Side Effects

Overcharges on generic Prilosec give Ohio taxpayers heartburn

March 10, 2019

For the past couple of years, Ohioans could buy the generic version of the heartburn treatment Prilosec off the shelf at most any drugstore for less than 60 cents a tablet — and less than 40 cents online.

At the same time, however, Ohioans were being charged $6.57 a tablet to provide large quantities of the exact same drug through the state’s Medicaid program.

Those apparent overcharges for just this one 20-mg pill totaled about $2.4 million in only 18 months, from the start of 2017 to mid-2018 (the latest figures available).

“This is a case of 42 tabs can be mailed to your house without a prescription for $15.99 (or less), while a state’s Medicaid budget forked over $283.08 (17.7 times as much) for the same quantity,” said an analysis released this past week by Robert W. Baird Co., a multinational independent investment bank and financial services company based in Wisconsin.

The higher price stems from an almost-unnoticed decision by a middleman in the drug-supply chain who ironically was hired to help keep prices down: pharmacy benefit manager CVS Caremark.


That’s where things get complicated — not uncommon when delving into reasons behind the high cost of prescription drugs. But it's yet another chapter in the story of how even the smallest of moves by pharmacy benefit managers, the middlemen in the prescription-drug-supply and payment chain, can have multimillion-dollar effects on the public.

“This is a textbook example of concerns taxpayers have across the nation and (underscores) the need for transparency across the entire drug-supply chain,” said new Ohio Medicaid Director Maureen Corcoran.

One fact that’s undisputed: CVS is involved in a joint venture called Red Oak Sourcing with Dublin-based Cardinal Health, and Cardinal is the parent company of Major Pharmaceuticals — the marketer/distributor for the expensive version of generic Prilosec. Along with heartburn, the drug is used to treat acid reflux and stomach ulcers.

More complicated is the disputed part, which revolves around something called the Maximum Allowable Cost list. Like many things in the drug-pricing world, it has an acronym: the "MAC list."

In Ohio’s Medicaid setup, a pharmacy benefit manager (PBM) stands between pharmacies that provide the drugs and the managed-care plans that taxpayers support. CVS Caremark is the PBM for four of Ohio’s five managed-care organizations.

The PBMs typically set up a MAC list for drugs funded by Medicaid. The MAC list shows the amount a pharmacy will be reimbursed by the state for each drug, dosage and distributor.

Indeed, CVS Caremark established the usual MAC list for five sources of generic Prilosec, known as Omeprazole. The price for each 20-mg tablet ranged from 51 cents to 63 cents.

But there was one company left off the MAC list: Cardinal's Major Pharmaceuticals. Its price tag was $6.57 for the exact same tablet.

Not only that, but Ohio pharmacies also squeezed by lower MAC prices for most drugs quickly seized on the one version of Omeprazole that would provide them the most profit from Medicaid. The market share for Omeprazole from Major Pharmaceuticals skyrocketed from less than 2 percent to almost 60 percent in about 15 months, Baird found, using data from 46brooklyn Research.

If the state had paid Major Pharmaceuticals the average of what it paid the MAC-listed Omeprazole suppliers, the overall price tag would have been $2,366,574 from January 2017 through June 2018.

"Clearly, the PBM dropped the ball (whether purposely or not) with this drug, subjecting the state of Ohio to the wildly off-the-mark (price) set by one manufacturer to grab market share,” said a report by 46brooklyn, run by Eric Pachman, former president of a chain of Ohio pharmacies, and Antonio Ciaccia, top lobbyist for the Ohio Pharmacy Association.

Corcoran, the Medicaid director, said the state pays managed-care companies a set per-recipient, per-month cost — known as the capitation rate — so fluctuations in drug costs don’t change that amount, and taxpayers aren't directly losing any money.

Mike DeAngelis, senior director of corporate communications for CVS Health, pointed to the same factor to say Ohio taxpayers are not affected by higher Medicaid drug prices.

Ciaccia's response: "Give me a break. Yes, the state uses capitation rates, but the state uses the (drug) utilization data and claims information to set the capitation rates. Chicken-and-egg argument. If we used their logic, the price the state pays would never change, but it does. Those capitation rates keep going up. So clearly, these overcharges do matter."

DeAngelis offered a range of explanations to absolve CVS of any responsibility for the overpayment.

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First, he went after the Baird report, saying the financial adviser's conclusions "appear to demonstrate a lack of understanding of how pharmacy pricing works" because "PBMs such as CVS Caremark have no input or control over pharmacies’ product selection."

The response from one of the report's authors, senior research analyst Eric Coldwell, was biting.

"We simply and methodically highlighted a string of eye-opening coincidences, and then provided facts as determined via double-checked, government-reported data,” he said. “I believe that astute observers would seriously question statements such as PBMs ‘have no input or control over pharmacies’ product selection’ and that the economics to CVS are 100 percent identical no matter what product is selected at the pharmacy."

And about "these ridiculously priced tablets," Coldwell questioned: "If CVS doesn’t have any control over the items that they claim not to control, then why are we (taxpayers) paying them so handsomely?"

Ciaccia sounded a similar theme: "For a PBM to say, 'Well, we don’t control this; it’s the pharmacy,' is a (BS) response. One of the main reasons they are paid $200 million is to keep things like this under control. Best-case scenario: They suck at their job. ... Anything worse points to cashing in on conflicts of interest."

DeAngelis also said the Major Pharmaceuticals version of Omeprazole "does not have the appropriate third-party generic national drug code" to be included on CVS's MAC list. It was unclear how the national drug code — already established by the Federal Drug Administration for Major’s Omeprazole — would keep it off CVS’s MAC list. He did not elaborate despite further inquiries.

But the Baird report noted that Ohio Medicaid's other PBM, OptumRx, had no trouble including the version from Major Pharmaceuticals on its MAC list. Plus, Ohio's fee-for-service branch of Medicaid also has put Major on a MAC list. So it was not readily apparent why CVS could not include them as well.

Greg Lopes, senior director of strategic communications for the Pharmaceutical Care Management Association, a PBM trade group, said that getting drugs on a MAC list is normally important to the benefit manager. The drug middlemen use those price lists to “make the generic market more competitive and more efficient,” noting, “without MACs, drugstores could overcharge for generics, earning excess profits.”

DeAngelis also said the company makes no additional money from the higher price charged for the drug from Cardinal Health's subsidiary, so "CVS Health’s business relationship with Cardinal Health plays no role in CVS Caremark’s MAC decisions regarding this product."

Cardinal spokeswoman Brandi Martin declined to comment about the high price paid by Medicaid or whether the company’s business relationship with CVS was a factor in its drug's pricing.

“Neither Cardinal Health nor Major Pharmaceuticals play a role in payer/PBM plan design or reimbursement,” she said.

The questions surrounding these price variations on a single brand of generic Prilosec mark another controversy involving the impact of pharmacy benefit managers on Ohio, many of which have been revealed by The Dispatch.

State Attorney General Dave Yost sued a PBM last month on behalf of the Ohio Bureau of Workers' Compensation, seeking repayment of some $16 million. More action is coming, he promised.

Gov. Mike DeWine told the Medicaid agency to rebid its managed-care setup, of which the PBMs are a key part. Medicaid officials recently amended the managed-care contracts to give the state greater scrutiny of PBMs, including twice-a-year reports on drug-pricing data.

Those changes that began in January stemmed from a Medicaid consultant who found that PBMs were charging Ohio three to six times the standard rate, resulting in excessive profits approaching $200 million in a single year. A state audit also found questionable amounts obtained by the PBMs.

The state intervened when PBMs dropped their reimbursements to pharmacies for potentially lifesaving naloxone, an overdose antidote, so low that many stopped stocking it.

State lawmakers have criticized CVS tactics of cutting reimbursements virtually across the board to Ohio pharmacies, then approaching those same pharmacies with offers to buy them.

The state probed a CVS mailing that exposed HIV patients’ identity, and a lawsuit filed on their behalf is pending.

An Ohio Ethics Commission investigation is pending of a top Medicaid official who worked for CVS at the same time as the state and immediately after she left the state payroll.

It's not clear whether anything will be done about the overcharges for generic Prilosec. But a Dispatch price check at a half-dozen stores last week found it still on the shelf — and still available at a price many times lower than what the state was charged.