Report: Pharmaceutical Middlemen Profiting Unfairly

A report released Monday by the Michigan Pharmacists Association and 3 Axis Advisors has raised questions about the role of pharmacy benefit managers (PBM) in Michigan, specifically the extent to which these companies have unfairly profited off pharmacists, patients, and taxpayers.
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A report released by the Michigan Pharmacists Association and 3 Axis Advisors has raised questions about pharmacy benefit managers and how they benefit at the expense of patients, pharmacists, and taxpayers. // Stock photo

A report released Monday by the Michigan Pharmacists Association and 3 Axis Advisors has raised questions about the role of pharmacy benefit managers (PBM) in Michigan, specifically the extent to which these companies have unfairly profited off pharmacists, patients, and taxpayers.

The study collected data from 451 community pharmacies across Michigan, representing nearly 20 percent of the 2,356 retail and community pharmacies in the state to analyze the PBMs’ spread pricing, or the difference between what a PBM pays a pharmacy for a medication and what it charges Michigan Medicaid. The spread pricing analysis is based on nearly 2 million prescriptions dispensed for generic drugs by pharmacies to Michigan Medicaid managed care beneficiaries over a two-year period.

The PBMs serve as middlemen for pharmacies and insurance companies, determining which drugs will be covered by insurance companies and setting reimbursement rates paid to pharmacies for filling prescriptions. With spread pricing, the PBMs may bill insurers for medication coverage at a higher cost than they reimburse pharmacies for the same drugs.

Between the first quarters of 2016 and 2018, Michigan pharmacies received 95 percent below state break-even benchmarks, which amounted to pharmacies receiving 49 cents above national average drug acquisition cost (NADAC), a reference-based pricing benchmark created and tracked by the Centers for Medicare and Medicaid Services. Despite the decline in NADAC ingredient costs and pharmacy reimbursements, generic drug costs in Michigan Medicaid managed care increased. This discrepancy is linked to PBMs’ manipulation of drug prices.

“This report demonstrates the dire need for reforms in our health-care system,” says Larry Wagenknecht, CEO of the Michigan Pharmacists Association. “Based on this data, we can infer that our state has spent at least $64 million more than necessary on prescriptions.

“This money was funneled back to PBMs, rather than helping poor, underserved, or disabled patients receiving Medicaid managed care. We need to address the spread pricing problem and ensure that these large, Fortune 500 companies can no longer take advantage of pharmacists and patients who depend on a fair system.”

The study also found that the spread margin for generic prescriptions rose from 2 percent of managed care’s cost in the first quarter of 2016 to 34 percent of managed care’s cost in the first quarter of 2018.

In two years, the annualized PBM spread margin on generic drugs rose from 6 percent of managed care’s cost to 34 percent.

When compared to national-average managed care unit costs for behavioral health medications, Michigan saved more than $20 million between the second quarter of 2017 and the first quarter of 2018 by carving out behavioral health medications to the Medicaid fee-for-service program.

Committees in the U.S. House and Senate are pressuring the PBMs. The U.S. Senate Finance Committee sent a letter to the Office of the Inspector General at the U.S. Department of Health and Human Services calling for an investigation into PBM practices as it relates to Medicaid.

Other states have similar problems. In Ohio, PBM spread pricing between the second quarter of 2017 and the first quarter of 2018 reached more than $224 million. Kentucky officials discovered hidden fees accounted for nearly $124 million. PBMs charged the Illinois Medicaid program 23 percent more for generic drugs then they paid pharmacists for dispensing the same medications. In New York, PBMs overcharged taxpayers more than $300 million between April 2017 and March 2018.

The report also analyzes the concept of Average Wholesale Price, which PBMs use to establish the cost to public and private insurers but does not reflect actual drug costs. It is estimated the Average Wholesale Price can be priced at more than 350 times a drug’s market-based NADAC.

“The financial strain that PBMs have placed on community pharmacies like mine becomes greater every day,” says John Gross of Clare County, Michigan, a pharmacist and owner of three independent pharmacies. “The status quo simply isn’t acceptable. These practices are predatory and only put the patient-pharmacist relationship at risk.”

Wagenknecht recently testified on the role and impact of PBMs regarding Michigan pharmacists and patients.

The association was established in 1883 and represents nearly 9,000 pharmacists and 15,000 pharmacy technicians in Michigan.

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