Improving Pharmacy Benefit Oversight in the Era of Medicaid Managed Care

In response to these challenges, many states have increased requirements to improve pharmacy benefit oversight in Medicaid managed care. For example, states have improved transparency through the elimination of spread pricing – the PBM practice of charging Medicaid more than they pay the pharmacy for a medication and the PBM retaining the difference – as well as restrictions on retrospective reimbursement adjustments and transaction fees, and improved PBM reporting mechanisms. In some cases, states have also mandated minimum reimbursement levels for all pharmacy claims or for specific types of pharmacies, such as in-state independent pharmacies and/or chain pharmacies that are not related parties to a PBM.

More recently, states have begun to consider delivery models that offer increased control of the pharmacy benefit, including use of uniform prescription drug lists. These models can exist as additional controls or oversight within the carve-in pharmacy benefit structure, or alternatively can take the form of either a “carve-out,” whereby some, or all, of the pharmacy benefit is removed from the MCO’s scope of responsibilities and administered through FFS, or a “single PBM” model, whereby the pharmacy benefit remains in managed care, yet MCOs are required to leverage a PBM selected by the state. Under a carve-out model, states typically contract directly with one PBM to support management of the benefit for all beneficiaries, FFS and MCO populations alike, and they remove the pharmacy benefit risk from the MCO capitation payment rate. Under a single PBM model, states have leveraged several designs:

• MCO At-Risk. With this design, the Medicaid agency procures a single PBM and requires each MCO to contract directly with that vendor. Further, the state sets overall policies the single PBM must follow for all pharmacy claims processed, and the pharmacy benefit is included in the MCO capitation payment rate. The PBM uses the state’s Medicaid enrolled pharmacies as the provider network.
• MCO Not At-Risk. The Medicaid agency procures a single PBM and the pharmacy benefit is not included in the MCO’s capitation payment rate. The PBM uses the state’s Medicaid enrolled pharmacies as the provider network. While the MCO is not responsible for the pharmacy benefit, they are still responsible for managing the member’s overall care, including “pharmaceutical considerations.” As such, the MCOs receive relevant information regarding members’ pharmacy utilization and financial transactions.
• Prepaid Ambulatory Health Plan (PAHP). The Medicaid agency procures a single PBM to operate as a non-comprehensive prepaid health plan that provides only pharmacy services to beneficiaries enrolled in managed care. The pharmacy benefit is not included in the MCO’s capitation payment rate, and they are not responsible for managing the benefit. The PAHP uses the state’s Medicaid enrolled pharmacies as the network, although the state has the approval to limit the network to pharmacies meeting certain standards. This design requires approval from the Centers for Medicare & Medicaid Services for a Section 1915(b) waiver.

There are several noted benefits with each of the above designs including, but not limited to, reduced state and provider burden, reduced administrative expenses, elimination of network conflicts of interest, improved transparency of operations, and increased state control over reimbursement and rebates. 

Conversely, these designs also include challenges, such as state oversight burden and federal approval of implementation authorities, for example Medicaid State Plan Amendment (SPA) and, in the case of a PAHP, a Section 1915(b) wavier and associated reporting. In models where the MCO is no longer at risk for the pharmacy benefit, there may be reduced MCO incentives for clinical and pharmacy benefit coordination.  As such, states should consider the following when assessing and implementing a single PBM

• Strategic Planning. Planning activities should be rights-holders informed and, at a minimum, include a detailed assessment of contractual and service-level requirements, with strong performance guarantees and meaningful liquidated damages provisions; implementation and oversight considerations; and ongoing administrative needs.
• Fiscal Impact. While administrative efficiencies, improved rebates, and lower net drugs may be realized with a single PBM model, it is important that states assess whether there will be impacts to managed care capitation rates or broader fiscal impacts to the program due to changes in provider reimbursement methodologies, implementation costs, and MCOs’ loss of control over pharmacy utilization and expenditures.
• Communications. Single PBM models are likely to result in reduced provider and member burdens related to benefits and access; however, successful implementation will require considerable community-partner engagement.
• Oversight. States should assess resources available to provide proper oversight of the single PBM including, but not limited to, frameworks to monitor operations; tools to track, analyze, and report compliance with reimbursement and contractual requirements; and staff to conduct routine audits.