ALEXANDRIA, Va.  — The Centers for Medicare and Medicaid Services Wednesday issued guidance for Medicaid and CHIP managed care plans clarifying that the amount retained from a pharmacy benefit manager under “spread pricing” must be excluded from the amount of actual claims used in calculating Medicaid and CHIP managed care plans’ Medical Loss Ratio.

Doug Hoey

The guidance also clarifies that all rebates from any source received by PBMs must be deducted from the managed care plan’s actual claims cost, regardless of whether the PBM passes the rebate on to the plan. In January 2019 comments to CMS on a proposed rule dealing with Medicaid and CHIP managed care, NCPA encouraged the agency to eliminate spread pricing and provide guidance to states on increasing accountability and program integrity in subcontractual relationships and delegation between state Medicaid agencies, managed care organizations, and pharmacy benefit managers.

National Community Pharmacists Association chief executive officer and pharmacist B. Douglas Hoey, MBA, applauded today’s guidance and issued the following statement:

“For years, community pharmacists have said that PBMs have been playing spread pricing games, contributing to higher drug costs to the detriment of states they are supposed to serve. We applaud the Trump Administration and CMS Administrator Seema Verma for recognizing that PBM methods have led to increased costs for states and taxpayers and for issuing guidance aimed at stopping this abuse. NCPA agrees that it cannot be tolerated. Spread pricing must be monitored and accounted for to provide more clarity about what states and other plan sponsors are paying for. We strongly encourage CMS to eventually codify this guidance in the form of a new rule.”

Medicaid managed care differs from traditional fee-for-service Medicaid, in which the state pays doctors and hospitals for each service provided and reimburses pharmacies for both ingredient costs of a medication plus a dispensing fee.

Under Medicaid managed care, the state contracts with managed care organizations to provide medical care and prescription drug coverage for a fixed annual fee per patient. Under managed care, the pharmacy benefit managers contracted to the managed care organization are not required to reimburse pharmacies under the same standard as federal guidelines stipulate for fee-for-service Medicaid. The result is that in managed care, pharmacies are often under-reimbursed for both ingredient costs and their actual costs to dispense a medication.

Recent studies of Medicaid managed care programs in Ohio, Michigan, Kentucky, and New York as well as a scathing state auditor’s report in Pennsylvania have indicated that PBMs are overcharging taxpayers for their services in Medicaid managed care, reimbursing pharmacies low for medications dispensed, billing the state Medicaid program high for the cost of those medications, and retaining the difference, called “spread.” Medicaid agencies in Ohio, New York, Georgia, Louisiana, Texas, and Arkansas have moved to eliminate such “spread pricing” in their state Medicaid programs.