PBM clawbacks sidestep state bans on spread pricing

Pharmacy benefit managers seem to be getting the better of the 21 states that banned spread pricing and are continuing to bill Medicaid for more than the price paid to drugstores for medicines.

Spread pricing is a financial boon to PBMs. Under this practice, PBMs pay pharmacists for dispensing medications at one rate, then return months later to “claw back” the difference between that amount and the contracted rate established by a Medicaid managed care carrier—after state Medicaid agencies have closed the books on the prescription purchases.

The tactic inflates states’ drug spending and the capitation rates paid to Medicaid managed care carriers, and distorts insurers’ medical-loss ratios, said Antonio Ciaccia, president of drug pricing watchdog 3 Axis Advisors and head of 46brooklyn Research.

States sought to save taxpayers money by prohibiting spread pricing. In Ohio, it doesn’t seem to be working.

PBMs overcharged Ohio by millions of dollars by tweaking the spread pricing model, according the testimony state Medicaid Director Maureen Corcoran delivered to state legislators Wednesday. The companies charged payers more than they paid pharmacies and kept the difference, the Columbus Dispatch reported.

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“What that means is that the entire fundamental premise with which pricing is based in Medicaid programs across the country is essentially trash,” Ciaccia said. “We’re talking about billions and billions and billions of dollars of implications if there’s no integrity with the data with which they’re using to set any of these items,” he said.

“This phenomenon is occurring in states across the country, but this is the first public outing of the practice,” Ciaccia said of the Ohio announcement.

PBMs’ Medicaid clawbacks also violate the spirit—if not the letter—of the law in states that attempted to curb spread pricing by requiring pass-through pricing instead. This model pays PBMs administrative feeds and requires them to return drugmaker rebates and discounts to their payer partners.

The letter of the law is what matters and pharmacy benefit managers abide by their contracts with druggists, a spokesperson for the PBM industry’s main lobbying group wrote in an email.

“Independent pharmacies voluntarily enter into contracts with pharmacy benefit managers, PBMs, which set reimbursement for pharmacies at fair market values,” Greg Lopes wrote. “Independent pharmacies more often than not are backed by powerful pharmacy services administrative organizations—the largest of which are owned by drug wholesalers—which are negotiating on the pharmacies’ behalf.”

More than a dozen states are working with the law firm Liston & Deas to investigate PBM clawbacks. Liston & Deas and won a $214 million from settlement from Centene in a lawsuit that alleged the insurer’s PBM overcharged Arkansas, Illinois, Mississippi and Ohio for prescription drugs. Centene also is in settlement talks with other states and has reserved $1.25 billion to cover claims related to its now-defunct PBM, Envolve.

A 3 Axis Advisors review of community pharmacies participating in Michigan’s Medicaid managed care program revealed that the state’s spread pricing ban did little to stop PBMs from gaming the system, Ciaccia said. PBMs hiked the initial reimbursements to pharmacists and clawed back the difference later, he said.

“You have all this historical data showing really crappy reimbursements to pharmacies and, all of a sudden, the state bans spread pricing and, voila, PBMs decided to be altruistic to pharmacies?'” Ciaccia said. “It’s building in an excess from a contractual standpoint for the PBM to clawback.”

Pharmacists have long bemoaned PBMs clawbacks, which threaten their businesses, said Ann Cassidy, a lobbyist at the National Community Pharmacists Association. These fees represent a cousin of the direct and indirect remuneration fees that PBMs demand from pharmacists through Medicare, which grew 91,500% from 2010 to 2019, according to the Centers for Medicare and Medicaid Services. But unlike direct and indirect remuneration fees, clawbacks in Medicaid are not barred by federal law but governed by pharmacists’ contracts with PBMs, she said.

Consolidation in the PBM industry has exacerbated the problem, Cassidy said. Three companies—CVS Caremark, UnitedHealth Group’s OptumRx and Cigna’s Express Scripts—are responsible 75% of U.S. prescription drug claims.

“This all goes back to these ‘take it or leave it’ contracts,” Cassidy said. “If the PBM tells the pharmacy, ‘You have to agree to everything in this contract, even these clawbacks. If you don’t, then you could possibly lose a third of your patients.’ That’s the catch.”