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Kentucky Report: “Opening the Black Box” Reveals Non-Fiduciary PBMs Took Home $123 Million From Spread Pricing

A long-awaited state report appears to confirm legislators’ suspicions that pharmacy benefit managers or PBMs are reaping big profits from Kentucky Medicaid dollars. Called “Opening the Black Box,” Kentucky’s report released in February shows payments to PBMs grew over the past year, even as lawmakers increased scrutiny and passed legislation demanding more transparency about prescription drug costs.

Spread by Pharmacy Type

Last year, pharmacy benefit managers, or PBMs, took in $123 million through a practice known as “spread pricing,” the difference between what the pharmacy benefit company pays the pharmacist and what it bills the state Medicaid program, according to the report.

Tyrone’s Commentary:

This should sever as a warning to all self-insured employers. Despite Kentucky’s best efforts to reduce PBM service fees, payments to PBMs grew year-over-year. Even as lawmakers increased scrutiny and passed legislation demanding more transparency, non-fiduciary PBMs still increased the amount of revenue they took in! If a state with unlimited resources can’t stem PBM service fees, how does a commercial employer even stand a chance? Here’s the answer. Do business with a fiduciary-model PBM. While the answer may seem self-serving it isn’t. There are just too many loopholes, from which a non-fiduciary PBM can benefit, for even the sharpest consultant, HR Executive or CFO to close. Leave just one loophole open and you will bleed out. 

Kentucky’s Eight (8) Recommendations:

1)  Mandate pass-through contracting for all MCO-PBM contracts for pharmacy.

2)  Remove all DIR fees including transactional fees, in-network fees, GER and BER fees.

3)  Evaluate the implementation of a pricing methodology to managed care Medicaid pharmacy. Using a similar lesser of logic methodology, medications would be reimbursed the same as Kentucky’s fee-for-service population.

[Read Full Report]

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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