The Massachusetts Health Policy Commission (HPC) says prices charged by pharmacy benefit managers (PBMs) for generic drugs were often markedly higher than the actual cost of the drug in both the Massachusetts Medicaid managed care and commercial plans, contributing to higher healthcare spending. In a news release, HPC says the information is from a new DataPoints Issue #12: Cracking Open the Black Box of Pharmacy Benefit Managers. The issue focuses on a pricing practice used by PBMs known as “spread pricing,” and its impact on prescription drug spending in both Medicaid managed care and commercial health plans in Massachusetts.
PBMs manage prescription drug benefits for health plans, including the negotiation of prices and rebates with manufacturers and payments to pharmacies. “Spread pricing” refers to the practice in which the PBM charges a payer more than it reimburses the pharmacy for a certain drug and retains the difference, explained HPC. This practice is used as a means of payment for PBM services but is less transparent and may allow for higher PBM profits than alternative methods. Spread pricing contrasts with the “pass-through model,” where PBMs charge payers the same amount that they reimburse pharmacies, plus a set administrative fee. By industry estimates, the share of PBM revenue from spread pricing has grown from 22 percent in 2014 to 54 percent in 2016, according to HPC.
As part of the fiscal year 2020 state budget strategy to control rising MassHealth drug prices, the Baker-Polito Administration proposed a new requirement that PBMs be transparent about their pricing and a limitation on PBM margins under contracts with managed care organizations (MCOs) and accountable care organizations (ACOs), which the Administration projects will save $10 million. The federal government requires Medicaid Fee-For-Service (FFS) programs to use the transparent pass-through drug pricing model, mandating that all state FFS programs reimburse pharmacies based on the acquisition cost of the drug plus a set dispensing fee. However, this requirement does not apply to PBM contracts with Medicaid MCOs or in the commercial market.
To examine the potential impact of these different pricing practices, the HPC compared generic drug prices in the MassHealth MCO program and in the commercial market to the pharmacy acquisition cost for the drug, based on the National Average Drug Acquisition Cost (NADAC). The difference between the payer price and NADAC is largely comprised of the dispensing fee to pharmacies and the potential profit retained by PBMs. Since there are no publicly available data on PBM reimbursement rates to pharmacies, these methods represent only an approximate indication of how significant PBM profit margins may be on generic drugs.
The HPC also compared the MCO/PBM prices to FFS, using FFS prices as a benchmark for the pass-through pricing model that includes the set dispensing fee of $10.02 per prescription.
Key findings include:
· In 2018, MCO/PBM drug prices were higher than the acquisition prices for 95 percent of the unique drugs analyzed by the HPC and exceeded FFS prices for 42 percent of unique drugs.
· For the drugs where the MCO/PBM price was higher than the FFS price, the difference was often substantial, leading to higher average drug prices overall. MCO prices exceeded FFS prices by an average of $15.97 per unique drug.
· The MCO/PBM price exceeded the FFS price per prescription by at least $10 for nearly 25 percent of unique drugs and was at least $50 higher for approximately 10 percent of unique drugs.
· Buprenorphine-Naloxone (generic Suboxone) had the highest aggregate spending difference in late 2018, totaling $252,536 in Q4. MCOs paid an average $159 per prescription of buprenorphine, 111 percent higher than the average FFS price of $75.
· For several widely prescribed generic drugs, a drop-in acquisition costs has not translated to lower prices for the MassHealth MCO program. For example, from 2016 Q1 to 2018 Q4, the average acquisition cost for Buprenorphine fell by 60 percent while the MCO/PBM price increased by 13 percent.
· PBM prices for generic drugs were markedly higher than the drugs’ acquisition costs in the commercial market. The price for generic Gleevec, used in treatment of leukemia, was an average of $1,811 more per prescription than the pharmacy acquisition cost. This per prescription difference translated to more than $278,000 in aggregate spending above acquisition cost.
“Increasing access to Buprenorphine-naloxone, a highly effective medication treatment option for opioid use disorder, is critical to combatting the opioid epidemic and reducing fatal overdoses,” said HPC Commissioner Martin Cohen, President and CEO of MetroWest Health Foundation in a statement. “The fact that the pharmacy benefit managers have increased the prices charged for this drug in the MassHealth managed care program, at the same time that the acquisition cost of the drug has decreased significantly, raises particular concerns and questions regarding the appropriateness of these pricing practices.”
Massachusetts along with other states and federal regulators are pursuing action to increase oversight of PBMs to ensure that public dollars are spent efficiently at all points in the drug distribution chain. Several states have introduced legislation requiring PBMs to be licensed by the state and to disclose information on pricing, rebates and reimbursement to pharmacies, among other actions.
