AHCA briefs House on pharmacy benefit manager structure, but routes for cutting costs remain unclear

Lawmakers struggled to get answers on cost-savings during Thursday's presentation.

The Agency for Health Care Administration (AHCA) met with House lawmakers Thursday, releasing a report in response to recent criticism over the state’s pharmacy benefit manager (PBM) structure.

AHCA Deputy Secretary Beth Kidder spoke to the House Finance & Facilities Subcommittee about the report, prepared by the Milliman actuarial firm. John Meerschaert, an actuary with Milliman, also helped present the report’s findings.

PBMs help determine which drugs will be covered by insurance plans. They negotiate on behalf of insurers to secure discounts from drug manufacturers. When a claim is filed, PBMs collect money from those plans, then pass money to pharmacies via different methods.

In a pass-through structure for prescription drugs, a plan will pay the PBM, then all of that money will go from the PBM to a pharmacy. The PBM makes a profit via certain administrative fees.

At issue is the spread pricing structure, where PBMs don’t charge fees, but simply retain a portion of the money paid by a plan. That is, the pharmacy would receive less money than was paid to the PBM.

Critics of those arrangements argue PBMs are using the spread structure to drive up profits, and are leaving pharmacies unclear about how much cash they’ll receive in a given transaction. Some states have sought to limit spread pricing or eliminate it entirely, though that move has run into other problems with price gouging.

The Milliman study analyzed claims from parts of 2018 and parts of 2019. During that span, 10 PBM’s used spread plans, while five used pass-through plans.

As questions have continued to be raised about spread pricing, plans have begun to willingly shift to pass-through plan models. In 2020, only seven PBM’s used spread pricing plans while eight used pass-through plans.

And in raw dollar amounts, the shift was even more substantial. During the 2018-2019 period, 54% of pharmacy claims were handled via pass-through arrangements, compared to 46% through spread arrangements. By 2020, that gap had widened to an 82%-18% split, with the vast majority handled through pass-through pricing.

The study covered the 2018-19 period, with a more even split in spread and pass-through plans. And while slightly more claims were handled via the pass-through method, spread programs generated far more cash for PBMs.

Looking at paid-out claims under the spread method, plans paid PBMs $946.1 million in total. PBMs then paid pharmacies $856.5 million. That’s a surplus for PBMs of $89.6 million, or about 9.5% of the claim money paid by plans to PBMs.

In the pass-through programs, which rely on an administrative fee, plans paid PBMs just over $1.19 billion. That netted PBMs $17.9 million in fees — far less than $89.6 million. The $17.9 million total is just 1.5% of plan-to-PBM claim payments.

While the Milliman report sought to shed light on those breakdowns, Kidder and Meerschaert made clear the report did not analyze potential cost savings either to the state or to covered Floridians.

“In order to answer some of your questions, we do need to go deeper,” Kidder told House members who pressed them on the savings question.

“I think what we concluded after this [study] was: it is not a simple black and white answer to that question. I wish it were. I honestly hoped that when we finished this report, it would be so clear exactly what the policy direction should be. I think what we learned is that it is very hard to judge what one action would do to the rest of the system.”

Republican Sen. Tom Wright filed legislation (SB 390) which could help answer that very question. The bill requires the state to study contracts between PBMs and insurers to audit potential cost-cutting areas.

Republican Rep. Mike Caruso pressed Meerschaert on other data showing that CVS and CVS Health handle around 50% of Medicaid claims being paid out, despite representing around just 25% of total pharmacies. Caruso asked Meerschaert whether those data show PBMs are steering claims toward CVS pharmacies.

“I think to get at that, we would have had to look at the contracts between PBMs and pharmacies,” Meerschaert responded.

Caruso pressed again.

“Looking at the numbers, if they’re getting 50% of the subscriptions and they only have 25% of the pharmacies, somehow prescriptions are being steered toward their pharmacies. And isn’t that to the detriment of the other competitors in the marketplace?” Caruso asked.

Meerschaert again declined to answer, stating the report did not analyze the market impact of the current PBM structure.

“I guess what I would say is, we’re reporting what it is and it’s up to others to say whether it’s good, bad or otherwise,” Meerschaert said.

Caruso also expressed concern PBMs could steer business to their own pharmacies, a practice some other states have banned. But Kidder said such concerns are misplaced.

“In the Medicaid program, individuals have the choice of any network pharmacy that their plan has,” she answered. “You speak to steering, and that would mean that there was some kind of active work by the PBMs to make somebody go to a particular pharmacy. That is not allowed in our program.”

Democratic Rep. Christopher Benjamin attempted to follow up on potential conflicts given that PBMs can own pharmacies as well.

“If the PBMs contract with the pharmacies, and the PBMs have pharmacies, how does that contracting then work? Isn’t that a conflict?” Benjamin asked.

“It is allowable under the law,” Kidder said. “I think whether it’s a conflict is a question for policy-makers to decide. What we do have is a protection for our members that they can choose any pharmacy in the network. They do not have to go to the ones that are owned by the PBMs.”

Benjamin followed up with questions about the varying pricing structures and the effect on smaller pharmacies. Kidder conceded that can be a problem.

“They’re not guaranteed any particular price, which can be, I think, challenging for a business,” she said

Republican Rep. Tom Fabricio then quizzed Kidder on whether the state should consider a single PBM model, rather than the dozen-plus currently operating.

“I don’t speak for pharmacies, but I think that they would probably like the simplicity of dealing with one PBM with one set of rules rather than the different PBMs that they deal with now.”

Some PBMs have pushed back against broader reforms, arguing they’re “doing their part” to ensure patients can secure lower drug prices. Critics of the system say Florida can save more than $100 million by restructuring the system.

Ryan Nicol

Ryan Nicol covers news out of South Florida for Florida Politics. Ryan is a native Floridian who attended undergrad at Nova Southeastern University before moving on to law school at Florida State. After graduating with a law degree he moved into the news industry, working in TV News as a writer and producer, along with some freelance writing work. If you'd like to contact him, send an email to [email protected].

One comment

  • A Florida Consumer

    February 18, 2021 at 3:49 pm

    I have insurance through my employer with a big national insurance company. However, I find the prescription prices are always too high. Sometimes even higher that the retail prices, so I have to use a RX price checker like Goodrx.com and I find much lower prices most of the time. Sometimes, prescriptions are even free, yet my insurance was going to charge me $25. Who gets that? Many, many people are being overcharged for prescriptions by their insurance companies and the PBMs. I think the PBMs kick back part of the profit to the other parties. That’s MY money. When I think about how many people pay the higher prices time after time, it is a little upsetting.

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