Reforming PBM Practices May Lead to Drug Cost Savings

Unregulated pharmacy benefit manager (PBM) practices may contribute to escalating prescription drug prices, according to a perspective published by the Journal of the American Medical Association.

Researchers from the University of North Carolina Lineberger Comprehensive Cancer Center, Northwestern University Feinberg School of Medicine and Boston University Questrom School of Business, examined the impact of Ohio Medicaid’s switch in 2011 from a fee-for-service model to a managed care model to administer its outpatient prescription drug benefits.

“Addressing drug prices is a healthcare reform priority in the United States,” says Trevor Royce, MD, MS, MPH, the paper’s corresponding author and an assistant professor of Radiation Oncology at UNC School of Medicine and UNC Lineberger. “While the pricing practices of pharmaceutical companies are under scrutiny, so are the practices of PBMs, intermediaries in the drug supply chain.”

Related: What The Alexander-Murray Bill Could Mean For PBMs

Royce and his colleagues found that PBMs use a technique called “spread pricing,” charging Ohio Medicaid high prices while paying pharmacies low prices for the same drugs and pocketing the difference.

One Ohio Medicaid analysis found the 2017 fourth quarter cost to a pharmacy for a 30-day supply of the generic leukemia medication imatinib mesylate was $3,859 with the cost to Ohio Medicaid of $7,201, a difference of $3,342.

The audit also reported an 8.8% spread between the amount PBMs billed to Medicaid managed care plans and the amount paid to pharmacies; this spread amounted to $223.7 million in the year.

PBMs also use ‘gag clauses’ that prevent pharmacies from sharing with patients the most cost-effective option when purchasing medications.

“These prevent a pharmacist from informing the patient if the out of pocket cash payment for a prescription would be less expensive than obtaining access to the drug through the patient’s health insurance drug benefit coverage,” Royce says.

Ohio Medicaid directed the state’s managed care plans to end their contracts with PBMs and adopt a transparent “pass-through” pricing model whereby the managed care plan would pay the PBM the exact amount paid to the pharmacy for the prescription drug, a dispensing fee and an administrative fee in lieu of spread-based revenue, according to the perspective.

“Gag clauses are now banned via the deferral Patient Right to Know Drug Prices Act and Know the Lowest Price Act,” Royce says.

“Ohio’s approach to assessing whether and how current relationships between PBMs and Ohio Medicaid serve public interests provides an important window into PBM practices,” he says. “Ohio has pioneered regulatory efforts to increase PBM accountability, eliminate spread pricing in favor of transparent pass-through pricing, and reduce the use of gag clauses.”

Other states are increasingly active in considering and adopting some of these changes for the own state populations.

As of March 5, 2019, state legislatures have filed approximately 233 bills referencing PBMs.