Kentucky officials: PBMs earned $123M last year through spread pricing in state's Medicaid program

A pharmacist consulting with a patient holding medication
Kentucky issued a report on spread pricing by PBMs working with the state's Medicaid program. (Getty/Steve Debenport)

Pharmacy benefit managers earned millions through spread pricing in Kentucky's Medicaid program, according to a new report.

The Kentucky Cabinet for Health and Family Services found (PDF) that PBMs earned more than $123 million in spread pricing last year, an increase of nearly 13% over 2017.  The officials also recommended steps for overhauling the relationships with these PBMs in the report. 

As of October of 2018, nearly one-fourth of the state’s population, 1.2 million people, were receiving Medicaid/CHIP. And Medicaid spending continues to rise. In 2014, Medicaid represented 15.5% of the state’s total budget and in 2018 that number rose to 17.2%. And, according to the report, pharmacy costs are the fastest growing budget item. 

RELATED: N.Y. pharmacists: PBMs marking up generic drugs in state's Medicaid managed care program

Spread pricing, though common, is controversial, especially as the pharmaceutical supply chain is increasingly under the microscope. In this approach, a PBM charges Medicaid more for a drug than the pharmacy paid, leading to boosted revenues.

Since 2017, 20 states have passed 31 different bills related to PBM regulations. These include bills banning gag clauses that prevent pharmacists from sharing lower cost options with their customers, requiring PBMs to be licensed in-state; preventing spread pricing models, and requiring PBMs to report pricing and rebate information to promote transparency. 

For example, in 2018 Ohio moved all PBM contracts from a spread pricing model to a pass-through model as a response to an identified average spread of 8.9% on all Ohio Medicaid prescriptions. 

At the end of the report, the authors recommended eight steps to increasing transparency and improving care via Medicaid.

Some of these suggestions include requiring an annual PBM transparency report, prohibiting PBMs from financial incentives in the forms of copayments and deductibles and mandating pass-through contracting for all managed care organization and PBM contracts for pharmacy benefit services. 

“This report represents the first step in introducing transparency to the pharmacy program. We have additional steps that we will need to take in order to make this program fully transparent,” Commissioner Carol Steckel said in a press release (PDF). “It is important that all stakeholders be involved in the discussions of solutions in this complex program in order to carefully anticipate any potential unintended consequences that may increase the Medicaid budget, or reduce access to pharmacy services for our beneficiaries.”