Audit of the PBM Services for the Physical Health Choices Medicaid Program in Pennsylvania
DHS and PerformRx, LLC Performance Audit Facts
Background
We audited the Pennsylvania Department of Human Services’ (DHS) Physical HealthChoices (HealthChoices) Medicaid program and PerformRx, LLC, a pharmacy benefit manager (PBM). This audit was conducted to determine if DHS adequately monitors HealthChoices pharmacy claims and PBM contracts to ensure the PBMs are practicing pass-through pricing or alternatively, spread pricing, and whether it complied with ACT 120 of 2020 requirements for transparency and accountability.
Our audit found that DHS failed to monitor pharmacy drug claims and did not adequately monitor the contracts between managed care organizations (MCOs) and PBMs. Read our press release for additional information on this audit.
Answers to FAQs
Our performance audit had three objectives:
- Determine whether DHS effectively monitors the PBMs’ pharmacy claims, including but not limited to, the accuracy of the pharmacy information used to prepare the capitation rates for the Health Choices Medicaid program.
- Determine whether DHS effectively monitors the PBMs’ contracts to ensure compliance and transparency for the HealthChoices Medicaid program
- Determine if PerformRx is compliant with 62 P.S. § 449(h)(3) and (4) of the Human Services Code (as amended by Act 120 of 2020) regarding charges and fees paid to the PBM by the pharmacies or pharmacy services organizations, compared to the corresponding amounts billed to the applicable HealthChoices managed care organizations to ensure transparency, compliance, and accountability for the program.
Our audit had three findings:
- DHS did not effectively monitor pharmacy drug claims which resulted in undisclosed spread pricing, overstated pharmacy data, and a lack of transparency.
- DHS did not effectively monitor contracts between the Physical HealthChoices MCOs and PBMs
- Perform RX, LLC was transparent and accountable to the pharmacies for the transmission fees but was not transparent to the MCOs and DHS regarding the fees which resulted in undisclosed spread pricing.
Through spread pricing, a PBM pays the pharmacy less than the MCO paid the PBM for the same claim. Our audit found spread pricing as a result of a transmission fee that the PBM charges the pharmacy per claim. The PBM keeps the fee or spread as another revenue source.
Do all PBMS charge a transmission fee?
No, not all PBMS are charging the transmission fee.
Yes. If they’re going to charge a fee, its legal, but they have to report it. We requested the financial reports that would be used by DHS actuaries to calculate future capitation rates and used by MCOs for Medical Loss Ratio (MLR) calculations. DHS, however, declined to provide the auditors with these financial reports due to the proprietary nature of the information. Therefore, we were unable to conclude if the MLR calculations were correct and we were unable to conclude if the data provided to the actuaries for future capitation rate setting were correct. We did, however, meet with the actuary team who confirmed it used encounter data and financial reports provided by DHS. Based on our audit results, it is likely that the MLR for the MCOs that did not report the transmission fees on the transparency reports and Report 4C were likely inaccurate and the encounter data used for the future capitation rates were overstated by the $7 million in administrative costs the pharmacies paid the PBMs.
Medicaid is funded by taxpayers.
Key Terms
MCO is an abbreviation for a managed care organization.
PBM is an abbreviation for pharmacy benefit manager. PBMs provide pharmacy benefits management to a medical assistance managed care organization, or an MCO. A PBM is paid by the MCO to administer its prescription drug benefits.
In Pennsylvania, Medicaid is a medical assistance program which pays for health services for income-eligible individuals. Pennsylvania has three distinct programs: Physical HealthChoices; Community HealthChoices; and Behavioral HealthChoices.
Our audit reviewed DHS’ monitoring only within the Physical HealthChoices program, which is referred to as HealthChoices.
Which state agency has oversight of Medicaid?
The Pennsylvania Department of Human Services (DHS) oversees Medicaid in Pennsylvania.
A claim is a bill from a provider of a pharmacy service or product that is assigned a unique identifier, such as a claim reference number.
An encounter is any covered health care service provided to a member, regardless of whether the individual has an associated claim. A pharmacy claim becomes an encounter when reported to the MCO in the National Council for Prescription Drug Program format.
Capitation is a payment DHS makes periodically to a MCO on behalf of each member enrolled under the HealthChoices contract and based on the actuarially sound rates for the provision of services in the program. DHS makes the payment regardless of whether an individual member receives services during the period covered by the payment.
Pharmacy benefit managers develop and maintain a pharmacy provider network through contracts with pharmacies. Through those contracts, the PBMs establish the rates paid to pharmacies for drugs and for costs associated with dispensing those drugs to Medicaid participants.
Once the claims are paid by the PBM to the pharmacy, the PBM provides the encounter information to the MCOs for them to report the encounter information to DHS’ Provider Reimbursement and Operations Management Information System, referred to as PROMISeTM.
DHS then uses the accumulation of the pharmacy encounter data, associated costs, and other relevant program information to calculate future capitation rates that DHS pays the MCOs to operate the HealthChoices program. These rates include the cost of the pharmacy benefits that are currently being subcontracted by the MCOs to the PBMs.
How is the capitation rate calculated?
Capitation rates are set using the accumulation of the encounter records transmitted from the MCO to DHS.