Released by Pharmacists Society for the State of New York
NEW YORK – January 24, 2019 – Prescription drug middlemen may have pocketed more than $300 million from taxpayers in New York State between April 1, 2017 and March 31, 2018, based on a study conducted by 3 Axis Advisors. The study found a 24 percent difference between the cost of generic drugs reported by the state and the payment for generic drugs to community pharmacies, a controversial practice known as “spread pricing.” The report, which was released today is the most comprehensive ever conducted of the state’s prescription drug spending.
In 2017, New York spent an estimated $1.3 billion on generic drugs within its Medicaid managed care program – more than any other state. Within the period analyzed, middlemen known as pharmacy benefits managers (PBMs) overcharged New York by as much as 39 percent on generic drugs – $5.62 per prescription on average. Generics accounted for an estimated 89 percent of the state’s Medicaid managed care prescription drug claims overall.
“These findings from an independent analysis of prescription costs in the New York State Medicaid program suggest that further review or an audit should be conducted by the Health Department,” said Elizabeth Lasky, executive director of the Pharmacists Society of the State of New York (PSSNY). “Two proposals in the Governor’s Executive Budget directly address the issues uncovered in the study: licensing and regulating Pharmacy Benefit Managers and addressing spread pricing in Medicaid managed care. The Pharmacists Society supports both of these proposals and looks forward to working with the Governor’s Office, legislators and state agencies to enact meaningful reforms that allow community pharmacies to continue serve the medication needs of New Yorkers.”
The discrepancy is the result of what is called spread pricing, a controversial core component of the PBM business model. Under this model, the PBM charges New York State one price for a drug, pays a lesser amount to the pharmacy that dispenses it and pockets the difference. PBMs are not required to disclose to New York State how it arrives at its pricing – which is not necessarily based on a prevailing market rate – or how much it reimburses pharmacies, allowing the middlemen to inflate the spread to the level uncovered in the study.
According to the study, PBMs generated the bulk of their spread by drastically reducing reimbursements to pharmacies and keeping withheld dollars for themselves rather than passing them back to their client, New York State. The study found:
By Q4 2017, PBMs were pocketing 39% of the state’s overall generic spend, or $5.62 per claim – up from 10% in 2016
Between Q1 2016 and Q4 2017, PBMs cut pharmacy gross margins on generic drugs (based on NADAC) by 83%
In Q4 2017, PBMs paid pharmacies less than what it cost them to dispense the generic drugs 99% of the time
In Q4 2017, PBMs paid pharmacies less than the national average invoice cost of the generic drugs 46% of the time – in other words, pharmacies were underwater on nearly half of claims
While reasonable conclusions can be drawn from the study based on its exhaustive analysis and sample size, a precise accounting of the spread and cost to New York taxpayers would require a full audit by the State Comptroller or Department of Health.
“As specialists in drug pricing transparency, we provide our clients with independent data analysis needed to unmask drug supply chain inefficiencies,” said Eric Pachman, co-founder of 3 Axis Advisors. “The findings of this report are in line with the comprehensive analysis conducted by the state of Ohio last year, which led to state-wide Medicaid reform. We hope our research will advance necessary dialogue about PBM pricing practices in New York.”
The full study is available upon request. It was commissioned by the Pharmacists Society of the State of New York (PSSNY). In 2018, PSSNY and the New York City Pharmacists Society (NYCPS) jointly launched FixRx, a campaign aimed at improving the quality of healthcare provided by pharmacists, saving taxpayers money and restoring equity to the distribution of pharmaceutical products.