State Strategies for PBM Oversight in Medicaid Managed Care: Navigating Complexity and Transparency

The Rise of Medicaid Managed Care and Challenges in Pharmacy Benefit Oversight

Since the inception of managed care in Medicaid, the number of Medicaid beneficiaries enrolled within Medicaid Managed Care has steadily increased. According to the Kaiser Foundation, utilizing Medicaid enrollment data from 2021, approximately 74% of Medicaid members are enrolled within the managed care program. Reliance on Managed Care Organizations (MCOs) for delivering prescription drug benefits offers states simplified administrative processes and budget predictability. Typically, each MCO operates using their own Pharmacy Benefit Manager (PBM) that adds an additional layer of complexity and opacity. There are several concerns related to this delivery system, including PBM administrative costs, health plan-specific Preferred Drug Lists (PDLs), below cost reimbursement for pharmacies, and reimbursement associated with the 340B drug pricing program.

Many states have taken steps to mitigate some of the above concerns and to maintain transparency within the administration of its Medicaid pharmacy benefit. Identified and described below are some of the approaches utilized by states.

Increased State Regulations for PBMs

Many states have implemented increased requirements on the managed care plans in operating the pharmacy benefit while maintaining the traditional model of the individual PBMs contracted to each health plan. Increased requirements have included elimination of spread pricing, restrictions applied to retrospective reimbursement adjustments and transaction fees, and additional reporting requirements. In some cases, states have mandated a minimum level of reimbursement required for pharmacy claims. This minimum level of reimbursement may include some or all elements of the fee-for-service (FFS) Medicaid program including benchmark reimbursement methodologies or implementation of FFS professional dispensing fees. Some states have elected to extend the reimbursements requirement to only specified pharmacy types (e.g., in-state independent pharmacies and excluding chain and/or pharmacies that are related parties to a PBM). Overall, most states operating with the traditional PBM model associated with managed care have implemented some sort of increased requirements for exerting varying levels of oversight and control over the manner in which the PBMs operate.

The Single PBM Model: Centralized Control and Transparency in Medicaid Pharmacy Benefits

Some states have adopted a single PBM model in which the state Medicaid agency has selected one PBM to serve all health plans. Two SPBM models have been utilized within the states that have implemented this approach. In the most commonly used SPBM model, the state Medicaid agency procures the SPBM and requires each managed care health plan to contract directly with the SPBM. Within this model, the state sets the overall policies that the SPBM must follow for all pharmacy claims processed yet the health plans remain at risk for the provision of the pharmacy benefit. Conversely, under the second PBM model, the SPBM is solely contracted with the state Medicaid agency and operates as a prepaid ambulatory health plan, which exclusively provides the pharmacy benefit to all the member enrolled within the managed care plans. Under this model, the health plans are not at risk for the pharmacy benefit. Under the SPBM model, the state Medicaid agency is able to exert more control over the pharmacy benefit while maintaining transparency and adequate pharmacy reimbursement. States that have implemented the SPBM model or are in an implementation stage include Kentucky, Louisiana, Mississippi, and Ohio.

The Carve-Out Model: Complete State Control Over Medicaid Pharmacy Benefits

A few states have chosen to fully carve out the pharmacy benefit from the managed care organization, retaining it within the Medicaid fee-for-service (FFS) program. In the carve-out model, the state contracts directly with the PBM and manages direct enrollment with the pharmacy provider community. States that have used this approach for many years include Missouri, Tennessee, West Virginia, and Wisconsin. Recently, California and New York have transitioned to this model, now managing the pharmacy benefit exclusively within their FFS programs. A carve-out allows the state Medicaid agency to maintain complete control over the pharmacy benefit.

How Myers and Stauffer Can Help

No matter your current oversight or state model, Myers and Stauffer is here to support you. With our deep understanding of Medicaid pharmacy benefit management, we offer tailored solutions to help you navigate and optimize your system. Whether you’re looking to enhance efficiency, implement new oversight measures, or transition to a different model, our team provides the insights and assistance you need to achieve your goals and ensure effective management of your pharmacy benefit programs. Visit our PBM webpage to learn more about our services and discover how we can partner with you to address your specific needs.