The CMS is concerned that some Medicaid managed care plans are not accurately reporting "spread pricing," a tactic where pharmacy benefit managers charge a plan more for a drug than it reimburses a pharmacy.
The agency released a regulatory guidance on Wednesday intended to help states monitor and audit Medicaid and CHIP managed care plans to identify spread pricing when calculating their medical loss ratio (MLR). The guidance clarified that plans must include a PBM rebate in calculating an MLR if the PBM used a subcontractor.
"States are increasingly reporting instances of spread pricing in Medicaid, including cases in Ohio and Texas, and I am concerned that spread pricing is inflating prescription drug costs that are borne by beneficiaries and by taxpayers," CMS Administrator Seema Verma said in a statement. "Today's guidance will ensure that health plans monitor spread pricing in Medicaid appropriately."
The agency said in a release that if a state doesn't properly monitor for spread pricing, then a PBM can profit from by excessively charging health plans. Those charges also increase Medicaid costs.
Managed care plans currently must exclude prescription drug rebates when calculating the actual claims costs used in the MLR.
However, the guidance said it is clarifying the treatment and accounting for prescription drug rebates to ensure that there is no confusion with MLR calculations.
The guidance said a managed care plan should account for the rebate in calculating the MLR whether the value is received directly or indirectly through a subcontractor. It gave an example of a Medicaid managed care plan that subcontracts with a PBM to administer the drug to the beneficiary.
If the PBM doles out the drug through a network of pharmacies and doesn't provide covered outpatient drugs to enrollees, then it must report drug cost information to the managed care plan, including the rebate.
That will allow states to monitor and determine if the PBM is engaging in spread pricing.
This guidance will be used in upcoming state audits of MLR rates. Those audits will specifically focus on ensuring that subcontractor expenditures are part of their MLRs.
The agency added that the guidance shouldn't interfere with a pending proposed rule that eliminates the anti-kickback statute's safe harbor for drug rebates under Medicare Part D.
The Trump administration has repeatedly attacked such rebates as "kickbacks" that are creating perverse incentives for high drug prices, while PBMs counter they are necessary to negotiate with drugmakers to lower costs.