Report on Medicaid pharmacy managers confirms they make a profit at the expense of pharmacies; calls for new payment model

Sen. Max Wise has been outspoken in his criticism of pharmacy benefit managers.

A “long-awaited state report” on how pharmacy benefit managers are paid seems to confirm the suspicion that they “are reaping big profits from state Medicaid dollars at the expanse of pharmacies,”  Deborah Yetter reports for the Louisville Courier Journal. 

Pharmacy benefit managers, or PBMs, are the middlemen between insurance companies and drug companies.  They process about $1.7 billion a year in Kentucky Medicaid prescriptions.

The report, titled “Medicaid Pharmacy Pricing: Opening the Black Box,” shows that last year Kentucky PBMs “took in $123 million through a practice known as ‘spread pricing,’ the difference between what the pharmacy benefit company pays the pharmacist and what it bills the state Medicaid program,” Yetter reports.

The report, compiled by the Department of Medicaid Services and ordered by the General Assembly, shows that the $123 million represents a 12.9 percent increase over the previous year.

“I truly believe this was a very conservative number,” said Sen. Max Wise, R-Campbellsville, who sponsored the legislation for the report to create more transparency in how the PBMs are paid.

Wise told Yetter that he believes more investigation is warranted: “I have full faith that we will continue to receive further data that will support what I have been saying since day one, the PBMs are taking full advantage of not only the pharmacies of this commonwealth but the taxpayers at large.”

Medicaid Commissioner Carol Steckel, in a news release, said her agency will continue to monitor the matter: “This report represents the first step in introducing transparency to the pharmacy program. We have additional steps that we will need to take in order to make this program fully transparent.”

Yetter writes, “Lawmakers grumble that the current system is not transparent because the state Medicaid program contracts with managed care companies that, in turn, subcontract with PBMs, which report to the managed care companies, not the state, and have not previously disclosed information about their operations.”

CVS Caremark has most of the PBM business in Kentucky. Christine Cramer, a spokeswoman from CVS Health, told Yetter that managed-care organizations choose the “pricing model that best fits with their needs” and that spread pricing is a “common contracting model.” She added that the money kept by a PBM isn’t necessarily profit, but may also be used to fund services and patient programs.

Yetter notes that the report does not include mail-order prescriptions or the state’s largest managed-care organization, WellCare, which has about 35 percent of the nearly 1.3 million Kentucky Medicaid enrollees. WellCare told the state it didn’t have any data to report because it uses a different pricing model, which bills the state the same amount it pays the pharmacists.

The report recommended eliminating spread pricing and requiring PBMs to bill the state Medicaid program for what they actually pay pharmacists.

Independent pharmacists in Kentucky have long complained that the current PBM payment models threaten to put them out of business, Yetter reports.

“My business literally has been trashed by the low reimbursement rates of the PBMs in the past year,” Trimble County pharmacist Jennifer Grove said in a letter to legislators. “I am faced daily with keeping the doors open or turning patients away because I lose money every time I fill their prescriptions.”

Yetter notes that Ohio and West Virginia are also dealing with the issue.

To further address it, Sen. Jimmy Higdon, R-Lebanon, has filed Senate Bill 139 to create more oversight of such companies and to rein in some of their practices. It awaits a hearing in the Senate Banking and Insurance Committee.