Ohio expects to save $240 million in Medicaid drug costs by running its own PBM

Ohio officials expect that consolidating the seven private pharmacy benefit managers that run its Medicaid managed-care system into a single, state-regulated PBM will save more than $240 million every year. The change will go in effect starting in early 2022.

Officials will administer PBM services through Gainwell Technologies, a state-regulated PBM that will replace the seven PBMs currently operating in the managed-care system. A pharmacy pricing and audit consultant will help state officials make decisions with regard to in-network providers, pharmacy reimbursement and more.

Ohio Department of Medicaid Director Maureen Corcoran declined to name the consultant working with Ohio.

“There’s too much about the PBM world that is not transparent,” she said. “There’s too many opportunities for conflicts of interest. There’s too many opportunities for decisions to be made based on profit, and rebate amounts, and things like that, rather than the best interest of the consumer.”

The state is reforming its $20 billion Medicaid program after its Legislature told Medicaid officials to account for the $224 million “black box” paid to PBMs each year. Corcoran blamed PBMs’ spread pricing policy for causing the department to lose track of funds. Spread pricing is when a PBM charges a payer more than it reimburses the pharmacy for a specific drug and retains the difference. The state has since switched to a pass-through drug pricing policy, which requires PBMs to charge payers the same amount that they reimburse pharmacies, along with a set administrative fee.

“There was a variety of different kinds of financial decisions that were being made that were not apparent even to the managed care plan,” Corcoran said. “They were causing the PBM to be able to take a great deal of profit.”

Now, the state has decided to ditch private PBMs altogether.

The state-run PBM will technically serve as another managed care plan, which will allow officials to engage in value-based payment programs with providers. While many other states have carved PBM services out of their managed-care contracts, Corcoran said most end up paying PBMs under a fee-for-service model. Tennessee is the only other state that runs their PBM through a capitated payment model, she said.

The consolidation to a single vendor is expected to save Ohio’s Medicaid agency $128 million the first year and, after that, $184 million each year compared to the current system, Corcoran said. The state is also implementing a unified preferred drug list to help ease the administrative burden providers face when dealing with multiple patients under multiple insurance policies. By mandating which drugs are covered under Ohio’s Medicaid program through a single program, Corcoran expects to cut $60 million from the nearly $4 billion the state spends on medication each year, since it will help Ohio officials optimize drug rebates.

“All Medicaid departments are wrestling with how to get the best value and to have adequate transparency so that you know what’s going on with the money that’s being spent on the program,” Corcoran said.

In addition to switching to a single PBM, the Ohio Department of Medicaid also announced it had chosen six companies to run its $20 billion Medicaid program. UnitedHealthcare, Humana, Molina Healthcare, Anthem and Caresource affiliates all won contracts, along with AmeriHealth Caritas Ohio.

The state is deciding on a bid from Centene over allegations that its Buckeye Health Plan affiliate used a “web of subcontractors” to obscure drug costs and fleece the state’s Medicaid program out of millions in pharmacy benefits. Earlier this week, Centene wrote in a legal motion that Ohio Attorney General Dave Yost lacks a “basic understanding” of how the state’s Medicaid program works. Centene did not respond to an interview request.

An attorney for the Ohio Department of Medicaid said officials are engaging in additional consideration concerning Centene’s application to run the managed-care program, which scored the second-highest among the bids received. He declined to comment on when the Medicaid department would have a decision on the award. Companies that receive the contract will be in charge of managing care for Ohio’s more than 3 million lower-income adult and children Medicaid enrollees.

The Mississippi Attorney General is also investigating a Centene subsidiary for allegedly obscuring and overcharging the Mississippi Department of Medicaid by millions of dollars in drug costs.

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