July 8, 2019

A key holdup in Ohio’s state budget stalemate centers on how to deal with pharmacy benefit managers.

The middlemen in the Medicaid drug supply chain were targeted by both branches of the legislature. But House and Senate members remain far apart on what they see as a solution.

Antonio Ciaccia, lobbyist for the Ohio Pharmacists Association who has delved into the PBM issue for the past couple of years, says both proposals contain good points, both seem well-intended, and neither will work.

“The main flaw in this system is the fact that PBMs are members of the supply chain and get to set rates for the supply chain,” Ciaccia said, calling the setup “absolutely insane.”

“Both versions miss the key issue, which is price setting. If you don’t have a reference-based price for a drug that’s set by an unconflicted third party, the system is still ripe for abuse.”

A “reference-based price” is one set by a neutral party or is from a widely accepted list such as the federal National Average Drug Acquisition Cost.

Currently, a pharmacy benefit manager decides how much the state (via managed-care organizations that run Medicaid) pays the PBM for a prescription drug and how much of that money then goes to reimburse a pharmacy for procuring the drug. Until this year, the PBMs kept the difference, a practice known as spread pricing, which garnered them about a quarter of a billion dollars annually — three to six times the usual cost.

This year, Ohio launched a “pass-through” model in which the price charged by the PBM is supposed to be the same as the amount paid by the PBM to the pharmacy.

But a Dispatch analysis last month showed that while PBM OptumRX’s pharmacy reimbursements had indeed increased greatly, those from the other PBM in the Medicaid supply chain, CVS Caremark, still were far from meeting the pharmacies’ actual drug acquisition costs. Not only that, but many of CVS Caremark’s higher prices are for specialty drugs that often must be obtained from CVS’ own pharmacies.

The legislature’s PBM impasse, along with sharp disagreements on taxation and education issues, kept lawmakers from meeting the June 30 deadline for a new two-year budget. The state is currently operating under a 17-day interim budget that expires next week.

Leaders of both the House and Senate expressed eagerness to tackle Ohio’s difficulties with PBMs through the state budget.

“I think we are trying our best to find a solution,” said Speaker Larry Householder, R-Glenford. “That has led to some new ideas that have presented themselves to solve some of these issues.”

Senate President Larry Obhof, R-Montville Township, even questioned the basic role of a PBM: “If you’re a contractee of the state performing a function for the state, your goal should be to deliver the service the state expects and to maximize the value to taxpayers, and I’m not sure that’s happened.”

Neither the administration of Gov. Mike DeWine nor the state Department of Medicaid would say which plan — or which elements of each plan — they think would be best for the public. DeWine spokesman Dan Tierney said the governor’s office “has generally declined comments on negotiation details.”

Drug Look Up | Use our database to see if you're paying too much for your prescription drugs

But he did note DeWine’s push from earlier this year: “The governor’s first policy directive on this issue was to direct the Department of Medicaid to procure new managed care contracts, which would include new PBM contract provisions. The governor wants new contract language to save taxpayer dollars and further efforts to increase transparency. This remains the administration’s focus in regards to PBM reform and improving the Medicaid program.”

A key difference between the legislature’s competing proposals is how much the administration and Medicaid department can be counted upon to fix the persistent problems with PBMs.

The House measure would remove PBMs from the Medicaid drug supply chain altogether and replace them with a single, state-controlled PBM. (Earlier, Attorney General Dave Yost had suggested a single PBM for all state drug contracts, not just Medicaid.)

“Under the House plan, the contract would go through the procurement process at (the Department of Administrative Services),” said Gail Crawley, a Householder spokeswoman. “A PBM would first need to qualify, meaning they can have no conflicts, agreements or relationships with any other part of the system and they would be fully bound to the best interests of Ohio.

“After all of that, they would need to be the successful candidate in the procurement process.”

But senators quickly dismissed that idea.

“It looked to us to be a state-sponsored monopoly. Anytime you do something like that, frankly, my colleagues and I are concerned,” Obhof said.

“What we tried to do in our version of the bill is work with the administration and make sure we have the level of oversight needed, but let them have flexibility in the procurement process,” the Medina Republican said.

“We have a lot of faith in the administration and we wanted to give them the ability to do the things they need to do.”

But Ciaccia agreed with the Dispatch analysis indicating that as long as PBMs set drug prices, they could take a significant share of the subsidy.

“That (portion of the Senate plan) is admirable, it is needed, but if you haven’t actually fixed the methodology underneath it, then how do you make sure the money goes where you want it to go?”

However, Ciaccia also agreed with concerns about a monopoly PBM. Such an arrangement might be fine for the state’s bottom line — “that’s another way of saying go underpay the best you can” — but he sees no provisions to make sure Ohioans get adequate health care through financially viable pharmacies.

“Quality will go by the wayside and providers will be at risk,” he said.

So far, the House isn’t budging from its proposal.

“The PBM issue is one where the House believes their version addresses the problem, the Senate version extends it. The House views the budget as a total package, and we look forward to resolving the few remaining issues in the bill,” Crawley said.