The State of Ohio contracts with Pharmacy Benefit Managers (PBM’s) to negotiate the best price on drugs for Medicaid recipients.
There is a complex process for how this all works. This is a graphic from the Auditor’s report that shows who pays for what:
The amounts from some of the lines in the graphic above are unknown because PBM’s are private companies and claim that revealing that information would also reveal trade secrets; those situations are considered black boxes and as such it is impossible for the State to know if it is getting ripped off or not.
“We don’t know whether we’re getting a good deal or not, because we’ve got all these hidden things that we can’t see,” said Ohio Auditor of State Dave Yost.
The State currently uses a spread pricing model with PBM’s. The PBM’s package several services together and the State pays one price for it; Yost likens it to a value meal at a fast food restaurant where you would pay more of the individual parts if you chose not to go with the meal. The spread is what the PBM’s pocket after all is said and done.
Yost’s office put together its report using data from the beginning of April 2017 to the end of March 2018 and it found the overall “spread” per prescription was $5.71. However, when it looked at the spread for just the generic drugs the amount went up to $6.14, this is concerning to the Auditor because more than 86% of the drugs purchased were generic drugs.
That means PBM’s pocketed $224.8 million in the course of a year and $208 million of that came from Medicaid recipients purchasing generic brand drugs with their insurance.
The question now is: is that $224.8 million worth it to the State?
Prior to 2011 the state used a different method for buying its drugs.
Yost says he is convinced that the State has indeed seen savings since then by using the PMB spread model but doesn’t know if it could be getting an even better deal.
Coincidentally, the Department of Medicaid announced on Tuesday that it was ending its use of spread model pricing as of January 1st, ordering that all PBM contracts would end and have to be renegotiated using a pass-through model.
In a pass-through model the PBM would charge a fee on every transaction, there would be no package deals.
Going back to Yost’s fast food analogy, he is quite wary of such a way to pay for the drugs. “I’m very concerned by what I know, that the pass-through model may end up costing us more money than what we’re doing now,” said Yost.
He isn’t the only one with concerns about this whole situation. State Representative Emilia Sykes from Akron says the report while enlightening also raised more questions than it answered.
“We can’t even begin to ask the questions of how this [spread pricing] model works for us, whether it’s helping the tax payers or not until we get some of those questions answered,” said Sykes.
State Senator Dave Burke chairs the Joint Medicaid Oversight Committee and says the report was extremely helpful.
“Anytime we can collect information, that helps us make a more intelligent and thoughtful decision, that’s a positive thing,” said Burke.
He also says that lawmakers on both sides of the aisle asked very good questions and will be thinking deeply about how to best proceed before briefing other members of their respective caucuses this fall when they get back to the Statehouse.
“It’s going to be very necessary for each one of us to dig in and figure out what’s going on here because each and every person in this state who contributes to our taxes deserves an answer to this question,” said Sykes.
The question she is referring to: Is the State is getting ripped off by PBM middlemen?
It should be noted that Yost did says the black box problem is not new or isolated to PBM’s.
Yost says it is a function of off-loading public services to subcontractors with private sector firms that are not transparent or accountable.
According to Yost, this is not always a bad thing but there are limitations; a privatized police force would never be accepted, as an example.
“It is time to us to think carefully about when we should be willing to use private contracts to obtain public goals, and what safeguards are necessary to preserve transparency, assess effectiveness, and understand collateral and often unintended consequences,” said Yost.
Yost also asked the Joint Medicaid Oversight Committee not to allow the Ohio Department of Medicaid to switch to that new pass-through model until after more data can be evaluated.