According to a report by Pennsylvania Auditor General Timothy L. DeFoor, Pennsylvania taxpayers paid $7 million more for Medicaid prescription drug benefits than necessary in 2022.
A performance audit found that lack of oversight by the Pennsylvania Department of Human Services, as well as spread pricing by pharmacy benefit managers (PBMs) cost state taxpayers more than they should have paid.
“Our auditors found evidence of spread pricing, inadequate monitoring by DHS and overcharging of taxpayers by PBMs, resulting in a loss of $7 million in taxpayer money in just 2022 alone,” DeFoor said. “PBMs are counting on the fact that no one is checking their reporting so they can get paid a higher rate and still collect a fee from the pharmacy. We made recommendations to ensure more accountability and process improvements, but what really needs to happen here are changes in the law.”
DeFoor said DHS contracts with managed care organizations to implement the Physical Health Choices Medicaid program. Those MCOs then contract with PBMs to manage the prescription drug benefits for the program. According to DHS, more than 2.8 million Pennsylvanians use the prescription benefit. The audit found that PBMs charged insurance plans more for a prescription drugs that what is paid to the pharmacy for that medication – a practice known as spread pricing. The PBM then keeps the extra money as another revenue stream in the form of a fee.
“This is not just a process issue,” DeFoor said. “Pharmacies are going out of business because of the impact of spread pricing. Spread pricing in any form is hurting the very people we promised to help.”
Additionally, auditors found that DHS failed to monitor the HealthChoices program’s pharmacy expenditures in 2022 which resulted in undisclosed spread pricing where PBMs were not reporting transmission fees charged to pharmacies, and found that DHS did not monitor the contracts between MCOs and PBMs.
“A lot of work has been done on both sides of the aisle to implement changes to how PBMs operate in Pennsylvania,” DeFoor said. “Now is the time to focus on the taxpayer-funded Medicaid system and close the loophole that allows PBMs to charge pharmacies transmission fees. We need changes in the law to make sure there is no room for spread pricing to occur with our tax dollars and the law needs to clearly define that DHS is accountable for the information reported to them by their contractors.”