PA taxpayers overpaid for Medicaid prescription drugs by $7 million, says DeFoor

This week, state Auditor General Timothy DeFoor released a performance audit that showed Pennsylvania taxpayers paid $7 million more for Medicaid prescription drug benefits than they should have in 2022. The overpayment was made possible, according to DeFoor, because of the lack of oversight by the Department of Human Services and so-called “spread pricing” by pharmacy benefit managers (PBMs).”

“Spread pricing” is when a PBM charges an insurance plan more for a prescription drug than what is paid to the pharmacy for that medication. The PBM keeps the transmission fee as another revenue source, according to DeFoor.

“Our auditors found evidence of spread pricing, inadequate monitoring by DHS and overcharging of taxpayers by PBMs, resulting in a loss of $7 million in taxpayer money in just 2022 alone,” Auditor General DeFoor said. “PBMs are counting on the fact that no one is checking their reporting so they can get paid a higher rate and still collect a fee from the pharmacy. We made recommendations to ensure more accountability and process improvements, but what really needs to happen here are changes in the law.”

DeFoor’s announcement explained that DHS contracts with managed care organizations (MCOs) to implement the Physical HealthChoices Medicaid program. MCOs then contract with PBMs to manage the prescription drug benefits for the program. According to DHS, more than 2.8 million Pennsylvanians utilize this taxpayer-funded benefit.

“This is not just a process issue,” DeFoor added. “Pharmacies are going out of business because of the impact of spread pricing. Spread pricing in any form is hurting the very people we promised to help.”

The auditors allegedly found that DHS “failed to effectively monitor” the HealthChoices program’s pharmacy expenditures, which totaled $4.6 billion in 2022. This resulted in “undisclosed spread pricing.” The PBMs were not reporting these transmission fees to the MCOs and DHS.

In addition, auditors allegedly found that DHS did not effectively monitor contracts between MCOs and PBMs to ensure that they were complying with the HealthChoices contract.

“A lot of work has been done on both sides of the aisle to implement changes to how PBMs operate in Pennsylvania,” DeFoor said. “Now is the time to focus on the taxpayer-funded Medicaid system and close the loophole that allows PBMs to charge pharmacies transmission fees. We need changes in the law to make sure there is no room for spread pricing to occur with our tax dollars and the law needs to clearly define that DHS is accountable for the information reported to them by their contractors.”