MI Medicaid Plans to Cut PBMs and Use Fee for Service Drug Payments

October 10, 2019 - Update 10/11/2019: This article has been updated to include a statement from the Michigan Association of Health Plans. 

Michigan is the latest among state Medicaid programs to back away from pharmacy benefit managers (PBMs), choosing instead to enable fee for service drug payments billed to Michigan’s health department through a single, state-contracted PBM.

Michigan’s Department of Health and Human Services (MDHHS) announced that the state will eliminate its outpatient prescription drug coverage as a Medicaid health plan (MHP) benefit. Instead, these drugs will fall under a fee for service Medicaid model starting December 1, 2019.

This means that, as Crain’s Detroit Business explained, pharmacies and providers will instead bill prescriptions directly to the state’s PBMs at the point of sale. Previously, Medicaid health plans covered prescription drugs.

Fee for service prior authorizations and coverage limitations will now apply to all Medicaid beneficiaries. The copayments for beneficiaries over age 21 may also apply starting December 1. These are publicly available on the MDHHS website.

READ MORE: Medicare Part D Pharmacy Benefit Managers Get 0.4% of Rebates

To ease the transition, MDHHS set aside a three-month period for the Medicaid health plans and the state’s PBM, Magellan Rx Management, to collaborate.

By condensing all Medicaid beneficiaries to one formulary, MDHHS hopes to streamline the administrative process and create more consistent coverage.

Administrative complexity contributes $250 billion to unnecessary healthcare expenditures nationwide. The state believes that streamlining its prescription coverage process would not only lessen the administrative burden but would also result in savings on unnecessary spending. Pharmaceutical rebates are expected to boost savings.

The plan may also yield more consistent coverage across Medicaid beneficiaries.

Legislation intended to cut out PBMs and increase Medicaid health plan oversight typically pits healthcare payers and PBMs against states and pharmacies.

READ MORE: Proposed Senate Act Would Restrict Pharmacy Benefit Managers

Michigan health plans were critical of the state’s solution to PBM price spreading, which would result in plans no longer offering Medicaid prescription drug benefits.

"This carve out was considered by Governor Snyder’s administration, and rejected after the department leadership at the time reviewed the policy more deeply and came to realize that there were no savings – costs would have gone up – and patients would have suffered from the lack of a managed overview of their prescriptions," Dominick Pallone, executive director of Michigan Association of Health Plans (MAHP), told HealthPayerIntelligence.com in a written statement. "Recent studies in other states have only verified that finding. We are strongly opposed to this proposal and are taking steps to provide additional fact-based information to policymakers at every level."

In contrast, Michigan’s pharmacies have rallied to spotlight PBMs’ abuses of prescription drug pricing.

A report released in April 2019 by the Michigan Pharmacists Association found that Michigan PBMs had expanded their generic drugs spread margin by 6 to 34 percent.

In the nearly 20 percent of the state’s retail pharmacies included in the study, the pharmacies received 95 percent below the state’s cost benchmarks, leaving the pharmacies underpaid.

READ MORE: $23.2B in Improper Payments Tied to Medicare Fee-For-Service Programs

Meanwhile, the state overpaid for prescription drugs by at least $64 million, the report showed.

The remaining gap between what the state paid and what the pharmacies received primarily went to PBMs, the Michigan Pharmacists Association asserted.

The conflict between pharmacists and PBMs is heated. PBMs routinely audit pharmacists to discover fraud and improper use of the prescription drug benefit, resulting in high fines. Pharmacists have recently pushed back against the practice claiming the PBMs use unfair tactics. As a result, 38 states have enacted legislation for stronger regulation of PBM audits.

However, it is not only pharmacists who pursue restrictive legislation against PBMs.

The federal government has also demonstrated disapproval of PBMs’ practices.

In May, CMS reacted to the practice of price spreading when it directed Medicaid programs to account for price spreading in their spending calculations.

The US Senate Finance Committee has drafted legislation to restrict PBMs from price spreading and overpayment as a means of controlling prescription drug spending.

Michigan is just one of many states that have started losing faith in PBMs.

In May 2019, New York also sought to eliminate its use of PBMs in its Medicaid program. The bill stipulates that non-Medicaid, third-party health plans will work with New York’s preferred drug program and clinical drug review program to provide drugs to their beneficiaries. The state will set the requirements regarding what drugs contracted payers will cover.

As in Michigan, New York plans will reimburse the health department directly for their beneficiaries’ prescription costs.

“Providing prescription drugs to Medicaid managed health care provider participants through these programs will maximize the Medicaid program's ability to negotiate more substantial rebates with drug manufacturers (effectively, lower prices), while protecting Medicaid managed care provider participants,” the bill explained.

Healthcare payers and PBMs continue to oppose these measures, claiming that they back peddle from the industry’s value-based care movement by returning to the fee for service model.