What is spread pricing? Spread pricing is a contract option for employers and plan sponsors who want their pharmacy benefit company to carry the risk that pharmacies may charge different amounts for different drugs. Under this option, the employer or plan sponsor is guaranteed a fixed cost for a prescription drug, which provides them with financial certainty and pricing predictability. In this model, if what the pharmacy charges the pharmacy benefit company is more than the reimbursement rate agreed between the plan sponsor and the PBM, the PBM takes a loss.

What would happen if spread pricing was eliminated? Take a look at what happened in Ohio. 

In 2019, the Ohio legislature mandated removal of spread pricing in the state’s Medicaid Managed Care program to a pass-through pricing model for prescription claims paid for by the five managed care plans contracted with the Ohio Department of Medicaid.

Health Data Solutions, Inc (HDS) analyzed the cost impact of the transition from a traditional, spread pricing contract model to a pass-through model, where the amount paid by the pharmacy benefit company to the pharmacy is passed through to the plan sponsor, and the PBM is compensated through administrative fees, between each of the managed care plans and their pharmacy benefit company.

HDS found that mandating the move to a pass-through pricing model resulted in an increase in prescription drug costs. The increase in drug costs for Ohio Medicaid was directly linked to higher payments to pharmacists and higher “ingredient costs and dispensing fees,” leading to a “total increase” of “$38,308,479 for the first quarter.” 

The HDS report clearly shows that taking away the option of a spread pricing contract resulted in higher drug costs for the state.

How many employers choose spread pricing in contracts with pharmacy benefit companies? 

Employers and other health plan sponsors are not obligated to choose spread pricing, but many select this option because of the cost predictability. For small and mid-sized businesses who need more budget certainty, that predictability can be essential.

A recent Pharmaceutical Strategies Group (PSG) survey found that 29 percent of respondents – employers and other health plan sponsors – actively use spread pricing. Specifically, 28 percent of employers, 33 percent of labor unions, and 31 percent of health plans choose this risk-mitigation pricing model.

Adam Kautzner, president and CEO of Express Scripts, stated how they “offer both options to our clients today. Roughly one-third choose spread pricing. They choose spread pricing in order to have predictability on their pharmacy benefits. So, we shield them from incremental costs because we effectively provide them with a guarantee or a lock-in on price.”

Ultimately, it is the employer or plan sponsor’s choice on how to contract with a pharmacy benefit company to manage their prescription drug costs. Eliminating choice won’t lead to lower costs, but as seen in Ohio, may actually lead to higher costs.

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During a recent legislative hearing, Senator Rand Paul (R-KY) said:

“This bill bans spread pricing, which small businesses and startups often choose because the [pharmacy benefit managers] PBMs take on the additional risk for themselves…This bill takes away choices. So there is a choice in the marketplace between spread pricing and pass through, every company has it. You’re going to take this choice away…”

Senator Mitt Romney (R-UT) also emphasized the importance of keeping spread pricing as a choice, noting how many small and mid-sized businesses voluntarily select it:

“A vast majority of small and middle-sized employers prefer spread price contracting because it’s lower cost and more certainty for them. That’s why they choose it. Making that illegal is not going to help small or mid-sized businesses. Our understanding as well is that the majority of unions also prefer spread price contracting.”

Read PCMA’s recent blog on how pharmacy benefit companies offer choice and flexibility that allows employers to choose a benefit design that provides affordable, quality prescription drug coverage to their employees. Read more HERE.

Employers voluntarily choose to hire pharmacy benefit companies because of the flexibility and savings secured. See why HERE.

See PCMA’s guide to understanding the role and value of pharmacy benefit companies HERE.

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PCMA is the national association representing America’s pharmacy benefit companies. Pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for more than 275 million patients. Learn more at www.pcmanet.org