(The Center Square) — Louisiana’s three pharmacy plan sponsors will be managed by a single pharmacy benefits manager at the end of October, a move that’s expected to save about $2.2 million a month.
Pam Diez, undersecretary for the Louisiana Department of Health, and other health officials discussed the cost savings at a Legislative Audit Advisory Council meeting in Baton Rouge on Monday focused on a recent Louisiana Legislative Auditor’s report on the costs associated with the state’s pharmacy plans.
Currently, the state has three pharmacy plan sponsors – the Louisiana Department of Health using Medicaid, the Office of Group Benefits which offers four plans for state employees and retirees, and Louisiana State University with LSU First for university and legislative employees and retirees.
The LLA report reviewed costs associated with the plans for fiscal years 2018 through 2022, and lawmakers on Monday discussed the report and potential avenues for reducing costs.
Currently, the each plan sponsor manages the pharmacy benefits separately. Still, Diaz said a plan to merge them under one pharmacy benefits manager is projected to reduce administrative costs from $1.98 per member to 78 cents per month starting at the end of October.
“So it’s about $2.2 million per month that we will be saving just on the admin side,” Diaz said. “The drug costs, some of them are set in statute for the smaller pharmacies, and then there is some discretion for the larger pharmacies.”
LDH Pharmacy Director Melwyn Wendt explained “the pricing across the board for local pharmacies is the same, it is at the fee for service rate, and that will continue to be the same when we move to the single (pharmacy benefits manager).
“The pricing for the non-local pharmacies, which is primarily chains or specialty drugs, is negotiated currently between the (managed care organizations) and that pharmacy provider,” she said. “Those could be a little different when we move forward with a single (pharmacy benefits manager) at the end of October.”
Magellan Rx Management, the new pharmacy benefits manager, has already negotiated a rate that’s roughly the average wholesale price minus 18.75%, she said, adding that it’s cheaper than the current costs for the managed care organizations.
“It should be a little bit of a savings across the board,” she said.
Rep. Barry Ivey, R-East Baton Rouge, requested health officials draft a summary of net savings with the transition.
The LLA report shows there are about 1.7 million average annual participants with LDH’s Medicaid plan, 162,784 with the Office of Group Benefits plans, and 17,793 with the LSU plan.
“The cost to provide pharmacy benefits varies among the plan sponsors due to rebates, plan participants’ demographics and utilization, and the design of the benefit plan,” according to a report summary. “Due to these factors, the average annual cost per participant to provide pharmacy benefits ranged from a low of $649 for LDH to a high of $1,622 for OGB.”
The price plan sponsors pay for medications also varies from a low of $29.01 for OGB to a high of $43.79 for the average ingredient price for common generic medication and from a low of $877.09 for OGB to a high of $910.52 for LSU for common brand name medications, according to the report.
Officials noted that Medicaid in general receives a much higher percentage of drug costs back as rebates — around 46% versus a 20% national average with other plans — making comparisons between the plans difficult.
Other potential cost savings could come through a shift to a reverse auction for drugs and real-time monitoring of pharmacy benefits manager contracts with computer software that conducts electronic reviews of 100% of prescription drug claims.
“For homework for the committee down the road, the reverse auction piece and the real-time monitoring, this will save tens of millions of dollars,” said Sen. Fred Mills, R-New Iberia, a pharmacist. “When New Jersey implemented over a three-year period, it was over $1 billion in savings.”