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Powerful Middlemen are Driving Up Drug Prices and Reaping Millions in Profits

An investigation by the Columbus Dispatch has shown an unflattering light on pharmacy benefit managers.  PBMs like CVS Caremark act as middlemen in the relationship between insurers and pharmacies and drug manufacturers.  The Dispatch found they have earned billions of dollars in this role, paying pharmacies far less for prescription drugs than they get in reimbursement from, for example, Ohio's Medicaid program.  The newspaper's analysis of drug transactions covered by taxpayer-funded Medicaid found CVS Caremark received more than $1.6 million for managing the payment for prescriptions filled by 40 pharmacies in 2017. Dispatch reporter Lucas Sullivan contributed to the series and wrote a story about CVS Caremark, one of the largest PBMs in Ohio.  He spoke with WCPN's "Morning Edition" host Amy Eddings.

CVS Caremark makes money through a state sanctioned process known as price spreading.  How does it work?

"PBMs negotiate a price with the manufacturer.  and then they turn around and negotiate another price with the pharmacies.  the difference in those two prices -- and there are two different lists kept by phamracy benefit managers -- that is the difference that PBM pocket.  What we wanted tro see is just what is that number because we've been told that PBMs have been taking a considerable amount of money out of the marketplace.  You see things happening nationally where they're starting to buy their own insurance companies.  CVS Caremark is in the process of purchasing Aetna for $69 billion.  These were entities that were largely way down in your health care chain in elivering you your medications.  And now in the span of ten years, they're starting to buy their own insurance companies.  We wanted to see where they're getting their money from."

An example of "price spreading" used by CVS Caremark.  (Columbus Dispatch)

 On CVS Caremark's role in Ohio's marketplace

"The reason we took a look at them was we had at least half of our data that we needed to determine what their spread was.  The state publishes on medicaid.gov the numbers that they pay for their drugs and how many drugs they purchase per year.  That gave us a starting point.  The missing part we needed to find was, what were they reimbursing pharmacies?  We could take what the state paid for the drug versus what these PBMs were paying the pharmacies to dispense the drug. Those were the two numbers we needed to find the spread.  The one thing to keep in mind is, even though we looked at Medicaid, PBMs opeate in every health cae plan.  If you have health care, whether you are an employer, an employee, work for the state, you have a PBM.  They've been accused nationally now of this type of behavior in every marketplace."

A CVS Health spokesperson says PBM's act like any other middle man, making money on the difference between what they pay suppliers versus what they charge the end user, in this case, the state.  Why should we expect anything different from PBMs?

"The issue is, is how much are they takng?  When it comes to Medicaid, we're talking about tax dollars.  And so this is money that's supposed to be going to pay for the disabled and the elderly.  We're trying to determine, is the state giving a fair deal.  That is the question when we ask Medicaid officials, they say, "Well, what is a fair deal?"  And depending on who you talk to, most of the state lawmakers we talked to, they say it isn't a fair deal and that CVS Caremark is taking too much money from the marketplace."

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