Pharmacy benefit managers charge Massachusetts' Medicaid managed-care and commercial plans significantly higher prices for generic drugs than their actual cost, according to a new report.
PBM prices for generic drugs in the MassHealth managed-care organization program were higher than the acquisition prices for 95% of the pharmaceuticals analyzed in the fourth quarter of 2018 and exceeded Medicaid fee-for-service prices for 42% of the products, the Massachusetts Health Policy Commission found in its analysis. MCO prices exceeded fee-for-service prices by an average of $15.97 per drug, which in many cases is passed onto consumers.
A number of states and the CMS want to limit spread pricing, which they say jeopardizes independent pharmacies and access to care as well as drives costs up. Ron Mastrogiovanni, president and CEO of HealthView Services and an HPC commissioner, described spread pricing as "disgusting."
"I think this is something we all need to focus on and the quicker the better," he said during the board meeting Wednesday morning. "People are really getting hurt; it is clear that organizations are taking advantage of the public."
In the spread pricing model, the PBM charges a payer more than it reimburses the pharmacy for a certain drug and retains the difference. It is unclear how much of the payment the PBMs gives to pharmacies and how much is pocketed by PBMs.
Spread pricing contrasts with the "pass-through model," where PBMs charge payers the same amount that they reimburse pharmacies, plus a set administrative fee, which is $10.02 in Massachusetts. The federal government requires Medicaid fee-for-service programs to use the pass-through model, although this does not apply to PBM contracts with Medicaid MCOs or in the commercial market.
"Much of this is purposefully hidden from the public," said David Seltz, executive director of the HPC. "We are attempting to bring some light and transparency to the topic."
In the HPC's analysis, the PBM price exceeded the fee-for-service price per prescription by at least $10 for nearly 25% of drugs analyzed and was at least $50 higher for approximately 10% of the products.
Buprenorphine-naloxone, which is used to treat opioid overdoses, had the highest aggregate spending difference, totaling $252,536 in the fourth quarter of 2018. MCOs paid an average $159 per prescription of buprenorphine, 111% higher than the average fee-for-service price of $75.
Higher generic drug prices paid by MCOs come out of a capitated payment rate from MassHealth to cover a beneficiary's medical and pharmacy benefits. Therefore, while higher drug prices do not necessarily translate to direct state spending in the short term, these prices can lead to MCOs allocating fewer resources for other medical services and can raise spending in the long term through higher capitated rates, the HPC noted.
Even though acquisitions costs have gone down in some instances, that has not translated to lower prices for the MassHealth MCO program, HPC found. For example, the average acquisition cost for buprenorphine fell by 60% while the PBM price increased by 13% from the first quarter of 2016 to the fourth quarter of last year.
PBM association the Pharmaceutical Care Management Association said on Tuesday that the Massachusetts report relies on a flawed methodology to identify reimbursement.
"On the issue of spread pricing, the health plan sponsor hiring a PBM always has the final say on contract terms and some prefer spread pricing arrangements," the association said in a statement.
PBMs charged commercial plans an average of $1,811 more per prescription for the generic version of the leukemia drug Gleevec than their acquisition cost. That racked up more than $278,000 in aggregate spending above the acquisition cost.
The CMS is concerned that some Medicaid managed-care plans are not accurately reporting spread pricing. The agency said a PBM can profit from by excessively charging health plans if a state doesn't properly monitor for spread pricing, which increase Medicaid costs. It looks to limit the tactic via a new guidance. PBMs maintain that spread pricing models provide more predictability for payers than pass-through models, in which drug prices for plans fluctuate directly with changes in drug costs.
Meanwhile, the share of PBM revenue from spread pricing has grown from 22% in 2014 to 54% in 2016, the HPC said. Over that span, net retail prescription drug spending rose from $296.3 billion to $341 billion, according to Pew Charitable Trusts.
Massachusetts policymakers proposed a new requirement that PBMs be transparent about their pricing and placed a limit on PBM margins under contracts with MCOs and accountable care organizations, which could save MassHealth an estimated $10 million a year. This aligned with the HPC's recommendations.
A patient's out-of-pocket cost is proportional to the price of a drug, which means those with co-insurance or a high-deductible health plan will pay more.
Also, spread pricing often results in lower reimbursement to pharmacies. In some instances, PBM payments to pharmacies are below the pharmacy's acquisition costs of the drugs. That is particularly hard for independent pharmacies that serve a high share of Medicaid patients to absorb, said Sara Sadownik, HPC deputy director, research and cost trends.
"Low pharmacy reimbursement can potentially hurt access to care for Medicaid patients," she said.