For the past couple of years, Ohioans could buy the generic version of the heartburn treatment Prilosec off the shelf at most any drugstore for less than 60 cents a tablet — and less than 40 cents online.
At the same time, however, Ohioans were being charged $6.57 a tablet to provide large quantities of the exact same drug through the state’s Medicaid program.
Those apparent overcharges for just this one 20 mg pill totaled about $2.4 million in only 18 months, from the start of 2017 to mid-2018 (the latest figures available).
“This is a case of 42 tabs can be mailed to your house without a prescription for $15.99 [or less], while a state’s Medicaid budget forked over $283.08 [17.7 times as much] for the same quantity,” said an analysis released last week by Robert W. Baird Co., a multinational independent investment bank and financial services company based in Wisconsin.
The higher price stems from an almost unnoticed decision by a middleman in the drug supply chain that ironically was hired to help keep prices down: pharmacy benefit manager CVS Caremark.
That’s where things get complicated — not uncommon when delving into reasons behind the high cost of prescription drugs. But it's yet another chapter in the story of how even the smallest of moves by pharmacy benefit managers, the middlemen in the prescription drug supply and payment chain, can have multimillion-dollar effects on the public.
“This is a textbook example of concerns taxpayers have across the nation and [underscores] the need for transparency across the entire drug supply chain,” said new Ohio Medicaid Director Maureen Corcoran.
One fact that’s undisputed: CVS is involved in a joint venture called Red Oak Sourcing with Dublin, Ohio-based Cardinal Health, and Cardinal is the parent company of Major Pharmaceuticals — the marketer/distributor for the expensive version of generic Prilosec. Along with heartburn, the drug is used to treat acid reflux and stomach ulcers.
The 'MAC list'
More complicated is the disputed part, which revolves around something called the Maximum Allowable Cost list, or the "MAC list."
In Ohio’s Medicaid setup, a pharmacy benefit manager (PBM) stands between pharmacies that provide the drugs and the managed-care plans that taxpayers support. CVS Caremark is the PBM for four of Ohio’s five managed-care organizations.
The PBMs typically set up a MAC list for drugs funded by Medicaid. The MAC list shows the amount a pharmacy will be reimbursed by the state for each drug, dosage and distributor.
Indeed, CVS Caremark established the usual MAC list for five sources of generic Prilosec, known as Omeprazole. The price for each 20 mg tablet ranged from 51 cents to 63 cents.
But there was one company left off the MAC list: Cardinal's Major Pharmaceuticals. Its price tag was $6.57 for the exact same tablet.
Not only that, but Ohio pharmacies also squeezed by lower MAC prices for most drugs quickly seized on the one version of Omeprazole that would provide them the most profit from Medicaid. The market share for Omeprazole from Major Pharmaceuticals skyrocketed from less than 2 percent to almost 60 percent in about 15 months, Baird found, using data from 46brooklyn Research.
If the state had paid Major Pharmaceuticals the average of what it paid the MAC-listed Omeprazole suppliers, the overall price tag would have been $2,366,574 from January 2017 through June 2018.
"Clearly, the PBM dropped the ball [whether purposely or not] with this drug, subjecting the state of Ohio to the wildly off-the-mark [price] set by one manufacturer to grab market share,” said a report by 46brooklyn, run by Eric Pachman, former president of a chain of Ohio pharmacies, and Antonio Ciaccia, top lobbyist for the Ohio Pharmacy Association.
Effect on taxpayers
Corcoran, the Medicaid director, said the state pays managed-care companies a set per-recipient, per-month cost — known as the capitation rate — so fluctuations in drug costs don’t change that amount, and taxpayers aren't directly losing any money.
Mike DeAngelis, senior director of corporate communications for CVS Health, pointed to the same factor to say Ohio taxpayers are not affected by higher Medicaid drug prices.
Ciaccia's response: "Give me a break. Yes, the state uses capitation rates, but the state uses the [drug] utilization data and claims information to set the capitation rates. Chicken-and-egg argument. If we used their logic, the price the state pays would never change, but it does. Those capitation rates keep going up. So clearly, these overcharges do matter."
DeAngelis went after the Baird report, saying, "PBMs such as CVS Caremark have no input or control over pharmacies’ product selection." DeAngelis also said the company makes no additional money from the higher price charged for the drug from Cardinal Health's subsidiary.
One of the report's authors, Eric Coldwell, responded: “I believe that astute observers would seriously question statements such as PBMs ‘have no input or control over pharmacies’ product selection’ and that the economics to CVS are 100 percent identical no matter what product is selected at the pharmacy."
Ciaccia sounded a similar theme: "For a PBM to say, 'Well, we don’t control this; it’s the pharmacy,' is a [BS] response. One of the main reasons they are paid $200 million is to keep things like this under control. Best-case scenario: They suck at their job. … Anything worse points to cashing in on conflicts of interest."