Medicaid Drug Purchases Inflate Taxpayer Costs, Group Says

RALEIGH — North Carolina could save more than $3 billion in Medicaid prescription costs over the coming decade by negotiating discounts through pharmacy networks and using more generic drugs, a national trade organization says.

“Almost everybody in America who has prescription drug benefits, maybe 220 million people except those in the Medicaid program and the Veterans Administration, have a PBM [pharmacy benefits manager] or PBM tools working for them to save money,” said Mark Merritt, president of the national Pharmaceutical Care Management Association.

“The key is it’s a free market solution here that is not political and has worked for both Democratic and Republican governors, and Medicare, and Fortune 500 companies, and small businesses all across the country,” Merritt said.

But Fred Eckel, interim executive director of the North Carolina Association of Pharmacists, questions the projected savings.

The third-party pharmacy benefits managers are not subject to professional board oversight, he said. And they often rely on cumbersome mail-order prescriptions that eliminate the pharmacist-patient relationship necessary to ensure good health outcomes.

Merritt insists Medicaid “overspends on pharmacy, and it’s an area where very few people know there is a huge amount of savings available, and very patient-friendly savings I might add.”

The Pharmaceutical Care Management Association released a report in May prepared by The Menges Group projecting nationwide savings of $74.4 billon from 2014-23 if all states adopted a PBM approach.

States would save $31.4 billion of that total, with the rest resulting from federal reductions, said Menges, a health policy and coordinated care consulting firm.

Overall savings in North Carolina would be $3.3 billion over that same period, the study said. The state share would be $1.15 billion.

However, those savings were projected under the assumption that North Carolina would expand its Medicaid population under Obamacare. The state has refused to do so for now.

“It’s still unclear over the next 10 years what each state’s going to do, but you’d still have probably 60 percent of the savings [$690 million] even if that population didn’t expand. The principles are still the same,” Merritt said.

PBMs use a number of cost-saving measures, including higher use of lower-cost generic drugs.

In North Carolina’s fee-for-service Medicaid program, only 72 percent of medications are generic, compared to an average dispensing rate exceeding 80 percent in managed Medicaid settings.

North Carolina pays up to $5.60 per prescription, the Menges study found, which is “significantly higher” than the average dispensing fee of about $2 paid by Medicare Part D plans, Medicaid managed care organizations, and other health plans. Negotiating lower fees would bring costs more in line.

Rooting out waste and fraud through a variety of PBM audits and detection programs would account for about 5 percent of the savings, according to the report.

“Our challenge in Medicaid is that co-pays are so low by federal statute, $1 for generic and $3 for brand. A Medicaid patient doesn’t really have much incentive to not get the brand,” even if it costs twice as much for Medicaid, Merritt said. “It’s not a market-based program.”

Pharmacy benefits managers “want to do the right thing, they want to make sure people have access to all the medications they need,” Merritt said.

“But it’s really better if you have companies come in and develop formularies, drug lists, and use things like step therapy where at least you start someone on a generic,” he said.

“If the government is paying the tab there’s no reason to start somebody on the most expensive drug at this particular stage if there’s no evidence that it works any better for them than a drug that costs a fraction of the price,” Merritt said.

Doctors retain authority to prescribe brand drugs if necessary or when a patient’s condition is stabilized long term by using them, he said.

Pharmacies are paid a dispensing fee based on a per prescription/per month model.

“All that is politically driven,” Merritt said. “The drug store lobby lobbies, and whoever sets the rates, it’s usually a political decision” based on what the drug stores demand.

“It’s better if that pricing decision is taken out of the hands of politicians … because they’ll get a better rate if they turn it over to a third party to negotiate a rate” based on their large-scale purchasing power, he said.

“Medicaid is a big payer, [it] ought to operate like a big player, and use leverage like a big player,” Merritt said. “Why should the Medicaid program be paying two or three times more than private insurers are paying for the same service?”

Instead of allowing all drug stores to participate, PBMs set up cost-saving limited care networks that would compete for the Medicaid business through a bidding process.

“I saw that report,” Eckel said. “I don’t know what methodology they used and how that would stand up in terms of those savings.”

However, he said, “I think the legislature itself is looking at perhaps a different way of computing drug costs for reimbursement, thinking that there is some savings that could come from actual acquisition costs instead of the method they are now using. There are some potential savings there, it seems.”

“That sounds very promising,” said Sen. Louis Pate, R-Wayne, chairman of the Senate Health Care Committee, said of the Pharmaceutical Care Management Association report.

“The devil’s in the details, of course,” he said, cautioning that he has not seen the report.

Several other lawmakers on legislative health care committees did not respond to requests for interviews.

Community pharmacists worry their service would be replaced by an economic principle “where the cheapest price is the best price,” Eckel said.

“The mail order PBM model … tries to make the filling of a prescription just sort of a commodity action. Whether you’re buying a drug or you’re buying a cake of soap, you know, what’s the difference?” he said.

Community pharmacies would contend they provide “a professional activity … that assures the appropriateness of that drug with all the other drugs you are taking, looking for drug interactions, etc., as well as somebody who is working with you to continue taking that drug,” Eckel said.

“When you do it by mail, when you do it in an environment where it’s just an act of commerce, are you getting that kind of reinforcement from the pharmacy? Is somebody following up with you a week later to see how you’re doing, to see if you have any problems?” Eckel said.

Such personal interaction with a community pharmacist is vital when considering a variety of reports showing the health care costs of patients not following prescription drug therapy range from $100 billion to $300 billion and up to 125,000 deaths yearly, he said.

“PBMs, from a pharmacist’s perspective, are an unlicensed entity. There’s nobody overseeing the policies and practices of a PBM like the Board of Medicine oversees what doctors do, or the Board of Pharmacy oversees what pharmacists do and pharmacies do,” Eckel said.

“The one side would say that pharmacists are just trying to control them so that they can compete better with them, and the other side would say no, there isn’t anybody overseeing their practices, and so what you see is CVS settles with a Medicaid group for overcharging for maybe $5 million or $60 million or something,” Eckel said.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.