CMS Targets Spread Pricing for Managed Care
June 25, 2019
The Centers for Medicare & Medicaid Services (CMS) recently issued a regulatory guidance plan that targets spread pricing in Medicaid and the Children’s Health Insurance Program (CHIP). This was due to concerns that certain Medicaid managed plans have not been reporting correct information about their costs. Spread pricing occurs when pharmacy benefit managers (PBMs) charge health insurance companies more money for drugs than what gets reimbursed to pharmacies for dispensing them.
Without adequate monitoring programs in place, PBMs can end up keeping extra funds that should be going to the pharmacies. The new plan aims to help states identify spread pricing and stop the PBMs from keeping the profits. A recent report from Kentucky showed that PBMs had taken $124 million dollars in profits from spread pricing, and a CMS Administrator stated that this practice increases the costs for prescription drugs, which gets passed on to taxpayers and insurance beneficiaries. When PBMs overcharge health plans, it can also drive up Medicaid costs.
The Guidance Plan
The guidance plan focuses on the following:
- Hold subcontractors accountable for third-party vendor expenses
- How subcontractors report MLR information
- Monitor prescription drug rebates
There are several new regulations under the guidance, including that insurance companies must use a medical loss ratio (MLR) of about 85 percent. This leaves 15 percent of revenue allowed for profits and administrative costs. It also states that if a subcontractor is used, plans must use PBM rebates to calculate this ratio. This is a change, since prescription drug rebates were previously excluded from the claims costs. Going forward, managed care plans must account for rebates when calculating MLRs. The plans are not required to receive the rebates directly, but must account for them. This is designed to cut back on artificially inflated totals for claims when subcontractors are involved.
More Effective Monitoring
Each state is responsible for making sure that the managed care plans meet the MLR requirements. By analyzing expenditures, revenues, and other categories in these ways, CMS hopes to better differentiate which funds are used for benefits and health care costs, versus taxes, administrative services, and other fees. CMS stated that the plan should not affect the Medicare Part D anti-kickback safe harbor for drug rebates elimination. The Trump administration has repeatedly named these rebates as kickbacks, but PBMs argue their necessity to negotiate lower costs to drug makers.
Philadelphia Physician Lawyers at Sidney L. Gold & Associates, P.C. Help Physicians and Pharmacists With CMS Regulations
Government regulations for managed health care programs can be complex, and it helps to have an experienced and knowledge legal team on your side. If you are a health care professional and need legal guidance, contact the Philadelphia physician lawyers at Sidney L. Gold & Associates, P.C. for a free consultation. Call us at 215-569-1999 or complete an online form today for a free consultation. Located in Philadelphia, we serve clients from Bucks County, Chester County, Delaware County, and Montgomery County.
