While many were watching the drug pricing debate unfold on Capitol Hill, the Kentucky Cabinet for Health and Family Services published a report exposing drug cost middlemen, better known as pharmacy benefit managers (PBMs), for their role in marking up prices for common drugs and pocketing the difference. In this case, that difference was $123.5 million, or 13 percent, of what the Kentucky state Medicaid program paid these middlemen last year.
At issue is a little-known tactic called “spread pricing”, a strategy designed to pad the pockets of PBMs at the expense of Kentucky taxpayers funding the state’s Medicaid program.
“These are taxpayer dollars that we can’t identify what is the service they are being used for,” said Jessin Joseph, director of pharmacy for Kentucky’s Department for Medicaid Services, in a phone interview with Bloomberg News.
This isn’t the first time PBMs have been caught gaming the system. Just last year, an Ohio state-commissioned report found that middlemen billed taxpayers roughly $220 million more for prescription drugs than they reimbursed pharmacies to fill those prescriptions over the course of a year. Furthermore, Bloomberg recently analyzed the data of how much PBMs have charged Medicaid plans around the country, finding massive markups on many drugs.
But it’s not just PBMs who have taken advantage of hard-earned taxpayer dollars. Recently, a shocking Wall Street Journal investigation revealed how health insurance companies dramatically inflated their cost projections under Medicare Part D for financial gain over a 10-year period. As BIO President and CEO Jim Greenwood wrote::
“Under peculiar language of the statute, insurers are paid by Medicare for drugs in advance of their purchase, based on their own estimated outlays. However, they only have to repay a portion of the overpayments to the Treasury if their estimates come in high. Insurers exploited this loophole for a decade, and American taxpayers coughed up a staggering $9 billion to insurers for drug costs that they never actually incurred.”
Another example, as Avalere points out in a recent white paper, exposes health plans for placing low-cost generics on higher cost-sharing tiers in the Medicare Part D program. Such a move cost seniors $15.7 billion over a three-year span. As POLITICO explained:
“While generics typically are placed on the lowest tier of insurers’ formularies, with the smallest co-pays, a 2017 change from CMS led plans to steadily push cheaper versions to higher tiers, the report stated. … Avalere estimated that plans placed Part D-covered generics on the lowest tier only 14 percent of the time.”
This behavior is all too common. Each year innovative pharmaceutical companies provide key players across the drug cost ecosystem with billions of dollars in rebates. The expectation is that these savings – which totaled more than $150 billion in 2017 – are will reduce costs for patients, but mounting evidence proves that this is all too often not the case.
To achieve lower prescription drugs costs, policymakers must take a holistic approach – one that considers the role middleman play in determining what patients pay out-of-pocket for drugs.
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