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State Auditor McGuiness Estimates State Overpaid Its Pharmacy Benefit Manager by $24.5 Million over Three Years

Auditor of Accounts | News | State Auditor Kathy McGuiness | Date Posted: Thursday, June 17, 2021



DOVER, Del. – $24.5 million taxpayer dollars.

That’s how much Delaware appears to have overpaid its pharmacy benefit manager (PBM) for state employees’ prescription drugs over a three-year period, State Auditor Kathy McGuiness said today.

“For fiscal years 2018 through 2020, the State of Delaware spent hundreds of millions of dollars on prescription drugs for state employees,” McGuiness said. “But because of questionable and opaque practices and contract terms with its PBM, Delawareans spent more money than was necessary – most of it to line the PBM’s pockets.”

McGuiness released a new special report, titled “Lack of Transparency & Accountability in Drug Pricing Could be Costing Taxpayers Millions,” that looks at the role of PBMs, who serve as middlemen between insurance companies, pharmacies and prescription drug manufacturers. Due to the time involved in examining the contracts and need for supporting data, the report focuses on the relationship Delaware had with Express Scripts Inc. (ESI) as its contracted PBM for state employees for fiscal years 2018-2020.

“My team reviewed the state’s contract with ESI and compared pharmacy reimbursement data,” McGuiness said. “What we found was that Delaware’s drug inflation rate for 2018-20 was nearly three times the national inflationary rate.

“That equates to a 20.1 percent increase in total plan costs from 2018 to 2020 alone despite enrollment numbers remaining relatively flat,” she continued.

PBMs are hired by employers to manage prescription drug plans and are expected to contain costs by negotiating rates for prescription drugs with drug makers and pharmacies.

“My report focuses primarily on the impact of administrative fees and spread pricing to explore how poor contracting wastes state funds,” McGuiness said. “We identified over $104 million of administrative fees alone, and I have significant concerns about the impact these PBM middlemen have on our community.

“For example, my report shines a spotlight on predatory PBM practices that disproportionately affect our small pharmacies, as well as Delaware’s residents and state entities.”

The 15-page report also details the controversy surrounding how these organizations generate revenue from tax dollars by using practices such as claw-backs, gag clauses, rebate pumping and spread pricing – all of which significantly contribute to the skyrocketing of prescription drug prices.

The report contains five observations and five recommendations for how lawmakers can help prevent this kind of wasteful spending in future contracts.

“As your state auditor, I am committed to protecting taxpayer dollars and improving government for the people of the First State,” McGuiness said. “I seek to identify fraud, waste and abuse wherever it occurs to make government work for you.”

As of July 1, 2021, CVS Caremark will become the PBM for state employees.

“Although contract terms with CVS Caremark are already set, I urge lawmakers to review our recommendations and pass legislation that helps our small independent pharmacies, who deal with these Goliath-sized companies that force them to sign take-it-or-leave-it contracts that can put these pharmacies out of business.”

The new special report, “Lack of Transparency & Accountability in Drug Pricing Could be Costing Taxpayers Millions,” can be located on the Auditor’s Office website found here.

 

Learn about the Delaware Auditor’s Office at https://auditor.delaware.gov.

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Editor’s note: Auditor McGuiness, a licensed immunizing pharmacist, owned a small independent pharmacy business in downtown Rehoboth Beach from 1994 to 2002.

 

Contact:

Alaina Sewell, Chief of Staff

302-857-3931

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State Auditor McGuiness Estimates State Overpaid Its Pharmacy Benefit Manager by $24.5 Million over Three Years

Auditor of Accounts | News | State Auditor Kathy McGuiness | Date Posted: Thursday, June 17, 2021



DOVER, Del. – $24.5 million taxpayer dollars.

That’s how much Delaware appears to have overpaid its pharmacy benefit manager (PBM) for state employees’ prescription drugs over a three-year period, State Auditor Kathy McGuiness said today.

“For fiscal years 2018 through 2020, the State of Delaware spent hundreds of millions of dollars on prescription drugs for state employees,” McGuiness said. “But because of questionable and opaque practices and contract terms with its PBM, Delawareans spent more money than was necessary – most of it to line the PBM’s pockets.”

McGuiness released a new special report, titled “Lack of Transparency & Accountability in Drug Pricing Could be Costing Taxpayers Millions,” that looks at the role of PBMs, who serve as middlemen between insurance companies, pharmacies and prescription drug manufacturers. Due to the time involved in examining the contracts and need for supporting data, the report focuses on the relationship Delaware had with Express Scripts Inc. (ESI) as its contracted PBM for state employees for fiscal years 2018-2020.

“My team reviewed the state’s contract with ESI and compared pharmacy reimbursement data,” McGuiness said. “What we found was that Delaware’s drug inflation rate for 2018-20 was nearly three times the national inflationary rate.

“That equates to a 20.1 percent increase in total plan costs from 2018 to 2020 alone despite enrollment numbers remaining relatively flat,” she continued.

PBMs are hired by employers to manage prescription drug plans and are expected to contain costs by negotiating rates for prescription drugs with drug makers and pharmacies.

“My report focuses primarily on the impact of administrative fees and spread pricing to explore how poor contracting wastes state funds,” McGuiness said. “We identified over $104 million of administrative fees alone, and I have significant concerns about the impact these PBM middlemen have on our community.

“For example, my report shines a spotlight on predatory PBM practices that disproportionately affect our small pharmacies, as well as Delaware’s residents and state entities.”

The 15-page report also details the controversy surrounding how these organizations generate revenue from tax dollars by using practices such as claw-backs, gag clauses, rebate pumping and spread pricing – all of which significantly contribute to the skyrocketing of prescription drug prices.

The report contains five observations and five recommendations for how lawmakers can help prevent this kind of wasteful spending in future contracts.

“As your state auditor, I am committed to protecting taxpayer dollars and improving government for the people of the First State,” McGuiness said. “I seek to identify fraud, waste and abuse wherever it occurs to make government work for you.”

As of July 1, 2021, CVS Caremark will become the PBM for state employees.

“Although contract terms with CVS Caremark are already set, I urge lawmakers to review our recommendations and pass legislation that helps our small independent pharmacies, who deal with these Goliath-sized companies that force them to sign take-it-or-leave-it contracts that can put these pharmacies out of business.”

The new special report, “Lack of Transparency & Accountability in Drug Pricing Could be Costing Taxpayers Millions,” can be located on the Auditor’s Office website found here.

 

Learn about the Delaware Auditor’s Office at https://auditor.delaware.gov.

###

Editor’s note: Auditor McGuiness, a licensed immunizing pharmacist, owned a small independent pharmacy business in downtown Rehoboth Beach from 1994 to 2002.

 

Contact:

Alaina Sewell, Chief of Staff

302-857-3931

image_printPrint

Related Topics:  ,


Graphic that represents delaware news on a mobile phone

Keep up to date by receiving a daily digest email, around noon, of current news release posts from state agencies on news.delaware.gov.

Here you can subscribe to future news updates.