Chuck Grassley

United States Senator from Iowa

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Grassley, Wyden Ask HHS Watchdog to Investigate Middlemen ‘Spread Pricing’

Apr 10, 2019

WASHINGTON – U.S. Senate Finance Committee Chairman Chuck Grassley of Iowa and Ranking Member Ron Wyden of Oregon today sought more information from the Department of Health and Human Services (HHS) Inspector General regarding pharmacy benefit manager (PBM) business practices, specifically so-called spread pricing in Medicaid.

 

“Given the potential vulnerabilities created as a result of opaque drug pricing practices employed by entities like PBMs, we believe additional transparency and oversight in this space is warranted,” the senators wrote. “We request your office conduct a federal-level analysis of PBM practices across state Medicaid programs, including practices that may allow for inappropriate profiteering and potential anti-competitive practices in state Medicaid programs.”

 

The letter comes after multiple states have audited their Medicaid programs and determined that PBMs were using spread pricing to make millions of dollars in excess of what pharmacies were being paid for prescription drug claims.

 

The Senate Finance Committee held its third hearing of 2019 earlier this week on the high cost of prescription drugs.

 

The letter can be found here and below.

 

Inspector General

Office of Inspector General

U.S. Department of Health and Human Services

200 Independence Avenue, SW

Washington, DC 20201

 

Dear Mr. Levinson:

 

We are writing to you regarding an increasing number of reports that highlight concerning practices by Pharmacy Benefit Managers (PBMs) in state Medicaid programs. In August of this year, the state of Ohio publicly released the results of an audit examining PBM administration of Medicaid pharmacy benefit plans under the state’s Medicaid program. The audit found that the PBMs’ “spread pricing” practices resulted in the program being billed $224 million more than the total price paid to pharmacies for actual claims over the course of the year. On average, this spread – the difference between what the PBMs paid the Ohio pharmacy providers and what they billed the Medicaid managed care plans for – reflected more than 8% markup for prescription drugs paid for by Medicaid. A subsequent article in January also reported that the PBMs were paying their own pharmacies even more than competitors.

 

Reports detailing pricing practices by PBMs in state Medicaid programs have not been isolated to Ohio. In December, the Pennsylvania Auditor General released a report finding that three PBMs employed similar practices in Pennsylvania and made millions off the Medicaid program, with profits averaging between 28 cents and nearly $13 dollars per prescription. Most recently, the Kentucky Department of Medicaid Services released a report in February finding that, in 2018, PBMs in the state made $123 million off the state’s Medicaid program through spread pricing practices 00 a nearly 13% markup.

 

The Medicaid program is essential to providing care to millions of Americans. As a state-federal partnership, it is imperative that taxpayer dollars are used efficiently and effectively to provide quality care and treatment to beneficiaries. Under 42 C.F.R. 438.230, subcontractors like PBMs are required to comply with all applicable Medicaid laws and regulations. Furthermore, in accordance with these federal rules, the Department of Health and Human Services’ Inspector General has the right to conduct audits and evaluations of Medicaid managed care subcontracted entities such as PBMs that pertain to any aspect of services and activities performed as well as amounts payable under Medicaid managed care contracts with state Medicaid programs. Moreover, the central tenet of pricing practices of state-federal partnerships should keep the beneficiary, and sustainability of state Medicaid programs, at its core.

 

Given the potential vulnerabilities created as a result of opaque drug pricing practices employed by entities like PBMs, we believe additional transparency and oversight in this space is warranted. Accordingly, we request your office to conduct a federal-level analysis of PBM practices across state Medicaid programs, including practices that may allow for inappropriate profiteering and potential anti-competitive practices in state Medicaid programs. Thank you for your prompt attention to this request. We look forward to your response.

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