While the agenda of the March 15^th Joint Medicaid Oversight Committee (JMOC) did include the regular review of the Behavioral Health Redesign, the majority of the conversation centered on Medicaid Managed Care Organizations (MCOs) and Ohio’s pharmacy benefit. As has been reported by multiple outlets, CVS and Caremark, CVS’ Pharmacy Benefit Manager (PBM), have faced significant scrutiny over the last few weeks over the companies’ substantial profits and unclear business practices. This has led to calls from the General Assembly to reform the ways in which information on drug prices is shared, as well as a desire to audit the practices of Caremark, which holds contracts as the PBM for four out of the five MCOs in Ohio.

This has led to calls from the General Assembly to reform the ways in which information on drug prices is shared, as well as a desire to audit the practices of Caremark, which holds contracts as the PBM for four out of the five MCOs in Ohio.

PBMs serve as a broker between purchasers (insurers), drug manufacturers and dispensers (pharmacies) when negotiating prices and products for any given set of reimbursable medications. The idea behind PBMs is that they are able, through economies of scale, to negotiate better prices to lower the overall costs of drugs. However, in the case of CVS, pharmacists claim that Caremark was not reimbursing for drugs at an adequate rate, even though the company was being reimbursed by MCOs at a much higher level. This created both financial and access problems for pharmacies and their customers, while the company allegedly pocketed the difference. Further, there were questions during the hearing about to what degree Caremark was doing this as a business strategy for CVS (which owns a number of large pharmacies) as a way to dominate the market.

CVS & Caremark's unclear business practices & high profits have led to calls from legislators to reform how drug price info is shared Click To Tweet

During the testimony, the Ohio Department of Medicaid (ODM) explained that it has taken steps to increase the transparency of how prices are established between the MCOs and the PBMs – something which was not previously done. The members of the JMOC continued their questioning, thus reinforcing the legislative interest in knowing more about the “spread price” (price difference between MCOs and pharmacists) for the PBMs. The questions also indicated a strong interest in mandating reform.

It should first be noted that this issue is something that exists across all payers – not just Medicaid. Even if it were only Medicaid, however, the Ohio Department of Insurance has statutory authority to intervene on price and enforce laws about data transparency. During the hearing, this matter was not addressed, though it may be worthwhile to understand the role this statute plays in enforcing fairness. Second, there is more that can likely be done to make PBMs negotiate on all lines of business, thus providing more leverage to pharmacies when negotiating prices. The state may also want to consider exploring a fiduciary model. As the line of questioning from Rep. Mark Romanchuk revealed, ODM does not currently know the fiduciary relationship of the PBM to the state, since it is a subcontractor for MCOs. As such, creating a more transparent process beyond the spread price may encourage greater competition and policy control.

While the PBM focus is a worthwhile one to have, it would also be valuable to examine how manufacturers and wholesalers affect the process of price, and the ways in which the interests of insurers, pharmacists and shareholders conflict with the mission of better health at lower costs. And, although some states are trying to create more leverage in Medicaid by limiting what has to be covered, the pressure to control Medicaid costs often leads states to leverage rebates to finance general spending. This, in turn, makes the pricing process more convoluted, and often leads to states selecting brand name drugs over generic drugs to increase the rebate size. Simply put, there are few controls in the pricing of pharmaceuticals just as there are few price controls in health care, generally. As such, the state may want to eventually look at all parts of the supply chain to enact reform.