Iowa’s state auditor, Rob Sand, released a report raising concerns about how pharmacy benefit managers handled prescription drug payments within Iowa Medicaid and whether the state had sufficient access to information to oversee those arrangements.
The June 10 report found that PBMs working with Iowa managed care organizations used an “effective rate” pricing model from 2019 to 2021 that allowed prescription drug costs to be reconciled at the end of the year. According to the report, that process enabled PBMs to reclaim money previously paid to pharmacies and generated approximately $100 million in back-end value over three years for one of the three PBMs analyzed.
The auditor’s office said the payment model could result in spread pricing, a practice prohibited by Iowa Medicaid in which a managed care organization pays a PBM more for a prescription than the PBM ultimately pays the pharmacy that dispensed it. The report said such arrangements can increase prescription drug costs, make it more difficult for Iowa Medicaid to negotiate rates with managed care organizations and reduce the value of pharmacy networks.
The report said auditors were unable to determine a specific financial impact on Iowa Medicaid because of limits on access to information and the commingling of Medicaid and non-Medicaid claims. The auditor also said the inability or unwillingness of PBMs to provide certain financial records prevented a complete review of compliance and financial practices.
To improve oversight, the report recommended requiring Medicaid-specific claim networks, banning annual reconciliations, expanding audit access to PBM financial records and pricing models, increasing penalties for noncompliance and holding managed care organizations more accountable for their oversight of PBMs.
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