States Are Taking Action on Medicaid Transparency

The Medicare and Medicaid programs are meant to help the most vulnerable members of our population gain access to life-saving health care services – including prescription drugs. Federal and state officials have the difficult task of providing beneficiaries with that access in a fiscally responsible way.

That task is made even more difficult by a lack of transparency about the true costs of prescription drugs from the middlemen who administer these programs: pharmacy benefit managers, or PBMs.

In the Medicaid program, managed care plans and the PBMs they hire to administer prescription drug benefits claim to help states reduce costs. However, their cost-savings claims are often dubious, and the PBMs’ opaque practices and lack of proper oversight jeopardize patient access to pharmacy services, as well as the viability of locally owned community pharmacies. Some states have found that PBMs are actually contributing to the higher costs of prescription drugs rather than managing costs.

For example, West Virginia carved out pharmacy benefits from its Medicaid-managed care program in mid-2017 after realizing the move could save the state $30 million a year. In the first quarter for which data is available, a West Virginia Medicaid official reported actual savings totaling about $12 million for that quarter alone.

And that’s not the only state discovering that Medicaid contracting deserves scrutiny.

PBMs’ opaque practices have a direct negative impact on locally owned community pharmacies in the form of “underwater” reimbursements. The business model for pharmacies should be simple — the pharmacy buys the medication from a prescription drug wholesaler and then sells it to the patient. Things get complicated fast, though, because the PBM sits in the middle of that transaction. The PBM tells the pharmacy how much to charge the patient and how much the PBM will pay the pharmacy. Increasingly, PBMs are paying pharmacies less than what the pharmacy pays for the medication.

Community pharmacists’ primary concern has always been the health of their patients. However, there is a limit to the number of underwater reimbursements that pharmacies can withstand. Eventually, these under-reimbursements will run community pharmacies out of business, further limiting patient access to local pharmacy services – especially in rural areas, where most community pharmacies are located. Just as important, state taxpayer dollars are potentially being wasted.   

Fortunately, some states are taking steps to address opaque PBM practices and their negative impact on patient access and community pharmacists. And those states are finding that increased transparency often leads to increased savings.

Last year, the Virginia General Assembly enacted legislation requiring Medicaid-managed care organizations, or MCOs, to report the difference between what a PBM charged the MCO for each claim and what the PBM actually reimbursed the pharmacy. Based on one quarter of data analyzing only a partial dataset, the Virginia Department of Medical Assistance Services estimated that PBMs in the Medicaid-managed care program make at least $14 million annually off that spread alone.

In Kentucky, the spread may be even more dramatic. Data show that PBMs are pocketing approximately $380 million of the total $1.68 billion spent annually on prescription drugs in the Medicaid-managed care program. This has motivated Kentucky’s Legislature to pass legislation requiring the disclosure of the difference between what the MCO paid the PBM for each pharmacy claim and what the PBM actually reimburses a pharmacy. Think about that: Nearly $400 million in state savings would go a long way toward repairing bridges and roads, building schools or paying school teachers competitive salaries.

Recently in Ohio, amid increasing pressure from local media and advocates, lawmakers and the state auditor held a press conference discussing the need to address the “PBM oligopoly.” Since then, the state has pledged to investigate possible improper use of state Medicaid dollars by the PBMs.

The governor of Arkansas, in response to a February legislative hearing in which community pharmacists documented a range of PBM abuses that drive up state Medicaid costs, announced a special session of the legislature to take up PBM regulation. That special session resulted in one of the nation’s most comprehensive pieces of PBM legislation, providing the insurance commissioner with greater oversight of PBM provider networks and compensation programs, among other substantive regulations.

State lawmakers and Medicaid agencies have begun to realize how harmful a lack of transparency is when it comes to PBMs’ use of public tax dollars. In general, MCOs have not been holding PBMs accountable, and states are beginning to take back control.

If a lack of transparency leads to this much waste by PBMs in the Medicaid program, which is state managed, just imagine how many taxpayer dollars may be wasted in the Medicare program. It’s time the federal government followed the states’ lead on this issue. It’s time to bring increased transparency to the Medicaid and Medicare programs.

Sunlight is not only a good disinfectant. It could even help pay a few school teachers.


B. Douglas Hoey, MBA, a pharmacist, is chief executive officer of the National Community Pharmacists Association.

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