PBMs Put Under the Microscope

More states want to see exactly how their Medicaid drug bills are being tallied.

More states want to know exactly how PBMs make from pharmaceuticals purchased by Medicaid. After independent pharmacies complained that they are losing money on Medicaid prescriptions, the Pennsylvania Department of Human Services began rewriting contracts with PBMs to gain more transparency into drug pricing, the Philadelphia Inquirer reports this morning.

In addition, “the state’s auditor general—who is conducting his own review of the industry, due out next month—recently told state senators that Pennsylvania may need to go further, and pass legislation with stricter oversight of PBMs,” the newspaper reports.

Other states are following suit, and it’s about time, says Linda Cahn, a consultant who helps insurers negotiate contracts with the PBMs. “Every Medicaid program in the country should be investigating what the hell is going on. It’s out of control.”

Cahn’s been lobbying for more state intervention for some time, telling Managed Care in June that while some state legislators were then beginning to focus on PBM pricing, that they were simply “nibbling at the edges. None are examining how state governments could create a structure that would impose real price competition for all state-reimbursed drugs. That’s what’s needed to change the marketplace.” (Cahn has also written articles for Managed Care.)

PBMs, for their part, blame pharmaceutical companies for the high drug prices. Greg Lopes, a spokesman for the PBM lobbying group the Pharmaceutical Care Management Association, tells the Inquirer that PBMs have used increased state scrutiny as “an opportunity to highlight how the industry reduces costs and improves quality for consumers, employers, and state health plans.” Lopes wants lawmakers to take a closer look at drugmakers and reject “costly mandates pushed by the independent drugstore lobby.”

President Trump in May blamed everybody for high drug prices. “Everyone involved in the broken system—drugmakers, insurance companies, distributors, pharmacy benefit managers, and many others—contributes to the problem.”

Lawmakers are especially keen on examining the machination behind “spread pricing,” where PBMs bill insurers a higher amount than what they pay for the drug and keep the difference.

Adam Fein is president of the advisory company Pembroke Consulting and also writes the much-followed drug industry blog Drug Channels. Fein the Inquirer that “the sheer fact that they [PBMs] are earning a spread does not necessarily mean that they are earning too much.”