Drug middlemen say Ohio law raises prices. Then they admit they don’t know

By: - August 8, 2023 11:10 pm

Prescription drugs sit on a pharmacist’s counter. Photo by John Moore/Getty Images.

An industry organization representing powerful drug middlemen said that banning an industry practice would lead to “higher costs and fewer choices for America’s employers.” But to support it, the organization points to analysis that didn’t look at private insurance and didn’t reach the conclusion that it claimed.

The Pharmaceutical Care Management Association represents pharmacy benefit managers, a powerful, but little known industry. The three biggest PBMs — CVS Caremark, Express Scripts and OptumRx — control about 80% of the marketplace and each is affiliated with a top-10 insurer. 

The companies serve as health insurers’ middlemen in pharmacy transactions. They created lists of drugs that are covered and they negotiate huge rebates and discounts from drugmakers for putting their products on them. 

And, even though they own pharmacies themselves, the big-three PBMs decide how much to reimburse their own and competitors’ pharmacies.

Complaints that the companies use their size and dominance to engage in anti-competitive practices have the Federal Trade Commission investigating them. Separately, Ohio Attorney General Dave Yost is conducting his own investigation into whether Express Scripts and several other healthcare companies have violated state antitrust law.

As critics have accused PBMs of taking excessive profits and raising drug costs, the state and federal government have taken steps to regulate them. And PCMA, the industry group, has worked to stop those controls.

The organization maintains that its member businesses use their power to squeeze down the prices drugmakers charge and that they pass the savings along to customers. But that’s hard for outsiders to judge because many of the transactions are shrouded in secrecy.

On July 25, PCMA put up a blog post claiming that in an instance when some data were available, an analysis showed that an Ohio regulation drove costs higher. But that’s not what it said.

In 2019, the legislature and the incoming DeWine administration were eager to get a handle on the dealings between the big PBMs and the Ohio Department of Medicaid. A year earlier, the department commissioned a study after The Columbus Dispatch obtained a partial set of confidential data and determined that CVS Caremark and OptumRx were charging taxpayers a lot more for drugs than they were paying the pharmacies that dispensed them. 

The department got the PBMs to cough up all their data and determined that in a one-year period, they up-charged taxpayers $224 million. The same analysis also found CVS Caremark and OptumRx were charging 3 to 6 times the normal rate — costing taxpayers an extra $150 million to $186 million a year.

Then Yost did an analysis while he was still state auditor. It covered a different 12-month period and found that for generic drugs alone, the PBMs charged 31% in fees — or $208 million.

At the same time, independent and small-chain pharmacists were complaining that low reimbursements by the PBMs were making it hard for them to stay in business. Indeed, CVS has bought many of them out, closed many of its own stores and shifted their prescriptions to still-open stores, where employees have said understaffing has endangered patient safety.

In 2018, as an attempted fix, the legislature outlawed a practice known as “spread pricing.” That’s when PBMs charge taxpayers a certain amount for a prescription and reimburse pharmacists another. The law also took steps to ensure that independent and small-chain pharmacies would get better reimbursements.

To see how well the law was working, the Medicaid department hired Healthplan Data Solutions, the company that performed the earlier analysis. It compared data from the last quarter of 2018, when the old system was still in effect, with the first quarter of 2019, when the new one took hold.

The analysis found that pharmacists were getting $38 million more in reimbursements in the second quarter when compared to the first, but it made no calculations about whether the overall system was costing taxpayers more. Considering that the PBMs took a quarter-billion dollars over a year-long period that the new law was supposed to eliminate, additional overall costs seem unlikely. After all, on an annualized basis, the additional pharmacy payments were $72 million less than the PBMs were found to be taking in up-charges.

That didn’t stop their industry organization from claiming the opposite, however.

It titled a July 25 blog post “Eliminating Spread Pricing Would Lead to Higher Costs and Fewer Choices for America’s Employers.”

It selectively quoted from the Healthplan Data Solutions analysis to make it sound like the law ending spread pricing increased overall costs.

It said the analysis “found that mandating the move to a pass-through pricing model resulted in an increase in prescription drug costs. The increase in drug costs for Ohio Medicaid was directly linked to higher payments to pharmacists and higher ‘ingredient costs and dispensing fees,’ leading to a ‘total increase’ of ‘$38,308,479 for the first quarter.'”

The post added, “The HDS report clearly shows that taking away the option of a spread pricing contract resulted in higher drug costs for the state.”

However, the blog post didn’t mention that the analysis didn’t look at how much taxpayers saved by eliminating the PBM up-charges allowed by spread pricing. 

Greg Lopes, a spokesman for PCMA conceded as much in an email Monday.

“Ohio Medicaid payments to pharmacists increased, according to the report,” he said. “The report did not include any data showing overall savings to the state as a result of eliminating spread pricing as a contracting option for the program.”



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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.