Earlier this spring, Gov. Andrew Cuomo (D) and the New York State Legislature took an important first step toward eliminating a particularly insidious tactic pharmacy benefit managers use to generate outsized profits for themselves. Effective immediately, Medicaid spread pricing — the practice of retaining any amounts billed to the state in excess of what is reimbursed back to the pharmacy — is illegal.
PBMs defend their spread pricing tactics, of course, saying there’s nothing inherently wrong or even illegal about marking up the cost of goods sold. But the type of spread pricing New Yorkers, and indeed all Americans covered by Medicaid, Medicare or almost any commercial health plan, have been exposed to is above and beyond what’s appropriate “markup” for services rendered — as much as $300 million or more, according to a study the Pharmacists Society for the State of New York commissioned late last year.
At a time when drug prices are so high the nation’s most vulnerable patients are making choices that include rationing medications or skipping filling prescriptions altogether, the question we asked in New York was “how much profit is enough?” New York’s anti-spread pricing law was accomplished by examining data and recognizing that exorbitant spread pricing was costing the state’s Medicaid millions of unnecessary dollars each year. This is money that was not going to help patients but straight into PBM coffers.
New York isn’t alone in looking at the high prices that PBMs exact on Medicaid. Ohio, Texas, Illinois, Arkansas, Kentucky and West Virginia are also investigating the pricey impact PBMs may be having on their Medicaid programs.
PBM executives were recently in Washington in front of a Senate panel answering questions about their role in rising prescription drug costs, and the issue of spread pricing was front and center. Sen. Ron Wyden (D-Ore.) hit the nail on the head when he referred to spread pricing as “plain old price gouging.” We couldn’t agree more and urge Congress to continue to take a hard look at how spread pricing affects patients and taxpayers.
How have we gotten here? Until very recently, PBMs — the middlemen who design the prescription drug benefit plans, process claims and promise health plan sponsors medication cost “savings” for their participants by negotiating with drug manufacturers — operated with very little regulation.
Now states are becoming wise to the tactics PBMs use to profit at nearly every stage of the chain between drugmaker and pharmacy counter. This could mean patients and taxpayers seeing some relief as long as other states follow New York’s lead.
Early estimates are that New York could save at least $43 million a year under the new law. Based on what we see behind the pharmacy counter every day, pharmacists believe it could be far more. Either way, this was a smart move by New York, one we hope other states will take steps to enact, too.
There are myriad ways PBMs create shareholder value for private corporate conglomerates, resulting in billions of dollars not going toward lowering health care costs. Though they loudly protest otherwise, it is the PBM industry that needs continued critical examination — and stricter regulation.
States don’t typically get a lot of praise when passing their budgets these days, but in the case of New York, patients, and all of us who pay for health care, should be giving Cuomo and the New York General Assembly a round of applause.
Steve Moore is a pharmacy owner and president-elect of the Pharmacists Society for the State of New York.
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