The prescription drug pricing process has long been a murky morass — consumers understand costs are high, but don’t understand the reason. Now, new research is shedding light on a situation in which prescription drug middlemen are manipulating the system to profit. 

With this knowledge, the responsibility heightens for state and federal policymakers to take action to make these business transactions more transparent, expose the profiteering at the expense of consumers and community pharmacies, and curb unfair practices.

A report by the Michigan Pharmacists Association and the 3 Axis Advisors data analytics firm found that, over a two-year period, state taxpayers were overcharged for prescription drugs dispensed through Medicaid managed care to the tune of $64 million. Those charging the state are pharmacy benefit managers, or PBMs. PBMs are hired by health plans, states, and private employers to determine what drugs will be covered by insurance plans and how much pharmacies will be reimbursed for dispensing those drugs. 

The new research — which analyzes data on pricing on nearly two million prescriptions dispensed by over 450 pharmacies over two years — found that the PBM made huge profits. By using a practice known as spread pricing, billing public or private insurers a higher cost than what they reimburse pharmacies, PBMs have manufactured a gold mine and shifted financial pain to others.

The flow of dollars in the pharmaceutical supply chain never reach the pharmacy counter. In early 2018, Michigan pharmacies were being reimbursed only 5 percent of the average $10.64 costs involved in acquiring medications and dispensing prescriptions. As drug costs rise, consumers pay more at the counter, pharmacies make less revenue, and the lion’s share is held by the middlemen. This hits community pharmacies hard — many will be forced to close their doors if this continues.

And taxpayers and patients are hurting. The research shows that the spread margin on generic drugs, over two years, rose from two percent of managed care costs to 34 percent. This is straining state budgets and affecting a Medicaid program that cares for the poor and disabled.

Michigan is not the only victim. Ohio found a $224 million gap between charges to state Medicaid plans and payments to pharmacists. In Illinois, PBMs have been charging the Medicaid program 23 percent more for generic drugs than it was paying the pharmacists to dispense them. And, in New York, PBMs overcharged taxpayers by more than $300 million in a single year.

As the fog clears, the question now becomes what to do. Congressional committees are holding hearings and lawmakers are paying more attention to the practices of PBMs, but more needs to be done.  We need meaningful reforms to bring greater transparency to the process and prevent profiteering so that patients and taxpayers pay a fair price for medications. 

We all want an environment in which patients can afford the essential medicines they need and community pharmacists can stay in business. To get there, we must directly address the way in which the PBM middlemen are distorting the equation

Larry Wagenknecht is a pharmacist and CEO of the Michigan Pharmacists Association.

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