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Senators Call for Probe of PBMs' ‘Spread Pricing’

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Two U.S. senators have asked the inspector general of the U.S. Department of Health and Human Services (HHS) to investigate a practice by pharmacy-benefit managers known as spread pricing, as part of a wider inquiry by lawmakers into U.S. drug costs.

Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, said that he and Chairman Chuck Grassley of Iowa have requested the inspector general, which examines the operations of government health programs, to probe the issue. Under spread-pricing arrangements, PBMs charge one amount to health plans for a drug, then reimburse pharmacies a different, often lower amount — and capture the spread in between.

(Related: States Probe PBMs Over Pricing)

“PBMs are paying one set price to pharmacies for a particular drug, but they’re turning around and charging Medicaid and other health care payers far more for that same prescription,” Wyden said in his opening remarks at a hearing Tuesday. “If there are changes that can be made to clamp down on this exploitation of Medicaid, I hope the committee will consider it. In my view, it’s as clear a middleman ripoff as you’re going to find.”

Executives from five PBMs — including CVS Health Corp., UnitedHealth Group Inc.’s OptumRx unit and Express Scripts parent Cigna Corp. — are testifying in front of the Finance Committee as part of the panel’s series of hearings on drug costs. The session follows a February hearing with executives at seven big pharmaceutical companies, who attempted to put much of the blame for high drug prices on PBMs.

Despite Congress’s scrutiny, both drugmakers and PBMs have gone more or less unscathed so far, and made the case that other health care players were at fault.

Investors seemed to take the hearing in stride, and shares of the three largest pharmacy-benefit managers trading above their lowest points of the session. Cigna gained 2% to $170.71 at 11:37 a.m, while UnitedHealth was up about 0.2% to $249.15. CVS shares were down 0.1 percent.

At the hearing, the PBM executives said their companies play a crucial role in holding down drug costs, negotiating millions of dollars in savings for their clients.

Bloomberg News has previously reported that PBMs have taken large markups in Medicaid plans. For many commonly prescribed generic medications, state insurance plans are paying millions in fees to PBMs, Bloomberg’s analysis found. PBMs have said that spread pricing helps stabilize drug costs, and that their clients enter into the arrangements freely.

As the hearing began on Tuesday, CareSource, a nonprofit that runs government-sponsored health plans in five states, said it would have Express Scripts administer member drug benefits beginning in 2020, instead of CVS’s Caremark division. The change will affect prescription coverage for almost two million people.

Several of the states where CareSource operates have scrutinized spread pricing in Medicaid, where CVS runs many of the drug benefits for the plans.

“We believe the current PBM model has significant room for improvement,” said Erhardt Preitauer, chief executive officer of CareSource. “CareSource saw an opportunity to reinvent the model with a focus on transparency.”

CVS didn’t immediately respond to requests for comment about the change.

— Read Lamb Organizes Suit Against Pharmacy Benefit Managerson ThinkAdvisor.

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