacists? The net amount after they get some back? Both?

Asked this question at a legislative hearing in late 2021, Ohio Medicaid director Maureen Corcoran said she didn’t know. His agency has addressed the lack of transparency by firing the big three PBMs and moving to a system where it has direct access to drug pricing information.

However, the proposed CMS transparency rule does not address this issue.