Yost opens investigation into PBM maneuver

Ohio Attorney General Dave Yost has launched an investigation into an obscure drug-pricing maneuver that could be both illegal and costing taxpayers millions of dollars.

Yost's top assistant for health and human services issues, Ara Mekhjian, sent a series of "investigative requests" seeking information for a probe of pharmacy benefit managers — controversial middlemen in the drug supply chain. The communiques to Medicaid managed care organizations were obtained by The Dispatch through a public records request.

The probe targets the three PBMs that dominate 80% of the business nationally: CVS Caremark, Express Scripts and Optum. All are part of conglomerates that are among the 15 largest companies in America.

The investigation centers on "clawbacks" — PBM charges to pharmacies that occur well after a Medicaid patient's prescription is filled and supposedly paid for. Since those additional assessments occur weeks and sometimes months after the transaction, they are not recorded by the Ohio Department of Medicaid, Director Maureen Corcoran has acknowledged.

The inability of the state to track millions of dollars of prescription payments for Ohio's disabled and poorest residents represents much more than a paperwork error.

First, it means that the state reports inflated cost figures to the Centers for Medicare & Medicaid Services. Since PBM clawbacks happen across the country and not just in Ohio, that presumably means the federal agency's key database is corrupted.

Second, since those inflated numbers are used to calculate how much taxpayers are assessed to pay for Medicaid prescriptions, residents of Ohio and perhaps the entire U.S. apparently are being overcharged by millions of dollars.

Clawbacks.are illegal under Ohio law, although Corcoran and others have questioned whether that statute contains loopholes through which violators could escape prosecution. Ohio's Medicaid system also mandates a "pass-through" drug payment system, in which the pharmacies are supposed to get paid by the PBMs essentially the same amount the PBMs receive from the state for the prescriptions.

Spokespersons for the PBMs have repeatedly denied that they use "clawbacks," but acknowledge that so-called "effective rate contracts" do often require additional payments from pharmacies after the transaction.

The Ohio Association of Health Plans is not taking a position on the Yost action, a spokesman said, because it involves individual plans and not the industry as a whole.

A Yost spokeswoman said "we have no additional information to provide" beyond the February letters to managed care companies, which are hired by Medicaid to run the day-to-day operations of the federal-state health insurance program.

Corcoran's agency had launched an investigation of possible clawbacks in late December. But about a month into the process she expressed worry that the effort might come up empty due to the complexity of the problem, which involves myriad PBM contracts mixing government and nongovernment prescriptions across various states.

"Medicaid has been investigating this area to assess whether our requirements for strict pass-through payments are and have been followed," Medicaid spokeswoman Lisa Lawless said.

Yost already has hired an Ohio consultant for his separate examination: 3Axis Advisors, a drug price analytics firm run by Antonia Ciaccia, formerly of the Ohio Pharmacists Association and an early whistleblower on PBMs. The company, which is already involved with investigations in multiple states, will be paid up to $49,000 in a contract that lasts through June, Yost's office said.

Last summer, one of the originators of the PBM clawback tactic told The Dispatch it was developed after the front office demanded new ways to make money.

"The C suite kept pushing us for more and more," said Elie Bahou, who had worked at Express Scripts' corporate headquarters in Irvine, California. "That was my employer trying to squeeze more and more and more dollars."

That "squeeze" is not only affecting consumers and taxpayers, it's making it harder for independent pharmacies to stay in business.

"I call them 'pay to play' fees. And I have been absolutely hammered by those," said Eric Jergens, owner of the Madison Avenue Pharmacy in Springfield, last summer.

Another Ohio pharmacist said the clawbacks cost him 7% of his annual revenue.

"In what other industry do you get paid for something and they just come back and take back money?" he wondered.

A University of Southern California study found clawbacks totaling $135 million in just the prescriptions it examined in 2013. Projecting that clawback total nationwide would have easily topped $2 billion then.

"It directly affects your premiums. As a consumer, it directly affects your pocketbook," said Scott Pace, former CEO of the Arkansas Pharmacists Association who's now a partner with Impact Management Group. "It directly affects your choice of health care providers."

State Rep. Thomas West, a Canton Democrat, and Cincinnati-area GOP Rep. Scott Lipps co-sponsored Ohio's anti-clawback provisions. West, who convened a state oversight panel on the topic last fall, doesn't like what he's witnessing.

"It doesn't pass the smell test," he said. "I just see fraud all over this."