OCEAN TOWNSHIP - Assemblywoman Joann Downey joined Assemblyman Eric Houghtaling this month to introduce new legislation aiming to crack down on soaring costs of prescription drugs by stopping abusive practices by out-of-state Pharmacy Benefits Managers (PBMs).
“Skyrocketing medication costs have put treatment out of reach for far too many people,” said Downey (D-Freehold), Chair of the Assembly Human Services Committee, which reviewed the bill last Monday. “A big part of that can be traced back to bad-faith efforts by PBMs to pad their own pockets by driving up costs.”
The bill (A-5480) would change the way that pharmacies are paid for prescriptions from a “managed care” to a “fee-for-service” delivery system. Under the current managed care system, PBMs serve as middlemen between pharmaceutical manufacturers and individual pharmacies, purchasing drugs at retail prices for pharmacies and then accepting Medicaid tax dollars as payment after delivering medications for patient pickup.
Existing rules require PBMs to reimburse pharmacies fully for the cost of the medications. To increase profits, however, PBMs often charge the State more than they reimburse pharmacies and pocket the difference, a practice known as “spread pricing.”
“Spread pricing cheats community pharmacists out of their lawful payments, and cheats patients out of affordable and accessible medication,” Downey added. “When Medicaid drug prices increase but pharmacy reimbursements decrease, pharmacies are hit hard in their bottom line and vulnerable patients are left unable to afford essential treatments. Meanwhile, state Medicaid expenses soar, leaving over-squeezed taxpayers to pad PBM pockets.”
Under this new legislation, PBMs would be required to pay pharmacists a flat dispensing fee of $10.92 in addition to the original reimbursement for the cost of the drug. This “fee-for-service” model has proven to generate significant savings for patients in other states by reducing program administration costs and modifying existing formulas.
West Virginia’s Medicaid Agency implemented a similar transition in July 2017, anticipating savings of about $30 million. This past March, the West Virginia Medicaid Agency reported actual savings of $54.4 million to its state Medicaid program for the first year. The transition also resulted in $122 million paid to West Virginia pharmacies in fixed dispensing fees that had formerly gone to out-of-state pharmacy benefit managers.
“This kind of cost-saving reform should be a no-brainer,” said Houghtaling (D-Neptune). “It’s time for us to put a stop to PBM abuses and stand up for New Jersey patients and the community pharmacies that work hard to serve them. Mom-and-Pop pharmacies and vulnerable Medicaid recipients need help to balance the scales against the influence of massive PBMs and bring costs down for all of New Jersey’s taxpayers. A fee-for-service model is a huge step forward in doing so.”