CMS has issued guidance for Medicaid Managed Care and CHIP health plans which clarify how current regulations require “spread pricing” to be accounted in the calculation of Medical Loss Ratios (MLRs), which according to CMS represents the percent of premium revenue that goes towards actual claims and activities that improve healthcare quality.
The guidance states, “CMS regulations require Medicaid and CHIP managed care plans to report an MLR and use an MLR target of 85 percent in developing rates. The 85 percent target means that only 15 percent of the revenue for the managed care plan can be for administrative costs and profits. CMS is concerned that some managed care plans are not accurately reporting pharmacy benefit spread pricing when they calculate and report MLRs.”
Spread pricing has been a negative PBM business practice against pharmacy reimbursement, primarily regarding generic prescription drugs. Several states, through auditor reports and legislative actions, are starting to see that pharmacy generic reimbursement is based on lower benchmarks that those used for Medicaid and CHIP managed care plans for the same medications.
CMS’ guidance states, “Spread pricing occurs when health plans contract with pharmacy benefit managers (PBMs) to manage their prescription drug benefits, and PBMs keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies. Thus, there is a spread between the amount that the health plan pays the PBM and the amount that the PBM reimburses the pharmacy for a beneficiary’s prescription. If spread pricing is not appropriately monitored and accounted for, a PBM can profit from charging health plans an excess amount above the amount paid to the pharmacy dispensing a drug, which increases Medicaid costs for taxpayers.”
Expect to see more regulation on spread pricing in the future. Louisiana’s Act 483 and Arkansas’ Act 994 have started to go after PBM spread pricing on their own, while there are many other pharmacies in other states that have not yet had legislative relief from spread pricing.
Frier Levitt Government Affairs, LLC (FLGA), working hand in hand with Frier Levitt, LLC, provides pharmacies with the appropriate legal recourse against unfair PBM business practices. FLGA can provide the strategic advice on how to get spread pricing legislation enacted into law in your state, while also offering you the lobbying tools to get it done. Contact Frier Levitt Government Affairs to get your voice heard.