Dec. 10, 2018

Ohio Medicaid will abandon its secretive prescription drug-pricing system in three weeks and move to a transparent system that for the first time will disclose exactly how billions in taxpayer dollars are being spent.

State officials aren’t promising any savings, but the move could lead to lower costs and spur more changes in the way Medicaid pays for drugs.

The new system abolishes “spread pricing,” which has allowed pharmacy middlemen to pocket millions by billing managed-care companies more than they pay pharmacists to fill prescriptions and keeping the difference.

Under the new "pass-through" model, the middlemen — known as pharmacy benefit managers, or PBMs — will receive only an administrative fee and be forced to pay pharmacists the same as the PBM bills the state. It also for the first time will require PBMs to disclose all revenue they receive, including fees, rebates and other money from manufacturers.

“It’s been shrouded in secrecy, and with the new, transparent pass-through model, we intend to open the black box,” Ohio Medicaid spokesman Tom Betti said.

"We are seeking maximum transparency for the purpose of driving quality for beneficiaries, value for taxpayers and fair and sustainable pricing for the providers, including pharmacists," he said. "We will continue to analyze the data to determine appropriate next steps."

The $25 billion tax-funded Medicaid program provides health insurance to 3 million poor and disabled Ohioans. Prescription drugs account for about $3 billion in annual costs.

Ohio hires five managed-care plans to deliver health-care services to most beneficiaries. The plans hire PBMs to handle drug benefits. They negotiate drug prices and rebates from manufacturers and set payments to pharmacies, details of which are kept secret.

"It's a good start in terms of prohibiting some of the problems we've had with PBMs taking advantage of pharmacies," said state Rep. Thomas West, D-Canton, who has pushed for more transparency and to stop anti-competitive practices by PBMs.

"These programs are for the poor; it's almost as if they are poverty pimps. We need to make sure the money goes to those in need, not those in greed."

But Sen. Dave Burke, chairman of Ohio's Joint Medicaid Oversight Committee, said the new pass-through model is not the fix he's seeking.

“It may shed more light on how tax dollars are being spent, but it won’t solve the problem,” said Burke, a Marysville Republican and pharmacist who knows how pharmacies have been hard hit by low reimbursement rates.

"The new contracts still just identify the problem. They aren't curative,” he said. "I don't need to see anymore. I've seen enough."

Burke said Ohio would get a better deal by minimizing the role of pharmacy middlemen, who have made millions under spread pricing.

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Burke supports a proposal in which Medicaid pays the National Average Drug Administration Cost, known as NADAC, plus a $5.25 dispensing fee for each prescription. That means rates no longer would be set by PBMs.

That alternative would be cost-neutral, according to Medicaid actuaries, the lawmaker said. It also would allow incentives to be realigned to pay more for healthy outcomes, like making sure patients take their medication and not for simply selling more drugs, Burke said.

The plan recently was presented by Medicaid officials to Gov. John Kasich’s administration but was put aside amid concerns from managed-care plans.

Miranda Motter, chief executive officer of the Ohio Association of Health Plans, said she opposed the proposal because it would increase the price tag for Medicaid.

"Our collective goal is to implement solutions for independent, local, family-owned pharmacies," she said. "The proposal went well beyond that goal and would have unnecessarily provided more money to large retail chains, which was not cost-neutral to the Medicaid program."

Medicaid officials issued a statement when asked about the plan, but it did not address the proposal. They also would not release their taxpayer-funded actuarial report about the plan and its financial impact.

In August, Medicaid Director Barbara Sears ordered the five managed-care plans to cancel spread-pricing contracts with their PBMs after a study commissioned by the state showed that PBMs received more than $223 million in one year, and were making three to six times the profit that is the industry standard, according to the audit by Columbus-based HealthPlan Data Solutions.

HealthPlan suggested the markup was excessive and recommended discontinuing use of spread pricing and moving to the pass-through billing model. Four of Ohio's managed-care plans use CVS Caremark as its PBM; the fifth uses OptumRx.

New contracts beginning Jan. 1 also seek to prevent anti-competitive practices by forbidding PBMs from requiring beneficiaries to use pharmacies with which the PBMs have a business relationship "if for the primary purpose of reducing competition or financially benefiting the PBM's associated business."

“Transparency around pharmacy costs is a national issue, and Ohio is one of the first states in the country to adopt a transparent pass-through model in Medicaid managed care,” Medicaid spokesman Betti said.

The new setup “will allow Ohio Medicaid to see all drug transactions and help ensure that Medicaid recipients receive the care that they need at the best value for Ohio taxpayers.”

Antonio Ciaccia, director of government and public affairs for the Ohio Pharmacists Association, applauded the end of spread pricing.

"Rather than PBMs keeping the hidden spreads achieved through underpaying pharmacies, PBMs will only be able to be paid through set administrative fees. This would eliminate the incentive of PBMs profiting off of underpaying their competitors," Ciacci said.

However, "CVS Caremark and OptumRx can still arbitrarily set pharmacy rates however they want. They still control what drugs Medicaid will have to buy and how much they will pay pharmacies — including their own."