Audit finds unclear spending in massive Oregon prescription drug program

By Amelia Templeton (OPB)
Aug. 21, 2023 10:27 p.m.

Auditors found that independent pharmacies are more likely to be reimbursed less for filling the same prescriptions than national chain pharmacies.

A new audit by the secretary of state’s office found that Oregon might be overpaying for the prescription drugs it buys for Medicaid patients — or it might be getting a fair deal.

Due to the complexity of how the state pays for prescription drugs and a lack of transparency in drug pricing, auditors couldn’t understand why state spending on prescriptions is going up and who’s profiting from it.

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The audit released on Monday focused on the role of pharmacy benefit managers, or PBMs, in Oregon’s Medicaid program.

In Oregon, efforts to control the rising cost of prescription drugs have largely focused on drug manufacturers. Meanwhile, policymakers in other states and at the national level have shifted focus to PBMs.

Those are companies that health insurers contract with to manage the cost of prescription drugs by negotiating discounts from wholesalers, setting reimbursement rates for pharmacies, and deciding which drugs patients can qualify for without needing prior authorization from their insurer.

A masked pharmacist is looking down, standing behind a counter that has three decorative jars full of pills that are layered by color.

Medicap Pharmacy staff pharmacist Ryan Baker in December 2021 works on prescription orders at this independent pharmacy in Talent, Oregon.

April Ehrlich / OPB

PBMs argue that pharmaceutical companies are driving the rising cost of prescription drugs nationwide and that they bring down costs by using their purchasing power to negotiate for lower prices.

Critics argue that PBMs can take advantage of the secrecy around drug pricing to effectively mark up drugs and collect the profit, redirect the rebates they negotiate from drug companies back into their own coffers and steer profit toward the larger pharmacy chains they work with or own.

The secretary of state’s audit found that the 16 coordinated care organizations that manage the Oregon Health Plan paid PBMs $767 million on retail prescription drug benefits in 2021.

That’s a big single line item of spending in the state’s most expensive benefits program.

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According to auditors, state records didn’t make it clear how much of that was cost, and what percent was profit.

The auditors couldn’t conclude whether PBMs in Oregon were further driving up prescription drug costs, or saving the state money.

“It’s the largest and most complex government program in Oregon and provides critical health services to more than one million Oregonians. But the lack of transparency in our current system means it’s almost impossible to tell if we’re truly getting the best use of our funds with these PBMs,” said Audits Director Kip Memmott, in a press release.

The audit outlined several factors that contributed to that lack of transparency.

The pricing deals PBMs negotiate with pharmaceutical companies and wholesalers are often considered trade secrets that aren’t shared.

Oregon uses a unique coordinated care model to administer its Medicaid program, and some aspects of that model make it even harder to track how the state’s money is being spent. Each of the 16 coordinated care organizations that manage the Oregon Health Plan has its own separate contract with a PBM, adding to the complexity of the system.

And in Oregon, no single state agency is directly responsible for oversight of PBMs involved in Medicaid. The Oregon Health Authority has largely left that oversight to the coordinated care organizations. The Department of Consumer and Business Services, which regulates many parts of the private insurance industry, considers the PBMs involved in Oregon’s Medicaid program to be exempt from its regulations.

The audit did find some evidence to suggest PBMs in Oregon may be contributing to the financial struggles of small, independent pharmacies.

To reach their conclusions, the auditors examined a sample of Medicaid claims. In that sample, they found that local, independent pharmacies are more likely to be reimbursed less for filling the same prescriptions compared to national chain pharmacies.

And while pharmacies made a lot of money on some specialty drugs, the audit found that in general they were not getting reimbursed enough to cover their labor and overhead costs of dispensing many common, life-saving medications.

For example, pharmacies lost on average $19 every time they filled a prescription for the asthma drug albuterol sulfate, one of the most common prescriptions for patients on the Oregon Health Plan.

The auditors are recommending Oregon enacts legislation to increase transparency in the prescription drug supply chain. They also recommended OHA require coordinated care organizations to get yearly independent audits of their pharmacy benefit managers.

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