Alerts and Updates

Ohio Cuts PBM Contracts Over Claims They Are Costing Ohioans Millions of Dollars

August 17, 2018

If the disclosure of PBM pricing practices leads to pricing reforms, provides fairer reimbursement to independent pharmacies and provides cost savings to consumers, it is likely that other states will adopt similar requirements in connection with PBMs seeking to do business in their states.

On August 14, 2018, Barbara R. Sears, director of the Ohio Department of Medicaid, instructed the state’s five managed care plans to terminate and/or renegotiate pharmacy benefit manager (PBM) contracts in order to transition from a spread-pricing drug purchasing model to a pass-through model, effective as of January 1, 2019. Spread pricing is a model in which the PBM charges the plan one rate per prescription unit and reimburses the pharmacy at an often substantially lower rate for dispensing the same prescription unit, pocketing a profit off of every prescription dispensed. In a pass-through model, the PBM charges the managed care plan the same price that it reimburses the dispensing pharmacy, along with a fixed administrative fee per prescription charged to the plan.

The decision to change the course of its managed care pharmaceutical purchases is based on the June 2018 audit findings of HealthPlan Data Solutions, which was tasked with auditing the performance of PBMs in their management of the pharmacy benefit plans for the managed care providers for the state of Ohio. HealthPlan Data Solutions found that in 2017, PBMs contracted with the managed care plans charged the managed care plans $223 million more than what the PBMs paid in pharmacy costs.

According to the Ohio Department of Medicaid's directive, a pass-through model allows Ohio Medicaid, Ohioans and all market participants to see exactly what is paid out for all pharmacy transactions. HealthPlan Data Solutions predicts that a transition from spread-pricing to pass-through contracts will save Ohio’s taxpayers nearly $16 million.

This change comes amidst both state and federal scrutiny of PBM pricing practices.  

For example, certain state attorneys general have recently announced investigations into apparently unfair reimbursement rates provided by PBMs to independent pharmacies, denying the independent pharmacies the ability to generate profits in dispensing drugs to the PBMs’ members. On the national stage, PBMs have been accused of substantially contributing to high drug costs by requiring that drug manufacturers provide them substantial “rebates” in order to secure their drugs on the PBMs’ formularies. As of last week, the federal Office of Management and Budget was finalizing its review of a proposed rule from the HHS Office of Inspector General to roll back safe harbor protections for rebates to PBMs.

Ohio’s recent actions can help unveil secretive PBM pricing practices and present significant cost savings to Ohio taxpayers. Other states will undoubtedly be watching Ohio closely. If the disclosure of PBM pricing practices leads to pricing reforms, provides fairer reimbursement to independent pharmacies and provides cost savings to consumers, it is likely that other states will adopt similar requirements for PBMs seeking to do business in their states.

Duane Morris attorneys will continue to monitor developments in this area and other related issues, and report on the key details for our clients and others in the industry.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.