Spread pricing is a term that comes from the reimbursement and payment process of prescription medications for patients with prescription insurance.
Traditionally, determining the amount a health plan will pay for said medication is a complex part of the medication supply chain with many stakeholders involved.
One of the primary stakeholders, the pharmacy benefit managers (PBMs), are paid a fee to perform many functions in the medication supply chain, one of which is determining how much a health plan pays for a medication and how much the pharmacy gets reimbursed for that medication.
The health plan makes payments to the PBM who then pays the pharmacies that dispense the prescriptions. Often what the health plan pays and what the pharmacy receives is a different amount. This difference between what is received by a PBM from a health plan and what is paid by the PBM to a pharmacy is known as the “spread.”
The PBM keeps this difference as a profit. Spread pricing can drive significant profits for PBMs while significantly driving up the cost of medications and insurance.
Spread Pricing In the News
This practice has been reported recently, particularly in regards to generic medication prescriptions. In particular, the states of Kentucky and Ohio have been the focus of PBM scrutiny.
The state of Ohio recently terminated all contracts with PBMs in which spread pricing was allowed to occur. This was in response to a much-publicized state report that showed “PBMs billed taxpayers $223.7 million more for prescription drugs in a year than they reimbursed pharmacies to fill those prescriptions.”
CMS responded to the practice of spread pricing in May 2019 with new guidance intended to limit its use in Medicaid and CHIP (Children’s Health Insurance Program) programs. The CMS press release included this strong language regarding PBMs and spread pricing:
“The market for prescription drugs is convoluted and opaque,” said CMS Administrator Seema Verma. “States are increasingly reporting instances of spread pricing in Medicaid, including cases in Ohio and Texas, and I am concerned that spread pricing is inflating prescription drug costs that are borne by beneficiaries and by taxpayers. Today’s guidance will ensure that health plans monitor spread pricing in Medicaid appropriately. PBMs cannot use spread pricing to upcharge health plans and increase costs for states – spread pricing must be monitored and accounted for, and not used to inflate profits.”
Ultimately, the practice of spread pricing drives up costs of healthcare, limits access to healthcare, and especially affects independent pharmacies who rely on adequate reimbursement to serve Medicaid patients. While steps are being taken to limit its practice, PBMs have found other ways to increase the bottom line.
A lack of oversight and transparency on behalf of PBMs is an issue federal and state governments are aiming to address. Within the past year, the Trump administration proposed a plan that would more easily allow patients to receive discounts from drug manufacturers, rather than the discounts going directly to the PBMs. This would reduce patients’ out-of-pocket costs for drugs. However, the plan did not go through.
Overall, many factors contribute to rising drug costs and how these payment systems affect employers and patients. Decreasing the costs of prescription medications is an ongoing effort by the government, pharmaceutical manufacturers, insurance plans, and pharmacists.