CMS issued new guidance Wednesday aimed at spread pricing in Medicaid.
The Centers for Medicare & Medicaid Services issued an information bulletin (PDF) on the calculations for a Medicaid managed care plan’s medical loss ratio, as the agency is concerned insurers aren’t accurately including pharmacy benefit manager spread pricing in those calculations.
The document clarifies that for the purposes of the calculation “prescription drug rebates” is defined as any price concession received by the insurer or its PBM, regardless of who is paying it. As such, money retained by the PBM in spread pricing would not count toward the MLR calculation.
This, CMS said, would prevent plans from taking advantage of spread pricing to boost their ratios.
“Today’s guidance will ensure that health plans monitor spread pricing in Medicaid appropriately,” CMS Administrator Seema Verma said in a statement. “PBMs cannot use spread pricing to upcharge health plans and increase costs for states—spread pricing must be monitored and accounted for, and not used to inflate profits.”
Amid increased scrutiny on the pharmaceutical supply chain—and PBMs in particular—several states have cracked down on spread pricing in their Medicaid programs.
In Ohio, for example, officials cancelled all PBM contracts after an audit found PBMs earned $225 million through spread pricing in one year. Kentucky officials also found that PBMs took in $123 million in 2018 from Medicaid spread pricing.
Legislators have expressed concern about the practice as well, asking the Department of Health and Human Services Office of Inspector General to investigate it.
CMS said that it “remains concerned” about spread pricing and is weighing other steps it could take to prevent it in Medicaid.
The agency also noted that the guidance does not conflict with HHS’ pending plan to nix legal protections for drug rebates in Part D.