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Pharmacy Middlemen Overcharged Medicaid $123.5 Million, State Says

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A new report from the Kentucky Cabinet for Health and Family Services says there needs to be more oversight of companies that administer Medicaid prescriptions.

There are two companies in Kentucky that manage prescriptions for Medicaid enrollees, known as pharmacy benefit managers (PBMs). Together, they took in $123.5 million in 2018 from paying pharmacies a lower price to fill prescriptions, while charging Medicaid a higher price for those same drugs, according to the state's report released this week.

In 2018, Kentucky Medicaid enrollees filled 24.7 million prescriptions through the PBMs. Medicaid then paid the PBMs for those prescriptions. Over half were paid using "spread pricing". That’s when a PBM charges Medicaid more for the medicine and the pharmacist dispensing fee than is paid to the pharmacy, then the PBM keeps the difference.

The state's report comes after lawmakers last year approved a measure that requires PBMs to release data on pricing.

Republican Sen. Ralph Alvarado, chair of the Senate Health and Welfare Committee and a candidate for lieutenant governor, said he’d like to discuss the PBM report in committee next week. However, with the current session being a short one, Alvarado said it might not be possible.

“As house legislation starts to roll it’s going to be crucial for us to get that done, so I don’t think we’re going to have time,” Alvarado said.

He said it’s more likely that his committee will discuss the report during the interim session later this year. Alvarado said the report confirmed concerns about PBMs upcharging Medicaid. Pharmacy benefit manager companies have been identified by researchers as one of the drivers of drug prices for consumers and government programs like Medicaidand Medicare.

Mike DeAngelis is spokesman for CVS Caremark, the largest PBM for Kentucky Medicaid.  DeAngelis said the profits CVS made went back into programs for Medicaid enrollees.

“The spread, to the extent there is any in a PBM contract, is not a PBM’s profit,” DeAngelis wrote in an email. “It is used to fund benefit services provided to plan sponsors as well as clinical programs to support patients.”

He added that CVS Caremark also doesn’t have to use spread pricing. It can use another payment model where the company would charge Medicaid for the price of medication, a dispensing fee and an administrative fee. This type of pricing is considered more transparent, according to the state's report.

Kentucky Pharmacists Association President Chris Palutis said it’s been hard to obtain information from PBMs on their pricing strategies.

“If the state is paying x dollars for prescription drugs, and the pharmacies are not seeing that money, that money is being held by the middleman,” Palutis said.

Palutis said it wouldn’t take legislative action to eliminate spread pricing. He said state officials could mandate that spread pricing not be used. And indeed, Kentucky’s Medicaid program could do this, following in the footsteps of other states like Texas.

Spread pricing has also come under fire in other states in recent years. In 2018, a report found thatPBMs in Ohio charged the state 8.8 percent more than was paid to pharmacies – totaling about $224 million. Ohio officials later changed the way PBMs pay pharmacies, eliminating the option for companies to charge the state more than what it paid to pharmacies.

And just this month theTrump Administration proposed a federal rule that would push drug companies to offer drug discounts to patients, reducing how much PBMs are used in the Medicare program.

Lisa Gillespie is WFPL's Health and Innovation Reporter.

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