Over the past few years, Ohio legislators and executive officials investigated pharmacy benefit managers (PBMs) and found that they were greatly overcharging taxpayers and not lowering drug costs. Now representatives have come up with a proposal to stop this behavior. This week, Ohio House Republicans released a plan that will give the state government greater control of Medicaid's pharmacy benefits and ensure that private managed care companies and PBMs can no longer rip people off.
The reform is like this: Ohio's Department of Administrative Services will select and contract with a single PBM to manage pharmacy benefits for Ohio's Medicaid program (a big difference from the current system, where managed care plans hire their own PBMs). The chosen PBM will be a fiduciary of Ohio-meaning it will have to put the interests of Ohio taxpayers first-and it must fight for the lowest possible prescription drug costs from drug manufacturers on behalf of the state government.
Another major problem in the PBM market has been conflicts of interest. To guard against favoritism and corruption, a PBM applying to be Ohio's fiduciary will have to disclose all its relationships with drug companies, specialty pharmacies, or other companies. Also, no state PBM can be owned by a managed care association, and the PBM would have to submit quarterly pricing reports to the Ohio state government, which would make them available to all legislators.
Ohio's Medicaid program covers 2.8 million people, and according to the Columbus Dispatch, "a study commissioned by Medicaid last year found PBMs billed taxpayers, through the managed care organizations, $224 million more for prescription drugs in a year than they reimbursed pharmacies to fill those prescriptions. That 8.8 percent difference, known as the price spread, represents as much as $180 million in excessive profit kept by CVS Caremark and Optum Rx, the study found."
This is a welcome and long overdue reform proposal. The PBM market lacks the basic requirements needed for a competitive market: it is very concentrated, not transparent, and conflicts of interest are very common. The result? PBMs earn enormous profits and have substantial incentives to raise drug prices, and when this is combined with the incentives for drug manufacturers to raise costs, the result is that many prescription medicines are unaffordable. People are having to choose between paying for drugs to keep them alive and paying for their housing or groceries, and this is appalling and easily preventable.
The Ohio legislature should pass this reform, and make sure that PBMs help Ohio lower drug costs instead of raising them.