Momentum is building to end the overcharging of Ohio taxpayers for prescription drugs, but much more will be required to stop the abuse. The state Department of Medicaid should take the lead in demanding reform.
A major change in Ohio’s Medicaid program last week offers the potential to curb overcharging for drugs, but it is not a guarantee.
CareSource, the largest of five managed care organizations that contract with the state to handle Medicaid claims, is firing its pharmacy benefit manager and promising to demand more transparency from the new one. As of Jan. 1, CareSource will end its contract with CVS Caremark, which has served as its prescription drug middleman, and begin working with Express Scripts.
CVS Caremark has come under scrutiny in the past year for pricing practices that add millions to the cost of prescription drugs, with the PBM pocketing the excess. Following the revelations, the state Medicaid department demanded that the managed care organizations stop allowing PBMs to use “spread pricing” — charging taxpayers far more for a drug than they pay to pharmacists who dispense it.
That was a good move, but PBMs have devised many other tools to extract more money from prescription drug transactions, including “rebates” and “fees” written into contracts that are kept secret from the public and even the Medicaid department.
As part of its switch in PBM providers, CareSource says it will require Express Scripts to reveal all fees, rebates and other moneys it collects via its work for CareSource. It is working with the state to identify an independent third party that could review Express Scripts’ performance and verify that it meets the contract’s terms.
While third-party verification is a welcome gesture, the surest way for CareSource to reassure taxpayers that they’re not getting ripped off would be to make its contract with Express Scripts public.
The Ohio Department of Medicaid plans to close off another avenue for PBM padding by creating its own list of drugs to be covered, called a formulary, and requiring all Medicaid managed care organizations to use it. Currently, the PBMs create their own formularies, and critics say they extract kickbacks from drugmakers in exchange for giving their products favorable placement on the formulary.
That sounds like a great idea, but it highlights an ever-present question: Why hasn’t it been done sooner? Why shouldn’t the Medicaid department, which holds the purse strings on billions of dollars in Medicaid spending, demand complete transparency in dealings between the managed care organizations and PBMs?
The state uses those organizations to make use of their size and expertise to manage Medicaid more efficiently, and managed care may well have saved the Medicaid program money. A consultant hired by the state said that using managed care organizations saved $145 million per year over the former fee-for-service model.
Clearly, however, any savings could have been much greater; the same analysis said spread pricing by PBMs added $224 million to the taxpayers’ tab for prescription drugs. Gov. Mike DeWine should direct Medicaid officials to strip all the padding from contracts with managed care organizations and PBMs.
And when they’re done with that, they should take a hard look at whether a different Medicaid model would be less open to abuse. Eliminating pharmacy benefit managers is an obvious option to consider.