Auditor faults Pennsylvania agency over fees from Medicaid-funded prescriptions

A review by Pennsylvania's elected financial watchdog concluded there were shortcomings in a state agency's oversight of fees paid to pharmacy benefit managers in the Medicaid program, but the claims were hotly disputed by state officials.

The report released Wednesday by Auditor General Tim DeFoor said the Department of Human Services allowed $7 million in improper “spread pricing” in the Medicaid program in 2022. Spread pricing is the difference between the amount a pharmacy benefit manager reimburses a pharmacy for a prescription and what it charges the health plan.

But agency officials said the money paid by pharmacies to pharmacy benefit managers did not constitute spread pricing — which was banned for Medicaid in Pennsylvania four years ago — but instead constituted “transmission fees” that have been allowed but are being eliminated next year.

“Transmission fee is spread pricing,” DeFoor said, adding that the main issue was what he considered to be a lack of transparency. The end result, he said, is that Human Services “is paying more into the Medicaid program than it should for prescription drugs.”

Pharmacy benefit managers control access to medication for millions of Americans, helping determine which drugs are covered and where patients can fill prescriptions.

The report said about 2.8 million Pennsylvania residents participate in the Physical HealthChoices program for Medicaid, in which managed care organizations contract with pharmacy benefit managers. The managers collect a transmission fee, what Human Services described as typically less than a dollar per claim. Spread pricing, which is allowed in the commercial sector, is tied to the amount of a claim and can result in significantly higher prescription costs.

Among the audit's recommendations was to put “concise and understandable” definitions into state law for transmission fees, spread pricing and pass-through pricing.

A bill that passed the Legislature in July restricts or prohibits some pharmacy benefit manager practices in the private sector, including requiring prescriptions to be ordered by mail.

The bill's prime sponsor, Democratic state Rep. Jessica Benham of Allegheny County, said the version that first passed the Democratic-majority House included a ban on spread pricing, but the provision was taken out by Republicans who control the Senate.

“The auditor general seems to be the only person in the entire country who defines transmission fees as spread pricing,” Benham said.

DeFoor, a Republican, is currently running for a second four-year term. His Democratic opponent in the November election is state Rep. Malcolm Kenyatta. Kenyatta in a statement called the audit “overly political and substantively wrong.”