By: Chris Christie
Ohio Gov. Mike DeWine’s recently proposed budget continues his leadership in addressing the challenges of the pandemic, accelerating economic recovery and meeting the needs of Ohioans. The budget proposes an important health care reform that would reduce prescription drug costs for patients, public employees and taxpayers.
This innovation championed by DeWine would increase competition in the state’s selection of pharmacy benefit managers (PBMs) — the middlemen that manage prescription drug benefits — to lower what they charge for medications. It’s called a PBM reverse auction modeled after a successful program we enacted in New Jersey, which is saving taxpayers approximately $500 million each year. Forward-looking states like Ohio are pursuing this to benefit taxpayers and public employees.
Balancing the need for budgetary savings while providing access to affordable health care is difficult at any time, but even more so now. It is critical we do everything we can to reduce the cost of prescription drugs.
PBMs were meant to negotiate on behalf of patients — applying large discounts they receive on medications from pharmaceutical companies to lower costs for patients. As Ohioans know, this sounds great, but in reality PBMs often keep these savings for themselves. Ohio saw this in its Medicaid program. In 2018, after an investigation by local journalists and a state audit, officials determined that PBMs overcharged Medicaid by more than $244 million in one year alone.
This is largely due to the lack of competition in the PBM marketplace and a lack of innovation in how states procure PBMs.
DeWine first worked to solve Ohio Medicaid’s PBM problems through a competitive bidding process that put the state back in control. With that achieved, the governor is now looking to change the way Ohio contracts with PBMs to provide prescription drug benefits for public sector workers, retirees, and their families.
This groundbreaking approach, I know from experience, will lower costs substantially. A reverse auction encourages PBMs to compete against each other and uses 21st century data analytics to evaluate complex bids and calculate costs in order to maximize savings for the taxpayers.
A reverse auction is conducted with full transparency, allowing the competing PBMs to see one another’s bids. That way, PBMs calculate how much more they need to reduce prices to win the state contract. In New Jersey, we saw in real time how this compelled PBMs to reduce their drug pricing proposals over multiple rounds of bidding.
Before this was implemented, New Jersey taxpayers and health plan enrollees were spending more than $2 billion a year on medications. It was an escalating outlay making it increasingly difficult to devote public funds to priorities such as reducing taxes, improving schools and repairing infrastructure. Even with taxpayers footing this bill, enrollees were still reporting that they were paying too much at the pharmacy counter.
After implementation, prescription drug spending by the public employee health plan fell by a remarkable 25% in the first year, without any reduction in benefits. And state and local employees, teachers, retirees and families saw reduced costs at the pharmacy counter.
Once the PBM is selected, the state is able to conduct real-time auditing of invoices to prevent overcharging or other billing errors. In New Jersey, these audits recovered an additional $48 million for the taxpayers during the first two years.
The PBM reverse auction is an effective solution to a problem that Ohio helped initially identify. This will benefit Ohio taxpayers, public employees and patients in this difficult time. DeWine should be commended for his leadership and moving forward with this reform. It’s a bipartisan solution when we need it most.
Chris Christie is New Jersey’s former governor.