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Understanding Drug Pricing from Divergent Perspectives: State of Washington Prescription Drug Pricing Analysis
Understanding Drug Pricing from Divergent Perspectives: State of Washington Prescription Drug Pricing Analysis

Rising prescription drug costs presents a unique challenge for many Americans. But while we have spent considerable public-facing time providing research and data analytics insights on the flow of dollars within Medicaid and Medicare over the years, the truth is that the commercial sector is where most of us get their prescription drug coverage.

In this study, we conducted a study of the pharmacy benefits and reimbursement trends within the state of Washington. For the first time ever within our publicly available research work, we have the opportunity to not just analyze drug pricing trends from the perspective of pharmacy providers who buy and sell medications to patients, but also from commercial plan sponsors, who provide the majority of individuals with their access to prescription drug insurance.

In our analysis of more than nine million prescription drug claims from both small retail pharmacies and commercial employers in the state of Washington from 2020 to 2023, we found that pharmacies and plan sponsors have relatively divergent perspectives on the rate of change of prescription drug prices within the state of Washington.

Our report identifies that drug pricing is a complicated endeavor subject to many potential competing incentives. It has become evident that meaningful reforms to the landscape of drug pricing are improbable as long as the process remains enshrouded in secrecy, hindering comprehensive and transparent evaluation. The phenomenon whereby the same medication, dispensed on the same day, for the same health plan can have potentially variable costs underscores the systemic dysfunction that pervades the current framework of U.S. drug pricing. In such an environment of variable costs, the outcomes are predictably unpredictable – undermining the efficacy of relying solely on competitive financial forces to rectify the prevailing cost disparities that our report highlights.

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3 Axis AdvisorsWAC, NADAC, PBM, Specialty, Spread pricing, Pharmacy, AWP, Suboxone, Aubagio, Medicaid, MAC, Commercial, Mark Cuban
Understanding pharmacy reimbursement trends in Oregon
Understanding pharmacy reimbursement trends in Oregon

Oregonians, like many Americans, currently experience hardships due to high healthcare costs. A 2021 survey of Oregon adult residents found that 55% encountered cost-related barriers to getting healthcare, including cutting medication in half, skipping doses, or not filling a prescription due to cost. It is well documented that the United States spends enormous sums on healthcare. And while the common perception may be that “you get what you pay for” in regard to health outcomes, the data does not support that perception with regards to U.S. healthcare. The reasons for the low performance are undoubtedly multi-factorial, but an area of increasing interest is disparities of care, which arise based on social characteristics of a population. Indeed, one of the primary goals of the Centers for Disease Control and Prevention (CDC) is to achieve health equity by eliminating health disparities and achieving optimal health for all Americans.

While prescription drugs represent just one component of healthcare costs and utilization, they provide one of the most transparent ways to contextualize potential healthcare inequality. This is because the reimbursement structure of prescription drugs is inherently unequal. There are more than a dozen pricing benchmarks that could be utilized from a typical drug reference file to determine a drug’s price. Such benchmarks might be “objective” in that they could be sourced from a drug reference file directly, but rarely does that objectivity translate into a consistent price at the pharmacy counter for any particular drug. The options for how to pay for drugs become nearly limitless when you consider that each payer for prescription drugs potentially pays for the same product and service in a different way despite the same reliance on the same pricing benchmarks. When there are many prices for a product, there is effectively no price for that product.

The disparities in pharmacy pricing and the inequality of payment experienced across provider types resulted in 3 Axis Advisors being commissioned by the Oregon State Pharmacy Association (OSPA) to review reimbursement trends between payers and retail pharmacies between 2019 and 2021. The primary request was to identify if there may be the existence of differential pricing in payment or PBM-to-pharmacy spread pricing among Oregon Medicaid retail pharmacy networks, which could compromise the sustainability of some providers and create barriers to care for many Oregonians.

We ended up uncovering so much more.

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3 Axis AdvisorsOregon, Medicaid, Medicare Part D, NADAC, AWP, DIR, PBM, Pharmacy, Specialty, Spread pricing, Health equity, Managed Care, Usual & Customary, Drug Pricing
Understanding the Evolving Business Models and Revenue of Pharmacy Benefit Managers
Understanding the Evolving Business Models and Revenue of Pharmacy Benefit Managers

Pharmacy benefit managers (PBMs) are situated at the center of the U.S. pharmaceutical ecosystem, overseeing pharmacy benefits on behalf of payers, including employers, multi-employer and other health plan sponsors, and public and private insurers, for the vast majority of individuals with prescription drug coverage. While the primary role of PBMs is to provide administrative services to payers, revenue flows to PBMs from multiple stakeholders in the supply chain, not just their clients. Given that PBMs claim to be the “only members of the prescription drug supply chain that are working to lower drug costs,” discussions concerning PBMs’ impact on the market can be informed by a better understanding of the overall financial incentives driving PBM behavior, as well as possible sources of conflict with their assertion. This analysis reveals that PBMs utilize multiple avenues and business activities to exert influence over, and derive revenue from, others in the pharmaceutical supply chain.

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3 Axis AdvisorsPBM, Drug Pricing, rebates, Spread pricing
Analysis of PBM spread pricing in Michigan Medicaid managed care
Analysis of PBM spread pricing in Michigan Medicaid managed care

3 Axis Advisors estimates that Michigan Medicaid managed care manages at least $250 million a year in generic drug spending. Michigan’s Managed Care Organizations (MCOs) contract with Pharmacy Benefit Managers (PBMs) to collectively manage these funds. Recently, Ohio and Kentucky have found that the nature of these contracts between MCOs and PBMs result in a dynamic called “spread pricing,” in which the PBM “buys” a drug at a low cost from a pharmacy and “sells” the same drug at some higher cost to the MCO. This project was commissioned by the Michigan Pharmacists Association (MPA) to assess the degree of generic drug spread pricing within Michigan’s Medicaid managed care program.

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3 Axis AdvisorsMedicaid, MCO, PBM, Michigan, Spread pricing, Managed Care, Pharmacy, AWP
Illinois Medicaid managed care pharmacy analysis
Illinois Medicaid managed care pharmacy analysis

In 2018, Illinois expanded Medicaid managed care to more than 550,000 citizens across the state. This change raised concerns with many providers before its implementation, and once in effect, community pharmacists began expressing concerns that reimbursements within the Medicaid managed care program were not covering their cost to dispense prescriptions to those beneficiaries. This study was commissioned by the Illinois Pharmacists Association (IPhA) to analyze change in reimbursements and state costs as a result of the 2018 Illinois Medicaid managed care expansion.

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3 Axis AdvisorsMedicaid, MCO, Managed Care, PBM, Spread pricing, Pharmacy, Illinois
Analysis of PBM spread pricing in New York Medicaid managed care
Analysis of PBM spread pricing in New York Medicaid managed care

Spread pricing is a core component of the traditional pharmacy benefit manager (PBM) business model. In a spread transaction, PBMs generate revenue by charging the payer one price for a drug, paying a lesser amount to the pharmacy that dispenses the drug, and then retaining the difference. The PBM has separate contracts with the payer and the pharmacy that allow it to price the same claim differently, generating revenue from the spread. This study was commissioned and funded by the Pharmacists Society of the State of New York (PSSNY) to estimate the nature and extent of spread pricing within the New York Medicaid managed care program. Further, the objectives are to explain the nature of a pharmacy transaction, illustrate how spread is impacting both payer and pharmacy, and estimate spread on generic drug claims using a limited, but robust, sample of pharmacy data.

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3 Axis AdvisorsMedicaid, PBM, New York, Spread pricing, Managed Care, MCO, Pharmacy