Oregon Audit: PBMs Too Complex and Opaque to Assess

Aug. 22, 2023
“The lack of transparency in our current system means it’s almost impossible to tell if we’re truly getting the best use of our funds with these PBMs,” says Audits Director Kip Memmott

A recent State of Oregon audit focused on Medicaid and the role of pharmacy benefit managers (PBMs) found the structure of PBMS so complex and the state’s regulation of them so limited that the state has difficulty assessing the value they provide.

Much of the work PBMs do is considered proprietary and not shared, the Oregon Audits Division report noted.

“It’s always important we make sure taxpayer funds are being spent as effectively as possible, and Medicaid is a prime example,” said Audits Director Kip Memmott, in a statement. “It’s the largest and most complex government program in Oregon and provides critical health services to more than one million Oregonians. But the lack of transparency in our current system means it’s almost impossible to tell if we’re truly getting the best use of our funds with these PBMs.”

PBMs are third-party companies that act as go-betweens among insurance companies, drug manufacturers, pharmacies, and governments. While initially created in the 1960s to ease the administrative burdens of insurance companies, the role of PBMs has expanded significantly over time, the report explains. Among their many responsibilities, PBMs can influence which drugs are covered by insurance companies and whether certain prescriptions can only be filled at specialty pharmacies.

PBMs are able to wield this influence to benefit certain companies over others. The three largest PBMs in the United States control 80 percent of the market share and are integrated with health insurance companies and retail pharmacies like CVS and OptumRx, the report notes. By controlling the price at which drugs get reimbursed, as well as the pharmacy that will fill the prescription, these companies can ensure the pharmacies they own get greater reimbursement rates than independent pharmacies — in some cases, twice as much.

PBMs interact with Oregon state government through contracts with Coordinated Care Organizations (CCOs). A CCO is a network of healthcare providers who work together in their local communities to serve people covered by Medicaid. Together, Oregon’s 16 CCOs contract with the Oregon Health Authority to manage about 90 percent of Medicaid clients in Oregon.

PBMs, as subcontractors of the CCOs, receive huge sums of money. CCOs reported spending $767 million on prescription drug benefits in 2021, but because of the complexity and trade secrets surrounding PBMs, it’s virtually impossible to know how much profit they are actually making — and how much of that profit is coming from Oregon’s Medicaid funds, the report says.

Some other states have legislation to provide greater protections for patients and pharmacies, and more transparency into this complicated system. There are also alternative PBM models available for Medicaid, which make it easier for governments to provide effective oversight, the report added. The auditors made seven recommendations to the state Legislature suggesting Oregon look into adopting some of these alternatives.

Auditors also made two recommendations to the Oregon Health Authority for more immediate improvements. The agency could do more to improve transparency and compliance from its current relationship with PBMs — through CCOs — by proactively monitoring and enforcing its contracts. In its formal response accompanying the audit, the agency agreed with both recommendations.

“We audit state agencies and programs like this one to provide meaningful feedback on how agencies can improve their operations to better achieve their missions and goals,” Memmott added. “This work becomes even more critical when significant amounts of money or vulnerable people are involved.”

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