Ohio Auditor: Medicaid Pays Pharmacy Benefit Managers Too Much

COLUMBUS, Ohio — Ohio’s Pharmacy Benefit Managers (PBMs) charged the state a “spread” of more than 31% for generic drugs – nearly four times as much as the previously reported average spread across all drugs, according to a report released today by Ohio Auditor of State Dave Yost.

An analysis conducted by Yost’s staff found PBMs collected $208 million in fees on generic Medicaid prescriptions, or 31.4% of the $662.7 million paid by managed care plans on generics during the one-year period April 1, 2017 through March 31.

The auditor’s review, conducted at the request of state lawmakers, largely confirmed the findings of a private consultant hired by the Ohio Department of Medicaid to examine the state’s system of managing its pharmacy plan. Specifically, lawmakers wanted to know how much PBMs are paid through the “spread” – which is the difference between what the state’s managed care plans pay the PBMs and what the PBMs pay pharmacies to dispense drugs.

“The more we learn, the more troubling this becomes,” Yost said. “Our review has answered many of the questions presented by state lawmakers, but the lack of information from the PBMs limits the depth of our work. Without more information – on what’s happened in the past and what is planned for the future – Ohioans will never know if they’re getting a fair price. They deserve an accurate accounting of this work.”

After reviewing a draft of the auditor’s report Monday and in advance of today’s announced report release, the Ohio Department of Medicaid announced Tuesday it was abandoning the controversial spread-pricing model. The department had told lawmakers two months ago that there was no urgent need to make a change from the spread-pricing model.

Auditors found that the Ohio Department of Medicaid, through its managed care plans, paid spreads totaling $224.8 million to PBMs for the one-year period. The fees or spreads retained by PBMs were $6.6 million (or 1.1%) on $617.6 million in specialty drugs and $9.8 million (0.8%) on $1.25 billion in brand-name drugs.

The overall average spread of $5.71 per prescription is consistent with the average reported by the department’s consultant, HealthPlan Data Solutions. However, state auditors noted that the spread was higher ($6.14) for generic drugs which comprised more than 86% of all prescriptions. PBMs managed nearly 39.38 million prescriptions during the one-year period.

The Department’s consultant reported that the average spread relative to the total amount paid by the managed care plans was about 8.8%. Auditors reached roughly the same calculation. However, when looked at separately, the spread on generic drugs is more than triple what was reported.

“While the department’s announcement Tuesday that it will not use spread pricing next year relieves the immediate political pressure, it leaves many of the larger questions unanswered,” Yost said. “Is its proposed solution the best solution for Ohio? Will it serve to control costs? What has happened to the delivery system in Ohio during the past eight years? And have pharmacy closures left service gaps?”

Lawmakers asked  Yost in March to review whether CVS Caremark was giving better pricing to pharmacies owned by its parent company, to the detriment of independent pharmacies.

Auditors found that the spread was about the same for CVS pharmacies and independent pharmacies. However, because financial information related to the relationships between pharmacies and the PBMs is confidential, it is impossible to determine whether there is a conflict of interest in any of these transactions. Analysts in the auditor’s office cautioned conclusions should not be drawn on how much profit PBMs make on Medicaid in total because this analysis does not include all transactions that occur between a pharmacy and PBM.

Yost’s report includes a series of items for further study by the General Assembly and the Ohio Department of Medicaid. It also includes information regarding reforms made in other states to minimize overpayments of medical processing costs in the Medicaid program.

The data show the total number of prescriptions increased 7% during the period but the amount paid increased 12% from 2016 to 2017. According to the State Drug Utilization Data — National Totals reported by the Center for Medicare and Medicaid Services, the average increase in drug spending reported by all states was 4.4%. Ohio’s Medicaid increase in costs is almost three times this national average; however, the data also show that the number of Medicaid prescriptions in Ohio increased by almost five times the national average.

Regional breakdown

The amount of money pharmacy benefit managers retained from Medicaid prescription transactions was highest in the northwest and northeast regions of the state. The spread on brand drugs in northwest Ohio was 77% higher than the statewide average, and northeast Ohio was 69% higher. For generic drugs, northwest Ohio was 18% higher and northeast Ohio was 19%. This raises questions as to why pharmacies in these regions are reimbursed at lower amounts for these two drug types, Yost said.

The five counties with the highest overall spreads were in northwest Ohio, with Van Wert County topping the list at an average of $8.38 per prescription. Largest overall prescription spread by county:

  • Van Wert: $8.38
  • Fulton: $8.12
  • Henry: $8.03
  • Seneca: $7.96
  • Hancock: $7.95

Largest spread for generic prescriptions by county:

  • Henry: $9.31
  • Fulton: $8.96
  • Van Wert: $8.90
  • Hancock: $8.59
  • Seneca: $8.36

Largest prescription spread by Managed Care Plan:

    • United: 10.1%
    • Paramount: 9.1%
    • Molina: 8.8%
    • CareSource: 8.2%

    Largest prescription spread by Managed Care Plan:

      • United: 10.1%
      • Paramount: 9.1%
      • Molina: 8.8%
      • CareSource: 8.2%

      Total paid by Managed Care Plan:

      • CareSource: $1.386 billion
      • Molina: $310.2 million
      • Buckeye: $298 million
      • United: $287.8 million

      Paramount: $244.4 million

      Auditors were unable to benchmark the Ohio Medicaid spread data as Ohio is the first state to release a full year’s data on the pharmacy spread. Virginia and Kentucky have analyzed the pharmacy spread in their Medicaid programs and are planning to release reports in the next few months that may provide some comparative basis.


      Auditors offered a number of recommendations to the Department of Medicaid and the General Assembly. Among them:

      The state should engage an independent third party to conduct a complete analysis of the impact of moving pharmacy services to a fee-for-service model similar to the change implemented in West Virginia.

      The state should perform an analysis to determine whether pass-through contracting would be more cost-effective for Ohio than the current use of PBMs, as recommended by the HDS report. In the interim, the Department should work with its managed care plans and PBMs to ensure that reimbursement methodologies reflect reasonable costs associated with providing the service.

      The state should require independent, periodic compliance audits of each PBM that contracts with a managed care plan and publicly report the results and methodology. The Department should develop, document and implement a monitoring process to ensure the plans correct any findings from those audits.

      The state should go beyond monitoring the spread and obtain statistics and financial information that include transactions that occur outside of claims adjudication, including financial terms and payment arrangements between the parties involved in these transactions: managed care plans, PBMs, drug manufacturers, pharmacies, data sales fees and other fees.

      The Department of Medicaid should implement the recommendation identified in the financial audit for fiscal year 2017 to strengthen its current internal control procedures over drug rebate contract monitoring. The monitoring procedures performed should be documented to provide assurance that they are performed consistently.

      Matters for further study

      The request from state legislators in March was for the auditor’s office to review the spread data. In meeting their request. Other issues came to light that need further study, Yost said. Among them:

      • Thorough examination of rebates and other fees paid to PBMs.
      • Examine possible conflicts of interests and/or anti-competitive practices caused by a PBM and pharmacy both owned by the same parent company.
      • Review of whether any PBM is selling data. Officials from PBMs were uncertain as to whether they sold information for another revenue stream. Nothing in the plan’s contracts with PBMs appear to prohibit the selling of information.

      SOURCE: Ohio auditor’s office

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