Plan Sponsor ALERT: New York Seeks To Eliminate PBM Spread Pricing

On April 1, 2019, New York legislators have passed new regulations eliminating “spread pricing” on prescription drugs within the Medicaid managed care system. Under “spread pricing” arrangements, PBMs bill the Plan Sponsor for the drug dispensed by the pharmacy more than the amount the PBM pays to the pharmacy. The difference is the “spread,” which the PBM retains as revenue. Over the last few years, PBMs have been lowering pharmacies’ reimbursement, and retaining greater amounts as spread.

The new regulations – currently awaiting Governor Cuomo’s decision to enact it into law or not – are projected to save taxpayers about $43 million a year. According to a study conducted earlier this year by the Pharmacists Society of the State of New York, the state was overcharged on Medicaid managed care prescription drug claims by nearly $300 million. A Bloomberg analysis last year showed that PBMs nationwide received $1.3 billion of the $4.2 billion private Medicaid insurers spent on 90 common drugs in 2017. However, the new law, if enacted, will not immediately help New York pharmacies as they do not benefit from the “spread” earned by PBMs. Further, four leading PBMs (i.e., CVS Caremark, Express Scripts, Inc., OptumRx, Prime Therapeutics, Inc.) either own or have affiliation with pharmacies and therefore, they have strong incentive to direct as many prescriptions as possible to their pharmacies (while paying them at better reimbursement rates than they pay independent pharmacies).

Notwithstanding the aforesaid regulations (i.e., any and all funds that PBMs are able to make through spread pricing will go back to Plan Sponsors), the pharmacies will still be in the rabbit hole where they will continue to receive lower reimbursements due to spread pricing on commercial and Medicare/Medicaid claims. Not only has New York and the federal government begun to understand PBM abuse of Plan Sponsors, but the light bulbs have tripped on for other states. Several states (i.e., Ohio, Kentucky, West Virginia, and Washington) have commenced similar actions against PBMs.  

In the end, Plan Sponsors must retain counsel that is fully aware of spread pricing and rebates as two revenue schemes. Governmental entities, self-funded employers, insurers, and managed healthcare organizations (collectively, “Plan Sponsors”) should focus on containing costs (while providing optimal coverage to the beneficiaries) by demanding “radical transparency” from PBMs. Frier Levitt routinely works with plan sponsors, to control or eliminate spread pricing, evaluate and confirm rebate compliance, conduct PBM audits to ensure compliance, and negotiate better terms in future PBM contracts. If you are a Plan Sponsor entering a contractual relationship or having a dispute with a PBM, contact Frier Levitt today to speak to an attorney.