Pa. auditor general calls for greater oversight of pharmacy benefit managers; PBMs push back

By Steve Twedt
Originally published in Pittsburgh Post-Gazette, 12/11/18

​Pennsylvania Auditor General Eugene DePasquale on Tuesday called on legislators to demand more transparency and accountability from pharmacy benefit managers, the middle-man companies that Medicaid contracts with to administer prescription drug plans that cover about 2.9 million Pennsylvania residents.

In an 18-page report released Tuesday, Mr. DePasquale said Pennsylvania paid PBMs $2.86 billion in 2017 for Medicaid beneficiaries’ prescriptions — an amount that one pharmacy benefit manager immediately disputed.

By comparison, the report said the state paid PBMs $1.41 billion in 2013.

The payments include both the pharmacy benefit managers’ cost of doing business and some profit, the report says, “but because PBMs’ business practices are shielded from public or government scrutiny, there’s no way to verify how much was profit.”

As a result, the auditor general concluded that Pennsylvania taxpayers “might be paying too much for medications, and PBMs might be pocketing that money."

The report frequently cites independent pharmacists’ testimony from five public hearings organized by the auditor general’s office last fall, including one at Penn State Beaver in September.

That prompted the PBM’s trade association president to call the auditor general’s findings “highly biased” in a release Tuesday.

“The report omits any mention of how PBMs are reducing prescription drugs costs and increasing access to needed medications for Pennsylvania’s Medicaid beneficiaries,” said J.C. Scott, president and CEO of the Washington, D.C,-based Pharmaceutical Care Management Association.

A spokesman for CVS Health took issue with the $2.86 billion payment figure in the report, saying that number reflects the state’s total pharmaceutical spending and not what it pays pharmacy benefit managers.

He also said the $2.86 billion includes overall drug price and pharmacy costs resulting from the state’s expansion of Medicaid, which added 700,000 low-income residents to the program.

Meanwhile, Patricia Epple, CEO of the Pennsylvania Pharmacists Association, said the group was pleased with the report’s findings and recommendations, calling PBMs “an unregulated middleman making huge amounts of money and profit off taxpayers, insurers, and patients.”

Covering the costs?

In managing prescription drug programs for insurers, PBMs such as CVS Caremark, Express Scripts and OptumRX contract with pharmaceutical companies over the price of drugs and separately with pharmacists for how much they will reimburse for dispensing the medications.

In addition, the pharmacy benefit managers may establish formularies of preferred drugs, which consumers can purchase at reduced cost. The arrangement, PBMs say, saves millions in reduced drug costs for insurers and their beneficiaries annually.

Independent pharmacists — as opposed to those who work in pharmacy chains such as CVS or Walgreens — have long complained of dwindling reimbursements from PBMs, whose contracts they feel compelled to sign or risk losing many of their customers.

In some cases, pharmacists said, reimbursements for medications don’t cover the cost of acquiring and dispensing the medication.

The DePasquale report cites one instance in which a pharmacist presented documentation of a reimbursement for dispensing an antipsychotic medication that was $605.62 less than the pharmacist’s cost to acquire and dispense the drug.

While a more extreme example, the community pharmacists say they lose money on 20-25 percent of the prescriptions they fill because of low reimbursements.

Several pharmacists also accused pharmacy benefit managers of excessive “spread pricing” — charging Medicaid or other insurance plans one amount, then reimbursing pharmacists at a much lower amount and pocketing the difference.

The report said three PBMs, which were not named, “made between $2 million and nearly $40 million on spread pricing, earning average profits between 28 cents and almost $13 per Medicaid prescription filled.”

10 recommendations

Mr. DePasquale’s report set out 10 recommendations for legislators such as requiring greater transparency and oversight of PBM pricing and contracts — or taking over drug benefit management itself — and allowing annual reviews of PBM sub-contracts.

He also calls on the Federal Trade Commission to investigate “whether separation truly exists” in companies such as CVS between its pharmacy benefit manager and its pharmacy acquisition businesses.

Other states have made similar moves, including Ohio where greater pricing transparency in its pharmacy benefit management contracts will be required beginning next year. Several states and the federal government have also banned “gag clauses” which blocked pharmacists from telling customers about lower-cost alternative medications.

The PBM trade association, in responding to the DePasquale report, said employers, unions and government programs can demand any level of transparency they want and contract with another pharmacy benefit manager if they don’t get it.

It also said a 2016 law already gives Pennsylvania’s insurance department oversight of PBMs, which includes giving the department the ability to “set parameters around PBM reimbursement of pharmacies.”

In addition, the trade group maintained that claims PBMs paid independent pharmacies unfairly were “simply untrue,” saying the community pharmacy industry continues to thrive.

In a letter to Mr. DePasquale, Pharmaceutical Care Management Association executive April Alexander wrote, “It would be inappropriate for PBMs to focus on enriching pharmacies, as policies that favor subsidizing pharmacies would threaten access to pharmacy services for the commonwealth’s most vulnerable citizens.”
​
Steve Twedt: stwedt@post-gazette.com or 412-263-1963.