Pharmacy benefit manager uses unallowable pricing model

The OIG recently released audits of managed care organizations (MCOs) Aetna and Wellpoint and their pharmacy benefit manager (PBM) Caremark. The OIG audits were hindered by Caremark’s refusal to provide necessary records, which resulted in the OIG issuing a rare audit scope limitation. However, OIG auditors still found evidence that Caremark used an unallowable pricing model resulting in spread pricing.

Spread pricing occurs when the amount an MCO reimburses its PBM for a prescription expense is greater than the amount the PBM pays the pharmacy for the claim, which reflects the prescription expense. The practice is prohibited by Medicaid rules, which require MCOs to reimburse their PBMs for the actual prescription expense. The MCO also pays an administrative fee to the PBM to run the program.

The OIG found that Caremark used a pricing model with its pharmacies that reduced the cost of prescriptions, well after the initial claim payment, and required pharmacies to return money to Caremark. This pricing model, as employed by Caremark, resulted in spread pricing. Caremark did not pass through the money returned to it by pharmacies, causing the MCOs to misrepresent their total prescription expenses. 

Unrelated to Caremark’s contracts with its pharmacies, OIG auditors also found that the two MCOs' used similar effective rate pricing models in their contracts with Caremark. Over the two-year audit period, Aetna reduced its prescription expenses by at least $1.1 million and Wellpoint reduced its by at least $5.6 million. 

After the effective rate adjustments, the MCOs’ reimbursements to Caremark no longer represented the actual cost of prescriptions. While the MCOs reported some of this activity, prescription expenses were not reported correctly to HHSC, which increases costs to Texas taxpayers.

Despite the scope limitations created by Caremark’s refusal to provide all necessary documents as required by their contract with HHSC, the audits provided enough evidence for the OIG to refer the case to the Texas Office of the Attorney General for further investigation.