Richard Cordray, Mike DeWine back state Medicaid reform on prescription-drug middlemen

October 22, 2018

A major reform to the way the Ohio Department of Medicaid buys billions of dollars worth of prescription drugs seems likely to continue regardless of who wins the governor's race Nov. 6.

The department, under term-limited GOP Gov. John Kasich, announced in August that it would tell the state's five Medicaid managed-care plans to update their contracts with pharmacy middlemen that allowed the middlemen to charge taxpayers $224 million a year more than they were paying pharmacies for prescription drugs. The Medicaid department conducted its investigation after The Dispatch used confidential pharmacy data to conduct its own analysis that showed somewhat higher markups.

The Dispatch has been conducting a year-long investigation of the middlemen, known as "pharmacy benefit managers." The companies — CVS Caremark and OptumRx — say they extract savings from manufacturers and pharmacists and pass them along to consumers. But critics say they use non-transparent pricing to gouge taxpayers and drive up the cost of drugs, which already are the fastest-growing costs in the health-care sector.

The Medicaid department's revamp require managed-care companies to move on Jan. 1 from the current "spread pricing" model to a "pass-through" model, under which pharmacy middlemen will be paid a straight administrative fee and forced to bill the state the same amount they pay pharmacists.

A spokesman for the department said it's a one-of-a-kind project for a large-state Medicaid agency and that many other states are watching it closely.

“There is universal agreement that transparency is in the best interest of the public and the traditional model does not go far enough," Medicaid spokesman Tom Betti said Friday. "That is why we are implementing a fully transparent pass-through model as a first step in the evolutionary process to ensure Ohioans are receiving the best value for taxpayer dollars. We anticipate this will be a process that will continue.”

The Department of Medicaid reports to the governor, so whoever wins Nov. 6 will have the power to upend or continue the department's big project. But based on their statements last week, neither of the major-party candidates wants to go back to the old way of doing things.

"As attorney general, I am actively working with eight separate state agencies to investigate pharmacy benefit managers," Mike DeWine, the Republican nominee for governor, said in an email. "We are examining whether or not they are complying with their contracts or if they are cheating the Ohio taxpayers."

He added that he would go beyond what the Medicaid department will have in place come Jan. 1.

"The pass-through system does not go far enough to prevent these pharmacy middlemen from ripping off taxpayers and the state needs to change this system immediately and improve transparency," DeWine said. "As governor, I will put in place a fully transparent system that ensures the state gets the absolute lowest cost on prescription drugs."

His Democratic opponent, former U.S. Consumer Financial Protection Bureau Director Richard Cordray, said that DeWine already should have done more.

"It's crucial that we put in place significant reforms to Ohio's PBM system, which has failed both patients and taxpayers on Mike DeWine's watch as attorney general," Cordray said in an email. "As governor, I'll be in favor of any changes to the PBM contracts that will increase transparency, save taxpayer money, and lower prescription drug costs for seniors and middle-class families. These reforms seem like a positive step forward, but additional evaluation and time will be needed to determine whether this new model represents the best long-term solution."

Ohio's independent pharmacists have long complained that CVS Caremark, the dominant Medicaid PBM, has slashed reimbursements to them as part of a bigger anti-competitive bid in favor of its own retail outlets. CVS denies the charge, but Antonio Ciaccia of the Ohio Pharmacists Association said he doesn't buy it. He added that he hopes promises of reform by DeWine and Cordray last beyond Election Day.

"This is one of those tough issues where good policy butts up against good politics," Ciaccia said in an email. "It is impossible to fix the drug pricing debacle without ruffling feathers and standing up to powerful lobbyists and corporate interests. There have been some lawmakers who have tried like hell to fix this broken system, but PBMs have always escaped or worked around meaningful reform, and no one has had the intestinal fortitude to hold them accountable.

"There’s a lot of talking the talk on these issues, but it’s time for someone to truly walk the walk. Inaction and status quo will only allow PBMs to make matters worse, and that won’t just crush local pharmacies; it will cost patients and taxpayers dearly."