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

As policymakers turn up the heat on pharmacy benefit managers (PBMs) over the role they may play in increasing drug prices, a new analysis is pushing New York officials to audit how they function in the state’s Medicaid program. 

The report (PDF), which was sponsored by the Pharmacists Society of the State of New York (PSSNY), a group that represents the state’s pharmacies, found that PBMs contracted by New York's Medicaid managed care organizations are increasingly boosting prices for generic medications.  

The PBMs paid pharmacies an average of $10.85 per generic prescription but charged the payer an average of $14.34 per prescription, according to the report. That’s a 32% markup and up from an 11% markup in 2016. 

The practice, called “spread pricing,” is controversial—other states, such as Ohio, have cracked down on PBMs for doing so—but it is one way PBMs generate revenue. The report says PBMs contracting with New York’s Medicaid managed care plans, including CVS Caremark, Optum and Express Scripts, have shifted “hundreds of millions of dollars” away from patient care. 

“The anticompetitive business practices of the PBM industry are felt by independent pharmacies, hospital pharmacies and chain pharmacies of all sizes,” PSSNY’s board said in a letter accompanying the study. “Their practices negatively impact the ability of pharmacists and other healthcare professionals to provide patient care.” 

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The report estimates that New York's Medicaid managed care program spent the most of any state on generic drugs, a total of nearly $1.3 billion in 2017.

PBMs have become a prime target for blame in the discussion around increasing drug costs because practices like spread pricing are opaque. The Trump administration, in looking to shake up the pharmaceutical supply chain, has been mulling an overhaul to safe harbors for PBM rebates since last summer

The analysts, a firm called 3 Axis Advisers, calls for state auditors to examine its managed care pharmacy spending, as that would include a more comprehensive data set. The report dove into claims from pharmacies for more than 170,000 generics sold between January 2016 and March 2018.

However, while the report points the finger at PBMs, the Pharmaceutical Care Management Association, which represents PBMs, said that the problem isn’t in their pricing models but instead in the design of New York’s Medicaid program itself. 

“It’s no secret that New York’s Medicaid program wastes millions every year by overpaying drugstores,” the group said in a statement to FierceHealthcare. “By operating more like Medicare and commercial market plans, New York’s Medicaid program could reduce pharmacy costs and save money without cutting benefits. 

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“By defending wasteful spending in a program that’s clearly in trouble, New York’s special interest drugstore lobby wants to rearrange deck chairs on the Titanic without offering ways to keep Medicaid afloat.”

The report also says that the opacity of PBM contracts leaves limited room for them to negotiate terms with these insurers. Walmart and CVS’ recent spat puts a spotlight on this problem, according to the report; if a retailer the size of Walmart had to make a public scene to reach a deal with CVS it believes is fair, smaller pharmacy chains have even less leverage. 

“It is far past time that these companies stop hiding behind ‘take it or leave it’ contracts, gag clause, confidentiality agreements, non-disclosure agreements and other practices not allowed in other aspects of American life,” PSSNY said in the letter.