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PBM Spread Pricing Leads to Much Higher Medicaid Drug Prices-But States Are Taking Action

Medicaid plans are paying wildly varying prices for generic drugs in different states. In some states, such as Arizona, Georgia, Kentucky, Nevada, and Ohio, a bottle of the generic heartburn drug Nexium costs Medicaid $130, when that bottle of pills is available from wholesalers for only $20. And pharmacy benefit managers (PBMs) are responsible for this.

This case is not an isolated incident. Bloomberg conducted a study of ninety best-selling generic drugs in Medicaid managed-care plans across thirty one states, and discovered that the prices of medicines are very different across these states. While these generic drugs should be cheap across the country, in some states Medicaid plans are paying more than three times their normal costs. Indiana's Medicaid plans are paying over $8,900 for a month's supply of a generic version of a leukemia drug, even though this drug's wholesale price is below $3,100 per month. Since Medicaid provides over seventy million Americans with health care and medicines, this price gouging hurts state and federal budgets and costs taxpayers an immense amount of money.

Who is responsible for these incredibly high drug costs? PBMs are. These middlemen companies manage different drugs, negotiate with drug manufacturers for rebates on branded medicines, and pay the pharmacies that dispense the drugs. In most state programs, PBMs have lucrative contracts to run drug benefits, but operate with almost no transparency and weak oversight, allowing them to get away with all sorts of misbehavior. One of their worst practices is "spread pricing", where PBMs pay pharmacies one price for generic drugs and then charge much higher prices to their health plan customers.

Fortunately states are wising up to their act. Pharmacies, state legislators, and state officials have all criticized PBMs for their lack of transparency and their questionable practices that lead to higher drug prices. Several states are now conducting investigations of PBM practices, especially after Bloomberg's study found that prices for drugs under many Medicaid plans were rising. In Ohio, the Columbus Dispatch ran a series of in depth investigations about how PBMs were leading to higher drug costs, and as a result Ohio ended its contracts with PBMs because of their spread pricing model. Under the new rules, PBMs in Ohio will only get administrative fees and have to bill Medicaid the same amount that they bill pharmacists.

PBM reform at the state level is long overdue. Ohio's termination of spread pricing arrangements is a great idea, and other states are taking note. New Mexico has announced it will end spread pricing in its Medicaid plans, and Indiana and Kentucky are considering it as well. Hopefully this practice will spread, until all fifty states have taken a stance against PBM abuses and for affordable medicines.

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