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Michigan wants to save $40 million by cutting PBMs out of Medicaid

Michael Brady | October 08, 2019 04:27 PM

Michigan's Medicaid program would like to stop using pharmacy benefit managers to oversee prescription drug claims and negotiate prices with drugmakers, according to a notice from the Michigan Department of Health and Human Services.

The state proposed that it would start managing drug coverage on its own beginning Dec. 21. Michigan hopes the move will save Medicaid money by increasing its portion of drug rebates and slashing administrative costs. The department expects the proposal will save the state about $40 million.

The state also thinks the move will streamline the administrative process for providers and ensure uniform drug coverage for Medicaid enrollees.


As drug costs continue to skyrocket, several states have stopped outsourcing prescription drug claims and negotiations to PBMs because they have failed to deliver the cost savings they promised. Recent studies have found that PBM prices often exceed Medicaid fee-for-service drug prices, which has prompted states to break off their relationships with the PBMs.


Instead of easing drug benefit administration and negotiating better prices, many state Medicaid programs think PBMs are unnecessary middlemen that use tactics like spread pricing to grow their profits without delivering real benefits to taxpayers or beneficiaries.

But PBMs say this view is misguided and that they're experienced negotiators who help states control drug costs by negotiating payment rates with drugmakers using formularies and utilization management tools that states can't develop or leverage on their own.

Drugmakers pay PBMs rebates after the point of sale and can add up to 40% or more of a drug's list price. PBMs usually try to address high drug prices by negotiating bigger rebates from pharmaceutical manufacturers, especially for brand-name drugs.

Critics, including public officials and patient advocacy groups, argue that PBMs have an incentive to prioritize high-priced drugs over more cost-effective medications because they're partially reimbursed based on the size of the rebates they get from the manufacturers. There have been a number of reports of PBMs using tiering or other strategies to favor on-patent drugs over less expensive drugs that are just as beneficial, which could cost governments and patients more money.

PBMs are facing increasing scrutiny from lawmakers as they take aim at prescription drug prices. Some PBMs have responded by merging with other healthcare organizations, which can obscure the accounting of their PBM practices inside a larger company.

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Categories: Medicaid Watch