DeWine wants crackdown on pharmacy middlemen, managed-care groups

Feb. 1, 2019

Frustrated by the ongoing “rip-off" of Ohio taxpayers, Gov. Mike DeWine ordered a crackdown on Medicaid managed care plans and the pharmacy benefit managers they hire to oversee prescription drugs.

DeWine directed Medicaid Director Maureen Corcoran to rebid the managed care contracts and also ordered Medicaid and other state agencies to provide any pertinent data to Attorney General Dave Yost for a potential lawsuit against the pharmacy middlemen, known as PBMs.

“I want to save taxpayer dollars. It’s pretty simple. The PBM system we think has ripped us off," DeWine said Friday.

The governor said he wants to make certain going forward that "we have the right contract and ... we require openness in regard to this whole PBM process. I think the thing the public should find very irritating and very alarming is the secrecy surrounding the PBM process.

"We want to shine a light on that."

DeWine's directives come less than a month into his term as governor and follows an investigation into the costly practices of PBMs he launched last summer while attorney general. His successor, Dave Yost, issued this statement:

“We are actively looking into the PBM business practices and drug pricing. Litigation is never my first choice but justice is. If the state of Ohio claims are supported by evidence we have the tools and will aggressively work to recoup the money that is owed.”

Medicaid — the tax-funded health insurance program covering 3 million poor and disabled residents — contracts with five private managed care plans to oversee benefits. The plans have hired two PBMs, CVS Caremark and OptumRX, to decide which medications are covered, negotiate drug prices and rebates with manufacturers, and set reimbursement rates to pharmacists who fill prescriptions.

Separately, new Ohio House Speaker Larry Householder said lawmakers will closely scrutinize both managed care organizations and pharmacy benefit managers.

"I can tell you that I’m always going to be very, very concerned that tax dollars are spent the way they are supposed to be spent. And I can tell that I’m very concerned about MCOs, and I’m very concerned about PBMs," the Glenford Republican told Statehouse reporters.

"I think that’s something that we’re going to look at hard … at the way those dollars are allocated back to the systems and make sure they’re being done effectively and efficiently. I’m worried that there’s money being lost in the system.”

A study commissioned by Medicaid last year found PBMs billed taxpayers $223.7 million more for prescription drugs in a year than they reimbursed pharmacies to fill those prescriptions. That 8.8 percent difference, known as the price spread, represents as much as $180 million in excessive profit kept by CVS Caremark and Optum Rx, the study found.

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The report said PBM fees should be in the range of 90 cents to $1.90 per prescription, but found CVS Caremark billed the state about $5.60 per script while Optum charged $6.50 — three to six times higher.

In response, then-Medicaid Director Barbara Sears told the managed care plans last summer to abolish "spread pricing," and starting Jan.1 implement a more transparent pass-through pricing model in which PBMs are paid a set fee per transaction and required to pay pharmacists the same amount they bill the state.

But DeWine said Medicaid can do better and that entire managed care contracts, which are six years old, need to be re-bid.

“It’s time to re-look at these contracts, re-evaluate exactly what we want in the contract. We want to make sure there’s a very strong wellness component (but) the PBM is one of the significant reasons to do this,” DeWine said.

“We certainly can get a better deal for taxpayers than we have now, particularly in regard to the PBMs … there’s no doubt about it … the more I found out as attorney general the clearer it was that the status quo is not acceptable.”

DeWine said when he was attorney general "none of the (state) agencies authorized litigation," something he needed before filing a lawsuit.

“As governor now, I’m in a different position. I determine the policy. The policy is we are asking the attorney general if litigation can be filed. They have to tell us if that is possible.”

DeWine declined to speculate on the focus of potential litigation.

“We think there are tax dollars to be saved," DeWine said. "We feel very strongly we can get a better deal.”

Medicaid spokesman Tom Betti said “consistent with the governor’s directive, we are immediately moving forward with the re-procurement process of our managed care plans. We look forward to an open discussion with many of our consumers, advocates, and partners to explore innovative ways to improve the quality of services and care to those we serve, as well as securing the best deal for Ohio taxpayers.”

John Corlett, former Ohio Medicaid director, tweeted, "Glad to see that @OhioMedicaid is moving to re-procure their Medicaid managed care contracts, it’s an important step forward on many levels."

Mike DeAngelis, senior director of corporate communications for CVS Health, said, "As of January 1, 2019, the contracts with our managed Medicaid clients in Ohio have been updated to comply with the state’s pass-through requirement. CVS Caremark remains focused on continuing to reduce health care costs and improve health outcomes in Ohio, as evidenced by Ohio Department of Medicaid’s report that PBMs have saved taxpayers $145 million annually."

That total actually is the amount the state consultant calculated that Ohio saves by using managed care instead of fee-for-service (although rebates were not included in the calculation), a savings PBMs take full credit for since they help manage managed care.

Dispatch Public Affairs Editor Darrel Rowland contributed to this story.