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PBM spread pricing

AG Alleges $16M Overcharge to BWC via Spread Pricing

News came earlier this year in February, that Ohio’s Attorney General, Dave Yost, recently took the first step toward arbitration with the former Pharmacy Benefits Manager (PBM) for the Bureau of Workers’ Compensation (BWC), alleging the PBM, OptumRx, had overcharged the BWC by nearly $16 million via ‘Spread Pricing’. In this post, we explain what is behind the AG’s action.

PBMs and ‘Spread Pricing’

A PBM is a business that manages public and private insurance plans’ transactions with drug makers and pharmacies. Their core functions are negotiating drug pricing with pharmaceutical companies and handling the immense administrative task of processing prescription drug claims.

When you hand a prescription from your doctor to a pharmacist, and the pharmacist types something into a computer to “run it through insurance,” the pharmacist is accessing the services of a PBM, which tells the pharmacist (among other things) the price the pharmacy can charge the insurer, the co-pay to charge you, and whether to use a brand name or a generic drug to fill the prescription.

The idea is that the PBMs provide value to consumers at the pharmacy counter by driving hard bargains with drug companies and pharmacies who want the consumers’ business.

According to the Ohio auditor general, PBMs make money in three ways:

  • Charging service and administrative fees to insurance companies for processing claims;
  • Running their own mail-order and brick-and-mortar pharmacies (such as CVS Caremark); and
  • “Spread pricing”: pocketing the difference between what they charge insurance companies for prescription drugs and what they pay out to pharmacies for those same drugs.

Over the years, “spread pricing” emerged as the largest contributor to PBMs’ bottom line. It became especially lucrative when drug makers started offering PBMs secretive “rebates” on prescription drugs purchased by the insurance plans who were the PBMs’ clients.

Auditor General’s Report on Spread Pricing

In August 2018, then-Auditor of State (now AG) Dave Yost released a report commissioned by the Ohio legislature examining the impact of “spread” pricing on state-sponsored health plans.

What he found was that PBMs had collected $223 million in revenues from a massive “spread” between what the plans paid to the PBMs for prescription drugs (which was based on publicly available pricing), and what the PBMs were paying to pharmacies (which was based on agreements negotiated with the pharmacies by the PBMs, enhanced by rebates paid directly to the PBMs by drug makers).

The spread was especially large (a 31.4% price difference) for generic drugs, which constituted 86% of all prescriptions filled. In essence, Yost found the PBMs were acting as drug brokers who profited by hiding pricing information from insurance plans.

Arbitration Ahead?

The state canceled its health plans’ contracts with PBMs that were based on spread pricing, including the Bureau of Workers’ Compensation contract with the PBM OptumRx.

AG Yost has now demanded that OptumRx refund nearly $16 million in overcharges it earned from that pricing model. AG Yost claims OptumRx failed to pass savings along to the BWC in violation of their agreement, thereby harming Ohio workers. By making this claim formally, AG Yost has started the ball rolling toward a binding arbitration proceeding against OptumRx over that alleged breach of contract.

NE Ohio Workers’ Compensation Attorneys

As the story above illustrates, the world of workers’ compensation insurance can get complicated at times. At Dworken & Bernstein, we stay on top of developments affecting workers’ compensation benefits so that our clients can benefit from receiving well-informed, sophisticated legal advice when they need it.

For help resolving legal issues involving your workers’ compensation claim, contact the experienced workers’ comp attorneys at Dworken & Bernstein today to schedule a free consultation.

The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation

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