September 23,2019

Grassley op-ed: Let’s prescribe a dose of common sense: End spread-pricing in Medicaid

Let’s prescribe a dose of common sense: End spread-pricing in Medicaid

By Senate Finance Committee Chairman Chuck Grassley 

Americans from coast to coast disagree about plenty of issues. As a U.S. senator, I know at least one issue that unites all Americans: Drug prices are too high.

The soaring cost of prescription medicine has struck a nonpartisan nerve. Sticker shock is hitting consumers at the pharmacy counter and socking it to taxpayers who foot the bill for government health programs. While most Americans agree the U.S. healthcare system provides the most innovative cures and quality care available in the world, they also know the delivery system is too complex, too secretive, too confusing and too expensive. 

Complicated formulas along the pharmaceutical supply chain let drug manufacturers, wholesalers, retailers and pharmacy benefit managers hide behind a thicket of obscure payment arrangements to bilk public health insurance programs, including Medicaid. 

As a federal policymaker, it’s my job to make sure taxpayer-financed programs work as effectively and efficiently as possible. The Senate Finance Committee has held hearings this year to examine why drug prices keep rising. Since day one of the 116th Congress, I have been working to forge bipartisan solutions that would drive prices down without compromising innovation and quality.

Unlike medical breakthroughs that have wiped out childhood diseases, there’s no miracle cure to reduce prescription drug prices. Unlike what some presidential candidates are promising on the campaign trail, there’s no such thing as “free” healthcare.

First things first. Let’s fix what’s broken. After examining Medicaid’s drug-pricing structure, it’s clear the status quo must go. It’s creating unfair payment disparities and putting taxpayers on the hook for inflated costs.

A strong dose of transparency would help eliminate practices that allow players in the supply chain to game the system at taxpayer expense. Consider a practice known as spread-pricing. This occurs when PBMs buy drugs from wholesalers at one price and sell to pharmacists at an inflated price. The existing contracts show that the difference is especially egregious for generic drugs, with PBMs pocketing the difference and making a killing off of taxpayers and programs to support the low-income members of our communities.

One report last year detailed how Ohio taxpayers overpaid more than $220 million over 12 months because of these secretive spread-pricing practices. That same report highlighted a specific case of spread-pricing in my home state of Iowa in which a PBM was charging nearly $200 for a drug, but the pharmacy was being reimbursed for less than $6.

You can guess where this goes from here.

The current system created a perverse incentive that bends the cost differential upward, without transparency and competition to rein in prices. A PBM’s profit goes up for charging health plans an amount above what it pays to the pharmacy. In turn, this practice increases the Medicaid costs paid by the taxpayer.

The current pricing web allows middlemen to zigzag across complex formulas and skim excessive reimbursements from low-cost generics. It allows plan administrators and managers to profiteer off the taxpayer through secret, convoluted pricing schemes.

At the Senate Finance Committee hearing with witnesses representing the nation’s largest PBMs, nearly all supported a ban on spread-pricing, realizing the jig is up. This tells me we’re on to something. That’s why I’m working across the aisle to realign the payment structure. The No. 1 focus needs to be paying the actual costs to fill prescriptions.

Injecting a dose of common sense into the Medicaid payment system will help drive up value for the taxpayer and improve quality for the beneficiary. Transparency brings accountability. What I’ve learned so far confirms reforms are needed. Spread-pricing games the federal-state Medicaid system, fleeces taxpayers and squeezes independent retailers to the brink of their business.