Employers and health-insurance plans often rely on pharmacy benefit managers (PBMs) to set prices for drug reimbursement. Now, a new Bloomberg study on Medicaid plans’ use of PBMs is contributing to a growing backlash against the “spread-pricing” practice.
PBMs are used by employers and health plans to simplify the process of paying for prescription drugs. Under these plans, when a pharmacy fills a prescription, the PBM pays the pharmacy for the prescription, then bills the health-insurance plan or employer to recoup the expense. Using spread pricing, the price charged is generally higher than the amount paid to the pharmacy, allowing PBMs to make a profit – though this can vary depending on the drug, location, and insurance plan.
Using PBMs prevents insurers and employers from having to negotiate with pharmacies, and instead creates a single price for each drug regardless of which pharmacy fills the prescription. “It adds predictability for the plan sponsors,” said Brian Henry, a spokesman for Express Scripts, one of the largest PBMs in the U.S.
However, given the occasionally wide gap between what PBMs pay and what they bill, their use of spread pricing has come under increasing scrutiny. Critics claim that these practices inflate the cost of pharmaceuticals and eliminate the savings that generic drugs are supposed to provide.
The Bloomberg study analyzed 90 commonly-prescribed generic drugs in Medicaid programs run by 31 states and the District of Columbia. Medicaid insurers spent a total of $4.2 billion on these drugs in 2017; PBMs and pharmacies “siphoned off” $1.3 billion of that total. A separate audit of Ohio’s program revealed an average $5.70 markup per prescription, or an 8.8-percent spread.
As insurers and employers grow frustrated with spread pricing, they are looking to alternative options that remove the PBM “middleman.” In July 2017, West Virginia cut PBMs from its Medicaid program, opting instead to manage benefits itself. By eliminating spread pricing, the state expects to save $30 million each year, approximately 4 percent of West Virginia’s annual Medicaid drug spending. Other states are considering moving to fee-based arrangements, under which PBMs have less ability to implement spread pricing.