CMS Peeling the Onion of Drug Costs

In its latest effort to lower drug costs, the Centers for Medicare & Medicaid Services released guidelines for states to get transparent reports from Medicaid and Children’s Health Insurance Program (CHIP) managed care plans. The guideline proposes to help states audit and monitor the real drug costs for Medicaid and CHIP. The guidelines released on May 15th require managed care plans to include third-party rebates from pharmacy benefit managers (PBMs) when calculating their medical loss ratio (MLR). States like Ohio and Texas have already exposed this spread pricing where PBMs can negotiate contracts with third parties in order to charge a managed care plan more for a drug than it reimburses a pharmacy. If more states can routinely audit and monitor for spread pricing, then we can expose the unnecessary costs passed on to the state and taxpayer while the only one benefiting is the PBMs. Thankfully, the folks in Washington are smelling the stench of this peeling onion and hopefully will create and pass bills, like the bill written by Senator Mike Braun of Indiana, that remove the safe harbor for PBMs and also Group Purchasing Organizations (GPOs).

Anyone think this will work?

Nicole Johnson MD

Nicole M. Johnson MD is a practicing physician in Cleveland, Ohio. She received her medical degree from Case Western Reserve University School of Medicine and is certified in General Pediatrics and Pediatric Critical Care Medicine. Dr. Johnson is the President and Co-founder of PHYSICIANS FOR PATIENTS®, a grassroots organization that champions physician-led care and fights against the unsupervised practice of medicine by non-physicians. She is passionate about lowering the cost of medical care for all Americans, solving the physician shortage, and ending mandatory Maintenance of Certification®. You can follow her on Twitter, Facebook, and LinkedIn. Also visit 

  3 comments for “CMS Peeling the Onion of Drug Costs

  1. Nicole M. Johnson
    June 5, 2019 at 9:59 am

    There is and error in this piece. Senator Mike Braun’s bill does not repeal the rebates to PBMs. It only shifts the money elsewhere. We need legislation that will completely repeal the rebates for PBMs and GPOs.

  2. rsw
    June 3, 2019 at 10:31 am

    “Anyone think this will work?”


    I have no doubts that Pharma will be able to buy enough Congress critters to prevent any action on this.

    • Nicole M. Johnson
      June 5, 2019 at 10:08 am

      Don’t conflate Pharma with PBMs. They are separate entities in the pharmaceutical business supply chain. Pharmaceutical companies at least develop, research, and distribute drugs. PBMs only make money by contracting with insurers and suppliers. They say they work to keep costs low, but they are the main reason prices are skyrocketing. Check out the video here to learn more.

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