PBMs, Profits & Prescription Drugs: Examining the Impact of Spread Pricing in Massachusetts

Jun 10, 2019

By Cayley Moynihan, Public Affairs Associate at MassBio

On June 5, the Massachusetts Health Policy Commission released a study examining the impact of “spread pricing” by pharmacy benefit managers (PBMs) and its effect on prescription drug spending in both Medicaid managed care and commercial health plans in the Commonwealth. Several states have launched investigations into PBM’s spread pricing practices and have discovered millions, in some cases hundreds of millions, of dollars that went directly into PBM’s pockets, at the expense of the state and its patients. Now, Massachusetts is joining the crusade.

Spread pricing is a controversial tactic used by PBMs to drive up their profits by charging a payer more than it reimburses the pharmacy for a certain drug. The “spread” is the monetary difference between the two numbers.

Through careful examination of the top generic drugs prescribed in Massachusetts, and their price fluctuations, the HPC’s findings are clear: PBMs are wielding immense and inappropriate power in the realm of drug pricing. In 2018, drug prices charged to MassHealth MCO plans were higher than the acquisition prices for 95% of the unique drugs analyzed by the HPC and exceeded Fee-For-Service (FFS) prices – wherein spread pricing does not exist – for 42% of unique drugs. MCO prices exceeded FFS prices by an average of $15.97 per unique drug. If we look at Buprenorphine-Naloxone, the generic version of Suboxone, which is used to treat opioid addiction, it had the highest aggregate spending difference due to spread pricing, totaling $252,536 in Q4. MCOs paid an average $159 per prescription of buprenorphine, 111% higher than the average FFS price of $75.

CMS requirements that Medicaid FFS programs use a transparent pass-through model do not apply to Medicaid Managed Care Organizations (MCOs). As a result, PBMs are currently permitted to use spread pricing in contracts with MassHealth MCOs, forcing Massachusetts to bear the burden of spread pricing and overpay by millions of dollars a year for a wide range of drugs. This is all while the acquisition cost for several widely prescribed generic drugs has decreased in recent years, but this has not translated to lower prices for those drugs in the MassHealth MCO program. In fact, from Q1 2016 to Q4 2018, the average acquisition cost for Buprenorphine fell by 60% while the price charged to MCOs increased by 13% – a consequential result of spread pricing.

Our health care system is not designed to prioritize savings for patients because PBMs are not incentivized to negotiate for lower prices that benefit patients – they want higher rebates and inflated profits as evidenced by HPC’s findings. PBMs are operating behind closed doors and without transparency of all actors in the drug supply chain, access to innovative treatments will be threatened and Massachusetts will continue to pour millions of dollars into PBM profits.

Many often point their fingers at pharma companies placing blame on their assumed “greed” for high prices of prescription drugs. This report proves that there is much more to the story – eliminating spread pricing would save the state millions of dollars, without harming innovation. It’s time to shine a light on PBMs and their controversial practices to protect our patients and truly address drug pricing in Massachusetts.

For a deeper look at the process of drug pricing and what it takes to ensure patient access, be sure to check out MassBio’s Value of Health Series (ARCHIVE).

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