In Harrisburg, Pennsylvania, a recent audit conducted by the state’s Auditor General, Tim DeFoor, revealed inadequacies in the oversight of fees paid to pharmacy benefit managers in the Medicaid program. The report indicated that the Department of Human Services permitted $7 million in improper spread pricing in 2022. Spread pricing refers to the variance between what a pharmacy is reimbursed by a benefit manager for a prescription and the amount charged to the health plan.

However, state officials contested the findings, arguing that the payments made by pharmacies to benefit managers were not categorized as spread pricing. They instead labeled them as “transmission fees,” which have been permitted but are set to be phased out next year.

DeFoor disagreed with this characterization, asserting that transmission fees essentially equate to spread pricing, emphasizing a lack of transparency in the process. He raised concerns that the Department of Human Services was overpaying for prescription drugs within the Medicaid program.

Pharmacy benefit managers play a crucial role in providing access to medications for millions of Americans, deciding on drug coverage and where prescriptions can be filled. The audit noted that approximately 2.8 million Pennsylvania residents are part of the Physical HealthChoices Medicaid program, under which managed care organizations engage pharmacy benefit managers.

The audit’s recommendations included the implementation of clear and concise definitions in state law for terms such as transmission fees, spread pricing, and pass-through pricing. A legislative bill passed in July aimed at restricting or prohibiting certain practices of pharmacy benefit managers in the private sector, such as mandating mail-order prescriptions.

The initial version of the bill, introduced by Democratic state Rep. Jessica Benham, included a spread pricing ban that was later removed by the Republican-controlled Senate. Benham criticized the audit, mentioning discrepancies in the interpretation of transmission fees as spread pricing.

Tim DeFoor, a Republican, is seeking re-election for a second term as Auditor General. His opponent in the upcoming election, Democratic state Rep. Malcolm Kenyatta, disapproved of the audit, labeling it as overtly political and factually inaccurate.