News Releases

NCPA Applauds CMS Guidance Eliminating PBM Spread Pricing Games in Medicaid

by NCPA | May 15, 2019

ALEXANDRIA, Va. (May 15, 2019) — The Centers for Medicare and Medicaid Services today 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. 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 CEO 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."

About Medicaid managed care:

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.

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Founded in 1898, the National Community Pharmacists Association is the voice for the community pharmacist, representing 22,000 pharmacies that employ 250,000 individuals nationwide. Community pharmacies are rooted in the communities where they are located and are among America's most accessible health care providers. To learn more, visit www.ncpanet.org.