Study Finds PBMs are Draining Florida’s Medicaid Funds

Published on December 23, 2020

A study exploring Florida’s prescription drug costs through the Medicaid program found that pharmacy benefit managers (PBMs) profited $89 million dollars, mostly from a spread pricing contract scheme that charges the state higher cost than will be disbursed to the pharmacist. Florida’s Medicaid program is contracted out to private healthcare companies like CVS Caremark, Humana, etc. Those private companies then take Medicaid dollars and draw up contracts with pharmacies around the state. PBMs play the role of negotiating drug prices between pharmacy suppliers and payers; they have an outsize stake in what consumers pay for their prescription drugs.

PBMs in Florida operate in 2 ways depending on the county – pass-through or spread. Pass-through pricing reimburses pharmacists the cost of the drug, while PBMs take a small fee. Spread, on the other hand, reimburses a pharmacy a different amount for the drugs than what it charges the state. Grit Daily caught up with Kevin Duane of SPAR (Small business Pharmacies Aligned for Reform) who finds it “indefensible” that the PBMs under pass-through contracts filled 2 million more prescriptions and made tens of millions of dollars less than those under spread contracts.

Commissioned by the state Agency for Healthcare Administration (AHCA), the study found that spread pricing contracts pay pharmacists less in reimbursement and keep, on average, 9.5% of the transaction, whereas pass-through models take a $1.45 administration fee and reimburse pharmacists the full cost.

“(The study) shows quantifiable PBM practices added costs to Florida Medicaid,” Duane said. “Those costs are anywhere from $113 to $123 million, including average spread pricing totaling $95,040,110 , $5.8 million in transaction fees charged back to pharmacy providers, $17.9 million in administration fees charged to AHCA and $47,000 in miscellaneous fees.”

Duane was in favor of some of the suggestions that the study offered to improve the system, including offering incentives to pharmacies that offer higher quality of care by making sure that patients pick up and take their medications on time. He stated, “Pharmacies that are good about making sure that patients take their medicine on time save the state money in the long run. A system that incentivizes quality pharmacy care would benefit everyone – patients, providers and taxpayers.” He added that just because people on Medicaid may be poor, that they should not receive a lower standard of care.

The study also suggested defining generic and brand name drugs. Currently, if a PBM wanted to, they could charge the state a brand name price and offer the pharmacy a generic price, and pocket the difference. Rep. Jackie Toledo (R-60) of the Florida House has tried to pass PBM reform legislation last session, and this study has gotten her colleagues to listen. SPAR received multiple requests for meetings from members of Florida’s congress after releasing a press release elucidating some of the study’s findings.

Grit Daily reached out to the Pharmaceutical Care Management Association (PCMA) for comment on the study. They responded, “The Milliman report clearly shows that mandating a one-size fits all model in Florida’s Medicaid program is the wrong approach for the state and its Medicaid enrollees. The independent pharmacy lobby in Florida would prefer to mandate the Medicaid program use a model that maximizes their profits, which doesn’t help Florida’s taxpayers and patients. In addition, the Florida pharmacists do not cite a single finding from the Milliman report in their public response, instead devising they’re own self-interested findings.” This implies that independent pharmacies are trying to line their pockets by advocating for PBM reform and oversight. Duane believes that what their group has been saying about PBMs’ unregulated behavior and shady business practices has now been exposed in black and white.

The COVID-19 pandemic has decimated Florida’s tourist industry and the state is desperate for budgetary savings. By implementing some of the reforms suggested in the study, the state could save millions of dollars per year on Medicaid costs.

Sarah Marshall is a journalist and Staff Reporter at Grit Daily. Based in Florida, she covers events related to regional economic growth, politics, and the environment as those affect startups and entrepreneurs. Sarah writes an environmental column for The Muslim News, and curates a blog that showcases her travels through Asia. She is an editor assigned to Grit Daily's "Top 100" entrepreneurs lists.

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