States Call for Transparency From PBMs Following Report About Spread Pricing

Drug price increase

Days after a Scripps Research study supported the argument that the rebate system controlled in part by Pharmacy Benefits Managers (PBMs) has led to an increase in higher drug prices, some state governments are now moving toward greater regulation of the industry.

Massachusetts and some other states are pursuing action to increase oversight of PBMs to ensure that state money used on medications is spent efficiently at all points in the drug distribution chain. An analysis from the state’s Health Policy Commission shows how much prescription drug spending is impacting Massachusetts. In 2017, total prescription drug spending at pharmacies grew 4.1% in Massachusetts, the commission’s report showed. Over the course of five years, from 2012 to 2017, MassHealth prescription drug spending nearly doubled from $1.1 billion to $1.9 billion.

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Citing concerns regarding transparency and the cost of drugs, the state’s Health Policy Commission calls for more state oversight and transparency of the PBM industry. The Boston Business Journal reported that the commission honed in on a practice called “spread pricing,” which is a practice where “PBMs charge a payer more than they reimburse a pharmacy for a certain drug, and keep the difference.” According to the report, PBM use of spread pricing appears to be increasing. In 2014, spread pricing covered 22% of PBM compensation in the Bay State, but rose to 54% in 2016. According to the state report, PBMs say the spread pricing model provides more predictability than the pass-through model. Another pricing approach used by PBMs is known as the pass-through model, which is when PBMs charge payers the same amount they reimburse the pharmacies. There is a set administrative fee involved with the pass-through model, according to the report.

In January, Mass. Gov. Charlie Baker proposed a new requirement for PBMs to be transparent about their pricing and to limit PBM margins under contracts with public agencies. The administration projects such a move will save the state about $10 million on prescription drugs, the report shows. The governor’s proposal followed a 2018 report from the state’s Health Policy Commission that recommended increased oversight of PBMs and to limit the practice of spread pricing.

In a statement issued to the Journal, MassBio, the state’s life sciences advocacy organization, praised the call for greater transparency of PBMs. MassBio President and chief executive officer Robert Coughlin said there’s no doubt that spread pricing costs the state millions of dollars in excess spending.

“If spread pricing was eliminated, we believe the state could save tens of millions of dollars annually in a way that doesn't harm innovation – in stark contrast to other legislative drug pricing reform proposals currently being considered,” Coughlin said in the statement.

Earlier this week, the Scripps study revealed that the primary reason for rising drug costs was related to the rebate system, which “incentivizes high list prices for drugs and relies heavily on privately-negotiated rebates to pharmacies.” To conduct its study, the Scripps Researchers used prescription data available from Blue Cross and Blue Shield that included claims from more than 35 million Americans. That report will likely boost recommendations made by the state of Massachusetts, as support of a federal proposal that would encourage drug manufacturers to pass discounts directly to patients instead of insurers and pharmacy benefits managers.

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