In 2018’s legislative session, 45 laws were passed by 28 states to address the problem of prescription drug costs. Apart from these legislative efforts, administrative actions are also being taken to improve the management of Medicaid pharmacy benefits spending. Ohio, West Virginia, and California are some of the states exploring and implementing administrative efforts to reduce drug costs.

Medi-Cal Looks To Negotiate Prescription Drug Costs

California is looking to legislative measures to address drug costs. The state’s governor, Gavin Newsom (D) signed an executive order in January that would make Medi-Cal responsible for negotiating drug costs with pharmaceutical companies directly by 2021. The order would implement 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 permits 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 an opportunity to reduce the cost of expensive drugs by making them more common. Additionally, they believe that the model could be beneficial at the federal level. Critics on the other hand, are concerned that the formularies would no longer be controlled by managed care plans. Thus resulting in denied prescriptions and jeopardizing patient’s access to care and provider satisfaction. At this point, the proposal will require federal waivers before it can be implemented.

Ohio Medicaid Adopts Pass-Through Pricing

Last year, Ohio announced to its managed care plans that they could no longer contract with PBMs that utilize “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 purchasing the medication from a dispenser at a lower rate than what they charge plan providers. A state investigation assessed the payment model’s impact and revealed that it contributed to an 8.8% markup on pharmacy claims; enabling PBMs to retain $5.70 on each prescription filled.

Beginning January 2019, The Ohio Medicaid Department has mandated that MCOs adopt “pass-through” payment models that promote transparency in order to reduce the program’s expenses. Under the new payment model, Medicaid plans are charged the same amount for prescriptions that a PBM purchases them for. PBMs are then paid 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 discovered that employee health plans were paying 1% more for pharmacy claims than the PBMs paid the dispensing pharmacy. As a result, the state decided to eliminate the use of PBM’s 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 help of West Virginia University, the state has determined 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 among PBMs. In response, lawmakers have taken legislative and administrative efforts such as alternative payment models to curb these costs.