It seems like this has been a long time coming but at least one set of state officials is taking action regarding the excess profits and business model of their pharmacy benefit managers (PBMs) (see: Ohio Medicaid to try out transparent PBM pricing model). Below are some details from the article:
Ohio's Medicaid department is directing its managed-care organizations to quit their contracts with pharmacy benefit managers because of opaque pricing practices officials said cost the state millions of dollars. The state's five managed-care plans must strike up new contracts with companies able to manage pharmacy services using a more transparent pricing model by Jan. 1, 2019. The decision comes after an analysis commissioned by the Medicaid department found that the two largest PBMs operating in the state — CVS Caremark and OptumRx — billed managed-care plans $223.7 million more for prescription drugs than they paid pharmacy providers in one year under a practice known as "spread pricing." Pharmacy benefit managers are middlemen that administer pharmacy benefits and negotiate prescription drug rebates from manufacturers on behalf of insurers and self-insured employers. They also negotiate discounts from pharmacy networks that dispense drugs to patients. Most PBMs engage in spread pricing, where the PBM pockets the difference between what it bills to the payer for medications and what it pays the pharmacy to dispense those drugs. PBMs keep that figure close to the vest. But the report commissioned by the Ohio Medicaid department found that the spread totaled 8.8% between the two PBMs in the state. Ohio Medicaid wants to move to a pass-through pricing model, in which the managed-care plan pays the actual discounted pharmacy price that the PBM negotiated with the retail pharmacy network. Under that model, PBMs wouldn't be able to keep the difference as revenue. Managed-care plans would be required to pay higher administrative fees to the PBM, however.
All of this is a continuation of the controversy that has long been simmering about the excessive PBM profits. Here's another quote that adds to the discussion (see: The Hidden Monopolies That Raise Drug Prices):
Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system—and our wallets—with hardly any public awareness of what they are doing.
One more aspect of this story relates to the discounts offered by pharmaceutical companies on some drugs. In 2011, Caremark Rx, now owned by CVS, was the nation's second-largest PBM. It was the subject of a class action lawsuit in Tennessee which alleged that Caremark kept discounts from drug manufacturers instead of sharing them with its member benefit plans (see: Pharmacy benefit management). My only question at this point is why has it taken so long to try to correct the "PBM problem." Part of the reason is that some of the PBMs were kicking back money to the health plans in exchange for not being viewed with too critical an eye.
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