In 2018's legislative session, 45 laws were passed by 28 states to focus on the problem of prescription drug costs. Aside from these legislative initiatives, administrative measures are also being taken to make improvements to the management of Medicaid pharmacy benefits spending. Ohio, West Virginia, and California are a few of the states exploring and implementing administrative efforts to reduce drug costs.
Medi-Cal Aims To Negotiate Prescription Drug Costs
California is looking to legislative measures to address drug costs. The state's governor, Gavin Newsom (D) authorized an executive order in January that would make Medi-Cal responsible for negotiating drug costs with pharmaceutical companies directly by 2021. The order would utilize a singular purchaser model and leverage the purchasing power of the state's Medicaid population of 13 million.
Despite turning to a singular purchaser model, the order also enables parties such as private payers, small businesses, self-insured employees, and local governments to collaborate in the negotiations with drug manufacturers.
Supporters view the order as a chance to reduce the cost of high priced drugs by making them more common. In addition, they believe that the model has the potential to be beneficial at the federal level. Critics on the other hand, are worried that the formularies would no longer be handled by managed care plans. Thereby leading to denied prescriptions and jeopardizing patient's access to care and provider satisfaction. At this point, the governor's order will need federal waivers before it can be implemented.
Ohio Medicaid Adopts Pass-Through Pricing Model
Last year, Ohio announced to its managed care plans that they could no longer contract with PBMs that use "spread pricing". The Ohio Medicaid Department objects to this payment model due to its lack of transparency and the fact that PBMs can profit from it by buying the medication from a dispenser at a lower rate than what they charge plan providers. A state investigation evaluated the payment model's impact and revealed that it contributed to an 8.8% markup on pharmacy claims; enabling PBMs to collect $5.70 on each drug filled.
Starting January 2019, The Ohio Medicaid Department has directed that MCOs adopt "pass-through" payment models that promote transparency in order to reduce the program's costs. Under the new payment model, Medicaid plans are billed the same amount for prescriptions that a PBM buys them for. PBMs are then given an administrative fee for each prescription filled. The fee is estimated to be between $0.95 and a $1.90.
West Virginia Carves Out PBMs
After an audit, West Virginia found that employee health plans were paying 1% more for pharmacy claims than the PBMs paid the dispensing pharmacy. Because of this, the state made a decision to eliminate the use of PBMs entirely. Lawmakers concluded that the 1% cost the state $10 million each year.
Rather than rely on managed care for state employee and Medicaid beneficiary pharmacy benefits, West Virginia has returned to a fee-for-service model. With the aid of West Virginia University, the state has identified which medications should be available and the Bureau of Medical Service's Office of Pharmacy Services (OPS) pays for each prescription. According to West Virginia's pharmacy board, the state saved $38 million in its first year after the administrative reform.
States are concerned over rising prescription drug costs and the lack of pricing transparency with PBMs. In response, lawmakers have taken legislative and administrative efforts such as alternate payment models to rein in these costs.
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