OCEAN TOWNSHIP - With a goal of cutting costs on prescription drugs and cracking down on abusive practices by out-of-state pharmacy benefit managers (PBMs), legislation recently introduced by Senator Vin Gopal would require prescription drug services covered under the Medicaid program to be converted from a managed care delivery system to a fee-for-service delivery system.
“Any New Jerseyan who has visited a hospital or doctor’s office recently has experienced firsthand a crisis of soaring medical bills and skyrocketing pharmaceutical costs,” Gopal (D-Long Branch).
“By switching to a fee-for-service delivery system, not only can we fight back against profit gouging by massive PBMs and make sure community pharmacies are compensated fairly, we can also free up millions of dollars in State spending that could be used for infrastructure, education, or taxpayer relief.”
Under the current managed care delivery system, the State of New Jersey contracts with managed care organizations (MCOs) and PBMs, who in turn contract with individual pharmacies. These contracts determine the reimbursement rates for pharmacies, with little transparency on pricing or methodology. To increase profits, PBMs often charge the State more than it reimburses pharmacists and pocket the difference, a practice known as “spread pricing.”
This bill would establish a flat dispensing fee of $10.92 at which pharmacists must be reimbursed in addition to the original reimbursement for the drug's cost. The transition is expected to generate significant prescription drug savings due to a reduction in program administration costs and modifications to dispensing cost formulas.
West Virginia's Medicaid agency implemented a similar transition in July 2017, anticipating a $30 million savings for the state. In March 2019, the West Virginia Bureau for Medical Services released a report showing actual savings of $54.4 million to the state Medicaid program for the first year of the carve-out, allowing for certain State funds to be utilized for other priorities, such as roads, education, and law enforcement.
The report also notes that in addition to the savings, the prescription drug benefit carve-out resulted in $122 million paid to West Virginia pharmacies in the form of fixed dispensing fees, money that had formerly gone to out-of-state pharmacy benefit managers.