April 30, 2019

Ohio Medicaid officials are cracking down on another lucrative tactic pharmacy middlemen use to boost profits — from expensive specialty drugs.

Medicaid Director Maureen Corcoran told state lawmakers Tuesday that pharmacy benefit managers — which decide which medications are defined as "specialty drugs" — cannot require they be filled only by a "specialty pharmacy."

Such specialty pharmacies are often affiliated with the PBM, meaning they are essentially steering business for some of the most expensive drugs to themselves.

"We have identified problems with specialty pharmacies so we are working on some final language specific to specialty pharmacies that will open up that dark area, require that there be competition, as well as language about affording pharmacies and consumers choice and not limiting it to a single relationship," Corcoran said in testimony before the House Finance Committee.

The new requirement, starting July 1 along with several others, aims to protect tax dollars in the $26 billion program providing health insurance to nearly 3 million poor and disabled Ohioans.

"This is part of cleaning up things as well as establishing a new business relationship," Corcoran said. "We’re not interested in micromanaging billion-dollar companies. That’s not what this is about…however, we have to have a different business relationship."

The Deparment of Medicaid contracts with five managed care companies to administer the program. The plans subcontract with PBMs to oversee drug coverage. For instance, the parent company of CVS Caremark, PBM for four of the plans, operates both retail and mail-order pharmacies.

"When PBMs have ownership interests in pharmacies, there are obvious conflicts of interest. What we have seen with specialty drugs — especially ones that get steered to PBM-affiliated pharmacies — is that those conflicts appear to be manifesting themselves into massive cash grabs. If this isn’t self-dealing, then I don’t know what is," said Antonio Ciaccia, of the Ohio Pharmacists Association.

A recent study by 46Brooklyn, run by Ciaccia and Eric Pachman, who researches drug costs, found pharmacies filling prescriptions for one specialty drug, generic Gleevec, used to treat leukemia, were making about $5,000 per prescription.

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A separate study found PBMs and insurers dominate the specialty drug business, with revenues from dispensing such medications making up a growing portion of their profits.

The report by Dr. Adam J. Fein, CEO of a pharmaceutical economics consultant, found that "the top four companies — all of which are owned by a PBM — accounted for more than 70% of prescription revenues from pharmacy-dispensed specialty drugs."

Frustrated by the costly and secretive practices of PBMs, Ohio Gov. Mike DeWine recently ordered Medicaid officials to rebid managed care contracts.

A study commissioned by Medicaid last year found PBMs billed taxpayers $224 million more for prescription drugs in 2017 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 the other Medicaid PBM, Optum Rx, the study found.

The report concluded the PBMs were charging the the state three to six times the going rate. The state subsequently banned spread pricing and implemented a pass-through pricing model in which PBMs get a set fee and must bill the state the same amount they pay pharmacists.

Corcoran told lawmakers Tuesday that Medicaid is making additional changes July 1 to shine more light on drug pricing as the agency moves forward with rebidding overall managed care contracts.

In addition to specialty pharmacy provisions, Corcoran said state officials are requiring managed care sub-contractors, like PBMs, to comply with all requirements imposed on the plans.

Medicaid also must have "access to all information related to payment streams associated with PBMs" and managed care plans must give the state advance notification of any changes to their agreements with PBMs.

"We’ve tried to look at every area of the problem and tighten up the screws to make sure that there is more transparency, that data is available, that at least for certain proprietary information the department can get it, and that more information can be publicly available," Corcoran said.