Report: Va. outpaces national Medicaid drug spending, but solutions are set to be tested next year

Virginia has outpaced the national average in Medicaid spending, an analysis of data by groups of pharmacists found. The state agency that oversees Medicaid benefits has countered that the group’s report is based on “inaccurate” data that it is working to correct.

Pharmacists United for Truth and Transparency and Strategic DirectionsRX conducted an analysis of state Medicaid prescription drug spending between 2017 and 2023. It found that Virginia has spent between $1,000 more to $1 million more than the national average in recent years. 

Virginia’s Department of Medical Assistance Services (DMAS), contracts with Managed Care Organizations (MCOs) to manage the benefits of Medicaid enrollees. The MCOs then contract with Pharmacy Benefit Managers (PBMs). The PBMs act as intermediaries between health plans, drug manufacturers and pharmacies. PBMs also retain rebates and discounts from contracts but some consumers and pharmacies have said they are unsure how much savings are actually being passed on. 

That question often stems from the fact that some MCOs and PBMs are vertically integrated — meaning that they’re part of a larger company that owns health care facilities, pharmacies or health systems. Virginia Attorney General Jason Miyares announced this week that his office is investigating some entities to ensure that insulin prices, a critical drug for managing diabetes, was not artificially inflated in violation of the Virginia Consumer Protection Act. 

Meanwhile, the new report from Strategic DirectionsRX found that Virginia is overspending on generic drugs and recommends ways to resolve that.

This year, lawmakers also passed legislation to create a single state-contracted PBM to handle Medicaid in Virginia and Gov. Glenn Youngkin signed it. 

The goal, supporters said, is to increase transparency, lower costs and help independent pharmacies stay afloat. Virginia’s next gubernatorial administration will be responsible for overseeing the implementation of that law. The PBM reform law was one of the proposed solutions outlined in the pharmacists’ report, and one of its authors supported the bill during this year’s legislative session. 

“When things get passed around through companies that have multiple arms that manage multiple parts of the flow of this money, that’s when you start seeing prices go way up,” said Jeremy Counts, a Blacksburg-area pharmacist who worked on the analysis for the report. 

The new report indicates that Virginia’s Medicaid prescription drug plans are returning 20% of gross drug spending back to Medicaid through manufacturer rebates. The national average is about 68%, for comparison, the report read. 

“The state is being charged a very high price for generic medications,” Counts added. 

By “moving to a system that isn’t controlled by the MCOs and their PBMs” the state can set different reimbursement rates, he said. Counts also suggested this could help take burdens off pharmacies, which have experienced more closures. 

The National Average Drug Acquisition Cost, or NADAC, is a national benchmark for prescription drug prices – both generic and brand-name — and is developed by the Centers for Medicare and Medicaid Services. This represents the average price pharmacies pay for drugs from wholesalers and is a national standard other payers use to set reimbursement rates. 

The math of the solution, Counts explained on a call, is to calculate the NADAC rate of a drug plus whatever the state’s dispensing fee is. Even without the PBM reform bill, he suggested that DMAS could order MCOs to rework their NADAC models. 

“That makes your pharmacies break even,” Counts said. 

DMAS reporting errors

In light of Counts’ revelations, DMAS said Thursday that he had worked with data that stemmed from an error the agency is already working on correcting. The agency said they alerted Counts about the incorrect data “prior to him publishing the analysis.” 

In a statement to The Mercury, DMAS shared that the department is working to correct the data and resubmit it “as soon as possible” and that it is undertaking a General Assembly-directed study of its pharmacy delivery system.

DMAS also shared a letter it recently wrote to Counts where Virginia Health and Human Services secretary Janet Kelly noted an error that caused DMAS to “significantly overreport pharmacy spending to CMS beginning in 2019.”

It was flagged by Dels. Keith Hodges, R-Middlesex and Otto Wachsmann, R-Brunswick — both of whom have pharmacy backgrounds. Though Counts’ report was already complete by Sep. 4, this is when DMAS informed him that he’d worked with numbers they are working to fix. 

“DMAS is actively working to rectify the reporting error and agency leadership has offered to provide the corrected information to Pharmacists United for Truth & Transparency as soon as it is verified and available,” Kelly wrote. 

Counts said the organizations “stand by our report” but that they “remain committed to working with Secretary Kelly and DMAS.” 

“We hope to hear from her office soon so we may continue to work cooperatively for the betterment of Commonwealth citizens,” Counts wrote on behalf of the organizations.

Virginia Mercury is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Virginia Mercury maintains editorial independence. Contact Editor Samantha Willis for questions: info@virginiamercury.com.