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Ohio Auditor releases stunning Medicaid PBM audit report

Ohio Auditor Dave YostToday, Ohio Auditor Dave Yost, in a presentation to the Joint Medicaid Oversight Committee, released the results of his audit of the Ohio Medicaid prescription drug program. To be blunt, the results are jaw-dropping.

To view the entire audit report, CLICK HERE.

If you'll recall back in March, lawmakers called on Auditor Yost to audit the Medicaid program and the dealings of pharmacy benefit managers (PBMs) within it. Today marked the end of Yost's inquiry, but as you'll see from the report, there are still a litany of questions that remain.

Among the findings in Auditor Yost's report:

  • The difference between what pharmacies are paid and what pharmacy benefit managers (PBMs) report back to the plans, commonly referred to as "spread," has been growing and hit its peak in the fourth quarter of 2017.
    • Context: This is exactly when members saw the deepest cuts in reimbursements from Medicaid PBMs. The numbers demonstrate that these cuts not only failed to translate into savings for the state, but also show that those cuts to local providers turned into PBM profits. Being that PBMs also own their own pharmacies, this essentially amounts to one pharmacy company reaching into the pockets of competitors, pulling out cash, and putting it right into their own. Regardless of the intent, this warped incentive has absolutely no place in a fair, competitive marketplace.
  • An overwhelming portion of PBM spread is occurring on generic drugs.
    • Context: While the overall spread in 2017 was $224.8 million, or 8.9%, an overwhelming majority of the spread occurred on generic drugs. This confirms our suspicions, and is incredibly important. Brand name drug prices are universally known. Next, specialty drugs are somewhat lesser known. But generic drug prices are changing almost daily and are rarely ever known. It should come as no shock that the more ambiguous the price is, the more comfortable the PBM is in taking hidden money out of it. These spread ratios reflect that perfectly.
  • Spread pricing totals wildly varied from region to region.
    • Context: Due to the ambiguity of pricing, we assumed that spread would be extensive, but we were shocked to learn of spread differentials by region of the state. For example, the PBM generic spread from independent pharmacies was $4.90 in southeast Ohio and $6.71 in northeast Ohio. Auditor Yost even put together an impressive county-by-county breakdown of spread. This begs many questions. Among them are, if higher levels of spread mean lower reimbursements to particular areas, what level of competing interest do PBM-owned pharmacies have in those same regions? 
  • There is a disconnect between Medicaid pharmacy costs and what pharmacies are reimbursed.
    • Context: This should come as little surprise to pharmacists, but it should help others struggling to better understand drug spending. What payers are being charged may significantly differ from what pharmacies are actually receiving. The importance of spread pricing transparency is ensuring the payer is getting the best deal possible – which could mean eliminating the middleman and working with providers more directly. Additionally, this also begs the question, if the rates that payers are charged are divorced from actual cost, what if pharmacy reimbursements that are arbitrarily set by PBMs are also divorced from reality?
  • The data confirms a high number of pharmacy closures amid reimbursement cuts.
    • Context: Pharmacists called it out in 2017, and as predicted, the cuts in pharmacy reimbursements from Medicaid PBMs wiped out pharmacies across the state. Ohio has lost 371 pharmacies since 2013, with a majority of the closures occurring from 2016-present. While closures certainly matter for patient access, the strain that the cuts have put on existing pharmacies (independent and chain alike) has been extensive. It should be worth noting that in the face of all these closures, CVS pharmacy (whose PBM Caremark sets reimbursements for all pharmacies, including CVS) is the pharmacy chain that by far saw the most growth in recent years.
  • The spread totals were highest on specialty drugs, which are typically dispensed at PBM-owned pharmacies.
  • This analysis stressed the need to look beyond spread.
    • Context: Spread pricing is just one line item in the overall PBM book of business. The report did not analyze transmission fees, contracting fees, audit recoupments, prior authorization fees, and drug manufacturer rebates (and associated fees). There are likely millions of dollars still unaccounted for in the system. According to the report: "For example, the data used for this spread analysis does not include direct and indirect remuneration (DIR) fees paid back to the PBM by the pharmacy. In addition, per contracts, many specialty drugs are filled by CVS Caremark’s specialty pharmacy – which is a CVS specialty pharmacy both of which are subsidiaries of CVS Health Corporation. This analysis does not address the significant rebates offered to PBMs by the drug manufacturers. "
  • Further study is needed on other issues.
    • Context: Auditor Yost highlighted the need to get a better understanding of the impact of auto-refill programs, medical-loss ratio, rebates, audits, conflicts of interest, anti-competitive practices, and sale of de-identified patient data. We could not agree more.

While we are still digesting the full 33-page report, it is abundantly clear that reform is needed for a myriad of reasons. The report highlights some deeply troubling issues not just for pharmacists, but taxpayers and patients as well. Check out the report on today's events from the Columbus Dispatch's Marty Schladen HERE.

"What we see in this report are the truly unfathomable lengths that these massive corporate middlemen will go to manipulate the prescription drug marketplace and hide their litany of revenue streams," said OPA government affairs director Antonio Ciaccia. "It is now overwhelmingly apparent that PBMs are operating the biggest shell game in modern history, and we are all paying for it."

"Today, we learned that at a fundamental level, we as taxpayers have been paying more for less," said OPA Executive Director Ernie Boyd. "But we know that Ohio is not alone. Every state and every payer in the country is grappling with these overinflated costs. The good news is that Governor Kasich and Ohio Medicaid are leading the way on the transparency necessary for true spending reform."

We applaud Auditor Yost for taking this issue on, and we thank the lawmakers who called on him to conduct this insightful audit. As we mentioned this week, we applaud the Ohio Department of Medicaid for their movement in the right direction on a more transparent program, and we will continue to work to ensure pharmacists can continue offering the highest level of care possible in Ohio.

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