Auditor’s Report: Pharmacy Benefit Managers Take Fees of 31% on Generic Drugs Worth $208 Million in One-Year Period
From Press Releases - Ohio Auditor of State
Published August 16, 2018
Columbus – Ohio's Pharmacy Benefit Managers (PBMs) charged the state a “spread” of more than 31 percent for generic drugs – nearly four times as much as the previously reported average spread across all drugs, according to a new report by Ohio Auditor of State Dave Yost.
An analysis conducted by Auditor Yost’s staff found PBMs collected $208 million in fees on generic Medicaid prescriptions, or 31.4 percent of the $662.7 million paid by managed care plans on generics during the one-year period April 1, 2017 through March 31, 2018.
The Auditor’s review, conducted at the request of state lawmakers, largely confirmed the findings of a private consultant hired by the Ohio Department of Medicaid to examine the state’s system of managing its pharmacy plan. Specifically, lawmakers wanted to know how much PBMs are paid through the “spread” – which is the difference between what the state’s managed care plans pay the PBMs and what the PBMs pay pharmacies to dispense drugs.
“The more we learn, the more troubling this becomes,” Yost said. “Our review has answered many of the questions presented by state lawmakers, but the lack of information from the PBMs limits the depth of our work. Without more information – on what’s happened in the past and what is planned for the future – Ohioans will never know if they’re getting a fair price. They deserve an accurate accounting of this work.”
On Tuesday – after reviewing a draft of the Auditor’s report Monday and in advance of today’s announced report release – the Ohio Department of Medicaid announced it was abandoning the controversial spread-pricing model. The Department had told lawmakers two months ago that there was no urgent need to make a change from the spread-pricing model.
“We cannot be content to accept a ‘black box’ in the delivery of public services, particularly a service ODM says it did not understand, and had insufficient data to assess either in its effectiveness or its unintended consequences in the marketplace,” Auditor Yost said. “But for the General Assembly's work, it is not hard to imagine that the administration might still today be content.”
Auditors found that the Department, through its managed care plans, paid spreads totaling $224.8 million to PBMs for the one-year period. The fees or spreads retained by PBMs were $6.6 million (or 1.1 percent) on $617.6 million in specialty drugs and $9.8 million (0.8 percent) on $1.25 billion in brand-name drugs.
The overall average spread of $5.71 per prescription is consistent with the average reported by the Department’s consultant, HealthPlan Data Solutions. However, state auditors noted that the spread was higher ($6.14) for generic drugs which comprised more than 86 percent of all prescriptions. PBMs managed nearly 39.38 million prescriptions during the one-year period.
The Department’s consultant reported that the average spread relative to the total amount paid by the managed care plans was about 8.8 percent. Auditors reached roughly the same calculation. However, when looked at separately, the spread on generic drugs is more than triple what was reported.
Click Here for Original Press Release and to See Breakdown of Average Spread by Quarter and by Drug Type from April 1, 2017 through March 31, 2018
“While the Department’s announcement Tuesday that it will not use spread pricing next year relieves the immediate political pressure it leaves many of the larger questions unanswered,” Auditor Yost said. “Is its proposed solution the best solution for Ohio? Will it serve to control costs? What has happened to the delivery system in Ohio during the past eight years? And have pharmacy closures left service gaps?”
Lawmakers asked Auditor Yost in March to review whether CVS Caremark was giving better pricing to pharmacies owned by its parent company, to the detriment of independent pharmacies.
Auditors found that the spread was about the same for CVS pharmacies and independent pharmacies. However, because financial information related to the relationships between pharmacies and the PBMs is confidential, it is impossible to determine whether there is a conflict of interest in any of these transactions. Analysts in the Auditor’s office cautioned conclusions should not be drawn on how much profit PBMs make on Medicaid in total because this analysis does not include all transactions that occur between a pharmacy and PBM.
Auditor Yost’s report includes a series of items for further study by the General Assembly and the Department. It also includes information regarding reforms made in other states to minimize overpayments of medical processing costs in the Medicaid program.
The data show the total number of prescriptions increased 7 percent during the period but the amount paid increased 12 percent from 2016 to 2017. According to the State Drug Utilization Data - National Totals reported by the Center for Medicare and Medicaid Services, the average increase in drug spending reported by all states was 4.4 percent. Ohio’s Medicaid increase in costs is almost three times this national average; however, the data also show that the number of Medicaid prescriptions in Ohio increased by almost five times the national average.
Regional breakdownThe amount of money pharmacy benefit managers retained from Medicaid prescription transactions was highest in the northwest and northeast regions of the state. The spread on brand drugs in northwest Ohio was 77 percent higher than the statewide average, and northeast Ohio was 69 percent higher. For generic drugs, northwest Ohio was 18 percent higher and northeast Ohio was 19 percent. This raises questions as to why pharmacies in these regions are reimbursed at lower amounts for these two drug types.
The five counties with the highest overall spreads were in northwest Ohio, with Van Wert County topping the list at an average of $8.38 per prescription. An interactive graphic showing the average spread per county can be found online.
Auditors offered a number of recommendations to the Department of Medicaid and the General Assembly. Among them:
“These recommendations are not impacted by the Department's announcement on Tuesday, and represent simple good management – practices that should have been in place well in advance of this year's hearings,” Auditor Yost told said. “They still should be implemented.”
Matters for further study
The request from state legislators in March was for the Auditor’s office to review the spread data. In meeting their request, other issues came to light that need further study. Among them:
A copy of Auditor Yost’s testimony to the Joint Medicaid Oversight Committee is available here.
The Auditor of State’s office, one of five independently elected statewide offices in Ohio, is responsible for auditing more than 6,000 state and local government agencies. Under the direction of Auditor Dave Yost, the office also provides financial services to local governments, investigates and prevents fraud in public agencies and promotes transparency in government.