Two U.S. senators request PBM pricing inquiry, citing Pennsylvania and Ohio Medicaid programs

The top Republican and Democrat on the U.S. Senate Finance Committee asked for a federal inquiry into the pricing practices of pharmacy benefit managers, citing Pennsylvania’s Medicaid program along with those in two other states.

The senators expressed concern for “inappropriate profiteering and potential anti-competitive practices in state Medicaid programs,” according to a letter, released Wednesday, to the inspector general of the Department of Health and Human Services.

The lawmakers pointed to findings by state officials in Pennsylvania, Ohio, and Kentucky over the last eight months on how pharmacy benefit managers, or PBMs, made millions while handling prescriptions for Medicaid patients. The companies, such as CVS Caremark, operate as middlemen between health plans and pharmacists, and between health plans and drug manufacturers – a role that’s come under scrutiny in the national debate over rising drug prices.

“Given the potential vulnerabilities created as a result of opaque drug pricing practices employed by entities like PBMs, we believe additional transparency and oversight in this space is warranted,” Sens. Charles Grassley (R., Iowa) and Ron Wyden (D., Ore.) said in the letter.

Executives for PBMs faced the Senate Finance Committee in a Tuesday hearing, one in a series that the committee has devoted to drug pricing. Drug company CEOs were called to testify in February.

The two industries have blamed each other for price increases: Pharmaceutical companies argue that PBMs’ demand for rebates actually adds cost, and drives up the list prices for drugs. PBMs maintain that their clout provides a much-needed check on drugmakers that raise prices at their discretion.

“We look forward to working with Sens. Grassley and Wyden on this issue and on ways to reduce prescription drug prices," said Greg Lopes, a spokesperson for a PBM trade group, the Pharmaceutical Care Management Association.

He added: “PBMs advocate on behalf of consumers to keep prescription drugs accessible and affordable and improve the quality of benefits for consumers, employers, and public programs, including Medicaid.”

In Pennsylvania and elsewhere, PBMs operate as subcontractors in the state Medicaid program, hired by the managed-care organizations that contract with the state’s Department of Human Services.

Pennsylvania’s auditor general, Eugene DePasquale, has argued that PBMs operate with little government oversight, as they administer billions in taxpayer money for prescription drugs. The subcontracting arrangement, he has said, means that his office doesn’t have the authority to audit the companies.

In a report in December, DePasquale found that in 2017, three PBMs “made between $2 million and nearly $40 million” on a practice called "spread pricing.” It is a strategy in which PBMs bill the state a higher amount for a prescription than what they pay to reimburse pharmacies that provide the drug to Medicaid patients.

PBMs received $2.86 billion to administer Medicaid drug benefits in 2017, up from $1.41 billion in 2013, according to the report. That amount includes the “cost of doing business,” but the auditor general said there was “no way to verify how much was profit.”

Grassley and Wyden, in their letter to the inspector general, focused on spread pricing in Medicaid, a partnership between states and the federal government, saying, “It is imperative that taxpayer dollars are used efficiently and effectively to provide quality care.”

PBMs say the practice is one option that clients can choose to pay them for their services of negotiating discounts from drugmakers and pharmacies. “The health plan sponsor hiring a PBM always has the final say on contract terms,” Lopes said. Some plans select spread pricing “in lieu of other PBM compensation,” he said.

CVS, whose Caremark division is one of the main PBMs in Pennsylvania Medicaid, did not immediately respond to a request for comment.

Ahead of a state legislature hearing on the issue last October, Pennsylvania’s Department of Human Services said it would require more transparency from managed-care organizations about payment data for PBMs, though it was not eliminating spread pricing.

Those changes took effect this year under amended contracts, the department said Thursday. Managed-care organizations now have to report PBM payment rates to pharmacies, broken down by ingredient cost of the drug and dispensing fee. And they have to report, as a separate administrative cost, any differences between what’s paid to PBMs, and what the PBMs pay pharmacies.

The new contracts also require the managed-care organizations to conduct an audit of PBM pricing arrangements at the department’s request, spokesperson Ali Fogarty said.

As for the Senate Finance Committee letter, Fogarty said: “We are monitoring the issue closely in Pennsylvania and have the flexibility to adjust our contracts as needed.”

Pharmacists’ complaints about low reimbursements from PBMs helped drive a flurry of activity in Harrisburg last year, as DHS, legislators, and the auditor general reviewed how money for prescription drugs flows through the Medicaid program.

The Pennsylvania Pharmacists Association is continuing to work with DHS and on a new round of legislative proposals aimed at “Medicaid reform and transparency,” said the trade group’s CEO, Patricia Epple.

“There’s an urgency here, and we’re concerned about the patients,” she said.

Epple said her group has seen some improvement in reimbursements, but even if pharmacists are being paid at cost for a prescription, they are still receiving dispensing fees of 10 cents or 25 cents per prescription. “It doesn’t cover the bills,” she said. “If they close the doors, it will hurt patients.”