The secret drug pricing system middlemen use to make millions

In an analysis of pharmacy and PBM markups in Medicaid plans around the country, Bloomberg found big spreads on dozens of drugs, and evidence that the spreads are growing. For many widely used generic drugs, state insurance plans are collectively paying millions of dollars in fees to private companies.

In an analysis of pharmacy and PBM markups in Medicaid plans around the country, Bloomberg found big spreads on dozens of drugs, and evidence that the spreads are growing. For many widely used generic drugs, state insurance plans are collectively paying millions of dollars in fees to private companies. More than 40% of the operating income for CVS comes from administering prescription drug benefits for companies and governments. The practice of spread pricing is most common with generic drugs, which often cost pennies on the dollar compared with brand-name versions. Bloomberg examined the prices of 90 of the best-selling generic drugs used by Medicaid managed-care plans. Markups on these commonly prescribed generic drugs are growing, with huge markups on some well-known medicines. For the 90 drugs analyzed, which includes more than 500 dosages and formulations, PBMs and pharmacies earned $1.3 billion of the $4.2 billion Medicaid insurers spent on the drugs in 2017. Among the generic drugs examined, pharmacies and supply chain middlemen on average added to the bill almost 32% in 2017, up from 24% in 2015. That was still lower than markups in the traditional fee-for-service Medicaid programs, although the gap has been narrowing. The analysis does not distinguish between how much of the markup is going to the pharmacies and how much is retained by PBMs, but independent pharmacists interviewed by Bloomberg say the money largely is not going to them.