Drug-pricing practice could be banned to help pay for infrastructure bill

Ban could be used as a “pay-for”

By: - July 29, 2021 12:50 am

A pharmacy manager retrieves a a medication. Credit: Joe Raedle/Getty Images.

There’s a push to ban a drug pricing scheme that advocates say will save the federal government money and help pay for a $1.2 trillion federal infrastructure bill.

Some states — including Ohio, Georgia, Louisiana, Pennsylvania, Virginia, Arkansas, New York and Kentucky — have already banned the pricing practice in their Medicaid programs after The Columbus Dispatch reported apparent abuses in 2018. But it’s hard to say how much banning “spread pricing” will save taxpayers.

Pharmacy benefit managers, or PBMs, are powerful middlemen that manage prescription benefits on behalf of payers such as insurance companies and Medicaid managed-care plans. 

They decide which drugs are covered. They negotiate big, often-secret rebates from drugmakers. And they decide how much to pay the pharmacies that dispense them.

PBMs engage in spread pricing when they pay pharmacies less for drugs than they bill payers. “Spread” refers to the difference, or the amount the PBM pockets.

Following up on a newspaper investigation, the Ohio Department of Medicaid commissioned an analysis of its 2017 drug reimbursement data and found that two PBMs, CVS Caremark and OptumRx, billed the state almost a quarter billion dollars more for generic drugs than it paid the pharmacies that dispensed them. The National Community Pharmacists Association, the group pushing a spread-pricing ban, contends that the mechanism has been used by PBMs to overcharge Medicaid programs in at least 10 other states.

While how much a Medicaid spread-pricing ban would save the feds might not be clear, federal officials have said it could be substantial.

“The market for prescription drugs is convoluted and opaque,” former U.S. Centers for Medicare and Medicaid Administrator Seema Verma said in 2019.  “States are increasingly reporting instances of spread pricing in Medicaid, including cases in Ohio and Texas, and I am concerned that spread pricing is inflating prescription drug costs that are borne by beneficiaries and by taxpayers.”

It’s unclear whether the proposal to ban spread pricing will gain traction with the bipartisan Senate negotiators who are hashing out the infrastructure deal. Similar measures have been part of earlier legislation that stalled, including the Prescription Drug Pricing Reduction Act of 2019.

However, lawmakers might be inclined to include the measure after apparently dropping another drug-pricing reform to help pay for the package.

Secretive rebates drugmakers pay PBMs are said to be driving rapid inflation in list prices of drugs. But Sen. Rob Portman, R-Ohio, last week said a measure reforming them would likely be dropped because a portion of such rebates flow to Medicare — money that could be used as a “pay-for” in the infrastructure deal.

Also possibly favoring a spread-pricing ban is that there doesn’t seem to be much opposition to it. The Pharmaceutical Care Management Association, an industry group representing PBMs, on Wednesday said it didn’t have a position on the issue.

The health plan sponsor hiring a PBM always has the final say on contract terms, PBMs don’t choose spread-pricing contracts,” Associate Vice President Greg Lopes said in an email.

Some advocates of drug-pricing reform say that a ban on spreads is a useful step, but it’s not sufficient to fix problems in the United States. For example, PBMs use other types of fees to claw back money months after they reimburse pharmacists.

But pharmacy advocates say it would be a start.

“For years, PBMs have been playing spread-pricing games, contributing to higher drug costs to the detriment of patients and the taxpayer-funded programs the PBMs are supposed to serve,” NCPA Senior Vice President Karry K. La Violette said in a letter to Senate negotiators.



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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.