Massachusetts puts transparency demands on PBMs as drug spend jumps 4%

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Massachusetts is taking action against pharmacy benefit managers' spread pricing. (Getty/wutwhanfoto)

Editor's note: This story has been updated to reflect the correct price increase for drugs in Massachusetts, 4.1%.

A new report from the Massachusetts Health Policy Commission (HPC) examines the recent jump in prescription drug pricing, putting a large part of the blame on spread pricing by pharmacy benefit managers (PBMs).

The study, which looks at pricing for generic drugs in Massachusetts Medicaid and commercial market plans, found that total prescription drug spending in Massachusetts grew 4.1%, regardless of additional rebates and discounts, in 2017. This represents one of the state’s highest growth areas in healthcare spending.

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Specifically, MassHealth drug spending went from $1.1 billion in 2012 to $1.9 billion in 2017, growing twice as fast as other MassHealth spending.

The state noted its increasing concern of the use of spread pricing for generic drugs by PBMs. In 2014, spread pricing covered 22% of all PBM compensation, but in 2016 that number rose to 54%. For fiscal year 2020, Massachusetts officials have proposed a new requirement for PBMs to be transparent about pricing and to limit PBM margins under managed care organization (MCO) and accountable care organization (ACO) contracts. The government projects savings of $10 million.

In addition, MassHealth is directing MCOs and MassHealth accountable care partnership plans to submit drug-specific data from their PBMs to improve transparency. Plus, the HPC’s 2018 Cost Trends Report recommends that the state increase oversight of PBM pricing and offers new guidelines for generic drugs in the Medicaid and commercial markets.

In Massachusetts, the MassHealth Medicaid fee-for-service (FFS) reimbursement for most drugs is the acquisition cost of a drug plus a dispensing fee of $10.02. But these requirements do not apply to MCOs; therefore, PBMs can used spread pricing in MassHealth MCO contracts.

RELATED: CVS, Express Scripts provide rare moment of transparency on rebate profits 

The pricing differences for generic drugs between the MassHealth FFS and MCO programs are significant. Looking at data from the fourth quarter of 2018, MCO prices were higher than 42% of FFS prices for unique drugs.

On average, an MCO price exceeded an FFS price by $15.97, despite being a less-expensive drug than the FFS prices for 58% of unique drugs. In fact, MCO prices exceeded the FFS price by at least $10 for nearly 25% of unique drugs and $50 higher for 10% of unique drugs.

Looking at the top 20 generic drugs in the MCO program, the largest price difference occurred in the antiviral medication valganciclovir. Tablets were about $1,134 higher for MCOs than FFS. And buprenorphine-naloxone—a drug used to treat opioid use disorder—had the highest aggregate spending difference in the fourth quarter of 2018, totaling $252,536.

This statistic is particularly notable, because the actual price for buprenorphine-naloxone is dropping. From the first quarter of 2016 to the fourth quarter of 2018, the average acquisition cost for buprenorphine-naloxone fell by 60%, while the MassHealth MCO price increased by 13%.

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

In addition, generic drug prices in the commercial market were dramatically higher than the drugs’ acquisition costs based on fourth-quarter 2018 data. For example, imatinib mesylate came in on average $1,811 above the pharmacy’s acquisition cost, reaching an aggregate spending cost of $278,937 in the fourth quarter of 2016.

Massachusetts has joined a growing number of states pursuing oversight actions to decreased pricing spreads by PBMs. For example, in 2018 Ohio announced that its Medicaid MCO programs would end its spread pricing contracts with PBMs and switch to a pass-through model. Kentucky had similar concerns after an audit revealed Kentucky PBMs took in $123 million in 2018 from Medicaid spread pricing. 

“While this analysis does not provide estimates of PBM margins from drug pricing, the results suggest that opportunities to lower drug spending through more transparent PBM practices exist for both public and commercial payers in Massachusetts,” the report concluded.

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