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Expert warns: Ohio Medicaid poised for big trouble

Marty Schladen, Ohio Capital Journal

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Photo by Suzanne Ovel

The Ohio Department of Medicaid is not being transparent about a process meant to bring transparency to the system by which the state buys billions of dollars worth of prescription drugs each year.

But what is becoming apparent as the agency belatedly follows a law requiring it to use just one pharmacy middleman, it’s actually hiring two.

That has a leading national expert and some Ohio lawmakers warning that the “fix” could end up costing taxpayers far more than the hundreds of millions of dollars in excess costs incurred under the existing system.

For its part, the Medicaid department is refusing to explain how or by whom the lion’s share of prescription-drug duties will be performed.

“We’re going to get hosed on this,” Sen. Bill Coley, R-Liberty Township said in an oversight hearing this month. “I can just see it.”

A new approach

State policy makers have for years been passing laws and taking other measures intended to bring Medicaid’s prescription costs under control. The mammoth program now covers more than a quarter of all Ohioans and spends upwards of $3 billion a year on drugs.

At the heart of the struggle are pharmacy benefit managers — large corporations that act as middlemen between the Medicaid managed care companies and pharmacies, manufacturers and patients.

At present in Ohio’s Medicaid managed care system, among their other duties PBMs contract with thousands of pharmacies and determine what to pay them for drugs. They also contract with scores of drug manufacturers and negotiate rebates from them.

The Medicaid department contracts with private managed care companies, which hire the pharmacy benefit managers, or PBMs. And because they don’t contract directly with the state, PBMs haven’t had to share all their data on matters such as pricing and rebates.

When, in 2018, the Medicaid department got the PBMs to turn over their pricing data, a consultant found that the companies charged almost a quarter-billion dollars more for drugs in 2017 than they paid pharmacists — and that amount was largely confined to generic drug transactions, not more expensive brand-name and specialty drugs.

To bring more transparency to the process, the legislature last year passed a law mandating that the Ohio Department of Medicaid move from the three PBMs it has now to hiring a single company. Also, that company is required to contract directly with the Medicaid department, so that state officials would have access to pricing, rebate and other data that is now obscure to them.

But many think that won’t be enough to fix the problem. Rep. Mark Romanchuk, R-Ontario, said in a committee hearing this month that the single-PBM law is well intentioned, but without good contracting and keen oversight, Ohio Medicaid won’t get a better deal from a single PBM.

“It still comes down to contracts and it comes down to oversight,” he said.

Shaky performance

Some lawmakers and others say what’s happened so far has not been reassuring.

The law required the Medicaid department to have the single PMB in place by July 1. But the agency blew through that deadline and now is saying it will be up and running by March.

More important, however, than when the single PBM will be in operation is what it will actually do. The Medicaid department is refusing to say.

The department on July 24 posted a 142-page request for proposals for a single PBM. It is largely silent on several big issues.

For example, huge PBMs like the ones currently working with Ohio Medicaid are able to get big rebates from drug manufacturers by promising to put their drugs on PBM’s lists of covered drugs and requiring low or no copayments for patients to get them.

Federal law requires manufacturers to pay fixed, minimum rebates on Medicaid drugs. But big PBMs such as CVS Caremark, Express Scripts and OptumRX can use their clout in the marketplace to demand supplemental rebates in excess of that.

Tens or even hundreds of millions of dollars could be at stake, but supplemental rebates aren’t mentioned in the Medicaid department’s request for proposals. Indeed, the word “rebate” appears only three times in the lengthy document, every time in reference to the federally mandated variety.

Linda Cahn has made a career of reading legal documents related to PBMs. She’s the first attorney in the United States to initiate a class-action suit against one of the companies and she now runs a national consultancy that helps clients bulletproof their contracts with PBMs. She’s also testified before Ohio’s Joint Medicaid Oversight Committee.

Cahn said the request for proposals for a single PBM is riddled with holes.

“The RFP focuses on only two aspects of drug coverage: providing an adjudication platform to track the dispensing and invoicing for drugs, and providing a customer call service center,” she said in  an email. “Neither of those matters has anything to do with controlling costs.”

Hazy situation

That would leave responsibility for PBM duties involving huge amounts of money to somebody else. The work would seem to require a second PBM, but Ohio Medicaid is making it impossible to determine exactly who would be responsible for what.

In an Aug. 12 hearing of the Joint Medicaid Oversight Committee, Romanchuk, Coley and Rep. Allson Russo, D-Upper Arlington, all questioned the lack of detail in the request for proposals about rebates and other matters.

Medicaid Director Maureen Corcoran repeatedly said those issues would be handled by yet another vendor.

“If it’s not in there, it’s probably in the operational support vendor’s contract,” she said in response to a question from Coley a little more than an hour into the hearing.

But no such contract exists, the Medicaid department conceded a few days after the hearing. In fact, a request for proposals for such a vendor hasn’t even been written, agency spokesman Kevin Walter said on Aug. 14.

Even so, the department is using the proposal process as an excuse to avoid explaining the division of labor between the single PBM and the “operational support vendor” that Corcoran repeatedly referred to.

The department has come under fire recently about its candor. Earlier this month, it was exposed as replying with falsehoods to open records requests and other questions from The Columbus Dispatch about a PBM investigation by a consultant.

Now it’s saying that it’s in the “quiet period” for the request for proposals for a single PBM — a period restricting communications between potential bidders and the Medicaid department intended to prevent anyone from gaining an unfair advantage.

Walter claimed the existence of that quiet period prevents the department from commenting on what will be covered in a second request for proposals that does not yet exist.

“I’m sure you can appreciate the need to maintain the integrity of the process,” Walter said in an email. “During this period, we are limited to pointing you to the publicly available request for proposal.”

Coley, a lawyer, said of the existing request, “I could drive a truck through that thing.”

And Cahn cautioned that it looks like the second, as-yet-nonexistent request is where most of the action — and money — will be.

The contractor will “handle all matters that will control costs,” she said. “For example, (the Medicaid department) will need a vendor that will negotiate and implement contracts with thousands of retail pharmacies, several mail and specialty drug pharmacies, and scores of drug manufacturers to ensure the state obtains the financial benefits from supplemental rebate contracts.”

All this for a $3 billion system that’s supposed to be up and running by March.

Medicaid “is running out of time to run an appropriate procurement to obtain all those services,” Cahn said.

And crucially, taxpayers will have fewer protections than they do now if the system doesn’t work as hoped.

Under the new “single PBM” arrangement, costs to the state won’t be capped the way they are under the existing system, Cahn said. Now payments are limited annually as part of the “per-member, per-month” rate the Medicaid department pays each managed care organization.

“Under the new procurement structure, there will be no ‘cap’ on the state’s financial exposure,” Cahn said. “Instead, the state will now be exposed to the amount invoiced for all drugs.”

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