Prescription drug pricing strategy: Where is the money going?

Boston 25 News is digging deeper into a prescription drug pricing strategy that some say is costing taxpayers millions of dollars.

Reporter Jim Morelli has been looking into this issue for months and found it has to do with the way many Medicaid prescriptions are handled in Massachusetts.

Morelli spoke with one industry expert who says middlemen were marking up the prices and pocketing the difference, leaving taxpayers to pick-up the cost in Ohio, and it’s possible the same thing is happening here.

Pharmacies used to bill the state of Massachusetts directly for prescriptions for Medicaid patients, but recently, the state moved those cases to managed care organizations or MCOs.

Prescriptions for managed care patients are still filled at the local pharmacy, but instead of billing the state, pharmacies send claims to a 'middleman', a processing corporation known as a pharmacy benefit manager or PBM.

"The goal of that was to decrease costs," said Todd Brown, a pharmacy instructor at Northeastern University and the executive director of the Massachusetts Independent Pharmacists Association.

But since the change, Brown tells Boston 25 News they’ve seen a huge drop in their reimbursements.

“Everyone says that drug prices are going up, drug prices are going up, drug prices are going up. Historically my average revenue per fill has been going down down down,” said a Boston-area pharmacist who wanted to remain anonymous because he fears retaliation from one of the pharmacy benefit managers he does business with.

That pharmacist believes those PBMs are inflating the cost of prescription drugs charged to the state, and taxpayers, all while cutting payments to independent pharmacies.

“We had an example of a generic antipsychotic medication. Where one month we got 700 dollars and the next month we got 200 dollars,” the pharmacist told Morelli.

Pharmacist Antonio Ciaccia doesn't know where the mark-up money collected by PBMs is going in Massachusetts... but in his home state of Ohio, the state auditor reported PBMs made nearly $224 million.

That state recently ended PBM contracts that allowed for those profits.

"If you don't have a system where you're constantly monitoring the buying and selling of prescription drugs you could get taken advantage of," said Ciaccia.  He has compiled state-by-state data on his website.

He believes Massachusetts taxpayers should pay attention to the mark-ups on prescriptions through PBM’s compared to the previous direct-billing to the state:

“What you see in those massive markups are an ability for PBMs to game that system and pocket the difference,” said Ciaccia.

Pharmacy experts Morelli spoke with predict customers will end up paying for the mark-ups one way or another.

“Insurance companies are going to say ‘my drug costs went up... We're going to have to increase the premiums or we need to be paid more for these Medicare managed care plans’,” said Brown.

Boston 25 News asked CVS Caremark, one of the largest PBMs, and the trade association for the pharmacy benefit manager industry to comment on 46brooklyn's numbers.

CVS Caremark strongly disputed calling the margins "profit" and said the mark-up money is used to negotiate drug discounts.

The Pharmaceutical Care Management Association called the data biased toward independent drug stores and says it does not reflect dispensing fees paid to pharmacists.

But independent pharmacists Morelli spoke with, maintain if the system continues the way it is, not only will taxpayers pay the price, so will small businesses.

State officials tell Boston 25 News that MassHealth is essentially protected from PBM prescription mark-ups, because the program pays a set rate to its managed care organizations. That would leave it up to those managed care organization to monitor the PBM charges.

A spokesperson for one MassHealth MCO, Tufts, told Morelli they do keep a close eye on drug prices, saying it's too big an issue not to be monitoring on a regular basis.

Cox Media Group