Dispatch analysis: State's attempt to curb drug middlemen mostly futile
June 23, 2019
A Dispatch analysis of prescription drug prices for the poor and disabled since the state's latest stab at reform turns up one simple fact: No matter what laws or regulations are changed, as long as pharmacy benefit managers control Ohio Medicaid's $3 billion drug-pricing mechanism, it will be difficult to make sure that both Ohio taxpayers and pharmacies are getting a good deal.
The analysis of more than 400,000 prescriptions from about three dozen pharmacies across the state in the first quarters of 2018 and 2019 produced four major conclusions:
• Ohio's largest Medicaid pharmacy benefit manager, CVS Caremark, increased its rates for specialty drugs at the beginning of this year, even though the cost of many of them was dropping nationally. Along with raising the price for Ohio taxpayers, CVS benefits from the inflated cost because its PBM directs many of these prescriptions to CVS specialty-drug pharmacies. The price increases took effect as Ohio eliminated the old "spread pricing" system in which pharmacy benefit managers, a middlemen in the drug supply chain, walked away with as much as $200 million a year in profit.
• The state's new "pass through" system has generated better results for Ohio pharmacists. The amounts they are receiving from PBMs above the pharmacies' costs to buy Medicaid drugs more than tripled after the sweeping changes this year. The bad news: That $6.25 margin per prescription still falls well short of the standard $9.48 deemed by pharmacies as their break-even point.
• CVS Caremark's reimbursements to Ohio pharmacies for Medicaid prescriptions are well under half those of the other pharmacy benefit manager handling Ohio Medicaid money, UnitedHealth Group's OptumRx. Many of CVS' reimbursements fluctuated wildly from year to year for the same drug, seemingly without relation to the actual cost of that drug.
• A plan added to the proposed state budget by the Ohio Senate last week that would earmark $100 million to ailing Ohio pharmacies might end up enriching the PBMs instead.
Pharmacy benefit managers operate as middlemen between pharmacies that dispense drugs to Medicaid recipients and Ohio taxpayers, who pay for the drugs through five private managed-care organizations that run Medicaid and hire the PBMs.
The analysis actually produced a fifth finding: Nearly six months after implementing a much-touted "pass through" drug-pricing system, the Ohio Department of Medicaid still doesn't have basic figures on how much PBMs and pharmacies are making — or whether the new arrangement is working as planned. The system is called "pass through" because whatever amount the PBMs charge the state is supposed to be passed through to pharmacies.
The results of an analysis by a state consultant are expected next month.
Changes on the way
Ohio Department of Medicaid spokesman Kevin Walter said changes are coming.
"As Governor (Mike) DeWine stressed from the outset of his administration, ODM is committed to creating as much transparency as possible. Switching from spread pricing to the pass-through model was a first step, as are changes that will be implemented in (Medicaid) provider agreements that take effect July 1, and in the procurement process that began last week with the release of ODM’s first request for information seeking public input on the current managed care program."
Spread pricing happened when the PBMs charged the state more than they paid pharmacies, a total that reached nearly a quarter billion dollars in the one year studied.
State Sen. Dave Burke, a Republican from Marysville who also is a pharmacist, said Medicaid officials are saying the right things, but the time has come for action on behalf of Ohio taxpayers and pharmacies, several of which are teetering on the edge of going under.
"Simply watching someone crush a business is not a policy," he said.
Like many other pharmacists, Burke said they and the state will never get a fair shake until those who profit from Medicaid are removed from the process that sets prices.
"The entity that tells me it’s fair is the same one that sends me the bill," he said.
The lack of information from the state about whether the Medicaid changes are working provided the main impetus for The Dispatch to obtain drug-pricing information — with all patient-identifying information removed — from pharmacies large and small across Ohio.
The analysis included only solid medications taken orally, because listed amounts for liquids, gels, creams and the like are sometimes not recorded in the same units. Of course, caution is necessary in projecting the results from fewer than 40 pharmacies in the Dispatch study to all 2,000 in Ohio that dispense Medicaid drugs.
The Dispatch conducted a similar study a year ago that showed how PBMs were making substantial money from "spread pricing," which is the difference between what PBMs charge the state and what they pay pharmacies to dispense drugs. Later studies by the Medicaid agency's consultant and the state auditor's office confirmed the practice.
When asked about the large discrepancy in payments to Ohio pharmacies between the PBMs for CVS and UnitedHealth, Drew Krejci of UnitedHealth's OptumRx corporate communication office said, "The data you have on increased OptumRx reimbursements to pharmacies speaks for itself."
Mike DeAngelis, senior director of corporate communication for CVS, would not answer why CVS Caremark is paying pharmacies so much less than OptumRx is, nor any other questions about the company's practices in Ohio generated by the pharmacy data.
"It is not reasonable or fair to be asked to comment on data we have not had an opportunity to review and validate. The Dispatch has spent an inordinate amount of time and effort attempting to discredit the work we do to reduce health care costs and improve health outcomes. While the paper continues to focus on context-free data pushed by other interests, we’ll continue to focus on the $145 million pharmacy benefit managers like CVS Caremark save for Ohio taxpayers annually," he said.
The $145 million in "savings" frequently mentioned by CVS already has been debunked. It's merely the price difference the Medicaid consultant found last year between Ohio's current managed-care setup and a prospective fee-for-service model, and did not account for drug rebates in the latter.
A 2,300% markup?
CVS made an estimated $37 billion from specialty drugs last year — a quarter of its prescription revenue and easily the most in the country. These drugs are typically used to treat such complex conditions as hepatitis, cystic fibrosis, HIV and some cancers.
Perhaps the most egregious example is the generic form of Gleevec, known as imatinib mesylate, which is used to treat leukemia and other kinds of cancer. It's not cheap: about $83 in 2018 for a single 400-milligram tablet, which is taken daily, per the federal government's National Average Drug Acquisition Cost. Last year, CVS Caremark charged a 45% markup, to about $120 per pill, the pharmacy data provided to The Dispatch showed.
In early 2019, the national average dropped dramatically — as prices of drugs often do soon after a generic form hits the market — to about $14.50 a pill. But instead of reducing its price in Ohio, CVS Caremark more than doubled it. The PBM charged the state $270 per tablet — raising the markup to more than 1,700%, or more than $250 per pill — the pharmacy data show.
Antonio Ciaccia, lobbyist for the Ohio Pharmacists Association, describes what CVS did this way: “The state slapped their hand and said, 'Stop taking money from us this way.' They say, 'OK, we’ll take it another way.'”
While the profit from raising the price for a big-dollar medication is obvious, a large enough markup on even a relatively inexpensive drug can add up, too. The national average was only 24 cents last year for a 20-milligram tablet of Sildenafil, which is used to treat high blood pressure in the lungs (pulmonary hypertension). But CVS Caremark charged $3.45 for each pill, a markup of more than 1,300%.
This year, the national average price of Sildenafil dropped by a third. But CVS raised its price in Ohio, generating a 2019 markup of more than 2,300%, the pharmacy data show.
Increasing revenue from specialty drugs is an explicit part of CVS corporate strategy. In a June 4 call with investors, CVS Health Corp. President, CEO and director Larry Merlo said the company is "focused on winning in the fastest-growing market segments, specifically government-sponsored programs and specialty pharmacy."
Derica W. Rice, president of CVS Caremark, noted that the PBM's growth has been aided by "increased utilization in specialty" drugs.
Walter of the state Medicaid agency such maneuvers by CVS will be limited starting next year.
"In order to eliminate conflicts of interest, reduce costs and expand access, ODM is requiring, beginning January 1, (managed care organizations) to accept any specialty pharmacy that meets their specific quality and service standards and can provide services at the same or lower cost compared to other in-network specialty pharmacies."
"The boat is still sinking"
Frustrated by the Medicaid department's failure for years to ensure that Ohio pharmacies are being reimbursed adequately, state senators allocated $100 million to the pharmacies last week.
Sen. Burke said the money is not so much a pharmacy bailout as an effort to make sure that Ohioans in inner cities and rural areas have access to neighborhood pharmacies. Without a local drugstore to provide needed medications, sick Ohioans are more likely to wind up in a hospital emergency room — the most expensive option.
"Leaving your county to get a prescription filled is a ridiculous notion in the year 2019," he said.
But Burke acknowledged that any attempt to help local pharmacies financially might be gobbled up by PBMs that manipulate their drug price list so they can pocket the money.
The House also went after PBMs in its version of the budget, albeit using a much different approach. So the two chambers' proposals must be reconciled in a House-Senate budget conference committee this week.
Rep. Mark Romanchuk, a Mansfield-area Republican who chairs the legislature's Joint Medicaid Oversight Committee, said that despite the substantial Medicaid changes this year, "I’m not convinced the problem’s fixed.”
Noting the tide of drugstores across Ohio that are closing, he said: "That was job one, let’s shore up our pharmacies, especially our small, independent ones. ...
"We haven’t plugged the hole. The boat is still sinking; the pharmacies are still going out.”
Dispatch reporters Marty Schladen, Lucas Sullivan and Catherine Candisky and library director Julie Fulton contributed to this story.