CMS proposed rule aims to shed light on prescription drug costs for Medicaid

The Biden administration issued a proposed rule Tuesday that aims to shed light on the price of prescription drugs covered by Medicaid.

Under the proposal (PDF), pharmacy benefit managers, or pharmacy middlemen, that contract with Medicaid would have to disclose the prices they pay for medications in an effort to improve price transparency and pull the reins on spread pricing. That refers to a tactic where PBMS charge insurers, plan sponsors or Medicaid managed care organizations more for a drug than the amount a PBM pays a pharmacy.

"With today’s proposed rule, we are advancing unprecedented efforts to increase transparency in prescription drug costs, being good stewards of the Medicaid program, and protecting its financial integrity. This proposed rule will save both states and the federal government money," Department of Health and Human Services Secretary Xavier Becerra said in a statement.

Last year, the Biden administration passed the Medicare Prescription Drug Inflation Rebate Program, which, for the first time, requires drug companies to pay rebates to Medicare when their prescription drug prices increase faster than the rate of inflation.

Under this new proposal, Medicaid would have increased ability to hold drug manufacturers accountable for what Medicaid programs pay for drugs, Centers for Medicare & Medicaid Services (CMS) officials said.

“This proposed rule prioritizes CMS’ role as a good steward of Medicaid dollars while also strengthening program integrity and the management of pharmacy benefits for people with Medicaid coverage,” said CMS Administrator Chiquita Brooks-LaSure in a statement. “We’re committed to preserving access to life-saving treatments and securing fiscal sustainability for the Medicaid program, which remains a lifeline for millions of people.”

Managed care plans cover more than 75% of Medicaid beneficiaries, according to CMS. Managed care plan PBMs often negotiate and administer the pharmacy benefit, though there has been a lack of transparency into the amount plans have paid to PBMs for administering the drug benefit and the amount pharmacies have been paid for the drugs. This lack of transparency has raised concerns about PBMs using spread pricing arrangements.

Under its proposed rule, CMS is proposing that contracts between states, Medicaid-managed care plans and third-party contractors, such as PBMs, reflect transparent reporting of drug payment information among third-party contractors. 

The proposed rule also includes provision to give CMS and states additional tools, like a drug price verification survey, to provide greater transparency into manufacturers’ drug prices. The survey would verify drug prices to increase transparency about why certain drug prices are expensive for Medicaid and help states better negotiate what the Medicaid program pays for high-cost drugs, CMS officials said.

The proposed regulation also cracks down on the potential misclassification of drugs as brand-name or generic. It includes provisions to ensure states receive appropriate rebates to which they are entitled, since states receive a higher percentage of rebate dollars for brand-name drugs compared to generics.

"With increased transparency, states would be able to determine if manufacturers appropriately classified their covered outpatient drugs, and if they did not, give CMS the ability to take action to correct the misclassification," officials said in a press release.

State and federal lawmakers and regulators are taking aim at PBMs to probe alleged anticompetitive practices and tackle rising drug costs. 

Caremark, Express Scripts and Optum account for 80% of the PBM market, and all three are integrated with large national health plans: Aetna, Cigna and UnitedHealthcare, respectively. These massive companies also own group purchasing organizations, providers, data analytics firms and more.

Multiple bills targeting PBMs are in the works in Congress. Earlier this month, the Senate Health, Education, Labor and Pensions Committee approved legislation that aims to add additional transparency into the market and would ban controversial spread pricing practices.

The Federal Trade Commission also is expanding its probe into PBMs by issuing compulsory orders to two group purchasing organizations that negotiate rebates on behalf of PBMs.