Side Effects

Drug middlemen name own prices, methodology goes unchallenged

June 10, 2019

Ohio Medicaid officials and their managed-care contractors say they're bringing new transparency to an opaque drug-delivery system that in 2017 saw more than a quarter-billion-dollar markup to taxpayers. But none of them will address a system under which the middlemen get to decide what drug prices are.

The profits of pharmacy middlemen — known as pharmacy benefit managers — have become a major issue in Ohio, other states and Congress during the past year. In response, the Ohio Department of Medicaid says it is undertaking major reforms. Its biggest managed-care contractor, Dayton-based CareSource, announced in April that it was firing CVS Caremark as its PBM and hiring Express Scripts to act in its place.

The point of both actions, officials say, is to bring more clarity to the way PBMs charge for prescription drugs and how much they reimburse the pharmacies that dispense them. But asked repeatedly in recent weeks whether they would consider scrapping the pricing methodology that has been at the heart of the controversy, the Medicaid department and CareSource won't answer directly. Express Scripts won't answer at all.

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The technical name for the price lists the PBMs used when they billed $244 million more for drugs than they paid pharmacists is "maximum allowable cost," or MAC lists. The lists are generated by the PBMs themselves, and they're usually kept secret.

Thomas Greaney, an expert in health law and former chief of the U.S. Justice Department's antitrust division, told The Dispatch last year that observers are "slack-jawed when they look at the PBM pricing model and the lack of transparency and the fact that the customer doesn’t know what the prices are and all of that stuff.”

As an alternative, organizations representing independent pharmacists in Ohio and nationally advocate using price lists that are based on what's actually going on in the marketplace and are available to all, such as the National Drug Acquisition Cost — or NADAC — list maintained by the federal government.

West Virginia, for example, cut managed-care companies out of its Medicaid drug spending altogether and instead uses a federally approved method to maintain a publicly available list of its own. Authorities there reported that the system enabled the state to reimburse pharmacists at higher rates while also saving taxpayers more than $54 million in 2018.

Independent pharmacists say the MAC-based pricing system in Ohio is driving them out of business and it's time for a change.

"We are a year removed from discovering that PBMs used spread pricing to rip off local providers and taxpayers, and it seems everyone is upset that the state was taken advantage of," said Antonio Ciaccia of the Ohio Pharmacists Association, referring to the difference between the amount PBMs receive for drugs and the amount they pay pharmacies to dispense them.

"Yet here we are in June 2019, and PBMs still have the unrestricted ability to set the prices they pay themselves, the reimbursements for their competitor pharmacies, and the rates they charge to the state. Unsurprisingly, local pharmacies continue to vanish, and the state continues to pay a premium for prescription drugs. Continuing to hand PBMs the keys to the pharmacy marketplace and the state piggy bank is legislative malpractice."

On May 29, Express Scripts sent out a contract using MAC pricing to Ohio pharmacists that would pay them just 15 cents to dispense Medicaid prescriptions; the company then abruptly withdrew it with no explanation. Last week, a spokesman was asked whether Express Scripts would consider a pricing setup using public price lists such as NADAC.

"We won't have any additional comment from Express Scripts," spokesman Brian Henry said in an email.

Nor would CareSource directly address the issue of MAC pricing.

“CareSource is supportive of the current legislative process underway to evaluate this important benefit, and we will work diligently to implement any changes to bring accountability and clarity to the taxpayers and pharmacists of Ohio,” said Steve Ringel, the company's Ohio market president.

Kevin Walter, a spokesman for the Medicaid department, said the contracts that managed-care organizations such as CareSource have with the state "do not require a particular pricing model."

Walter added that the department now requires PBMs to report the exact amounts they're paying pharmacists and to provide "extensive reporting and cost information related to all aspects of PBM and other administrative costs." He said even more requirements will be made under revised contracts that go into effect July 1.

But he didn't directly address whether the Medicaid department might get rid of MAC pricing.