Rob Sand says audit shows PBMs may be overcharging Iowa taxpayers

State Auditor Rob Sand said pharmacy benefit managers who work with Iowa’s Medicaid program appear to be overcharging taxpayers by using prohibited pricing techniques.

But Sand said he wasn’t able to get a full picture of the financial impact to the state’s Medicaid program because the three pharmacy benefit managers that work with Iowa Medicaid did not provide certain financial records and other information his office requested.

“We believe that Iowans deserve to know how their tax dollars are being spent and that PBMs shouldn’t be allowed to rip off taxpayers by hiding behind what they say is proprietary information,” he said at a news conference Wednesday, June 10.

At issue is the use of what is known as effective rate pricing, which Sand said allows PBMs to claw back payments previously made to pharmacies at the end of the year. That results in “spread pricing,” which the audit says occurs when the PBM receives a larger reimbursement payment from the Medicaid managed care organization it works with than the PBM pays to the pharmacy.

Sand said spread pricing is prohibited under Iowa Medicaid.

“It can inflate costs for taxpayers, reduce the quality of care and create financial hardships for pharmacies,” he said. “That’s especially true for the independent pharmacies in smaller communities.”

Sand’s office released a report Wednesday covering transactions from 2019 to 2021. While incomplete, he said it showed the effective rate reconciliations for one of the three PBMs that works with the state totaled $100 million over that time period.

“That’s $100 million that Iowa taxpayers may have been overcharged,” Sand said. “We believe it to be even more than that because despite the fact that we made repeated requests and negotiated, the PBMs still at the end of the day withheld critical financial information.”

Sand said his office hired a firm called 3Axis Advisors that has performed similar work in other states to assist with the audit, at a cost of about $30,000.

Sand’s report recommends banning year-end reconciliations and requiring PBMs, managed care organizations and other state contractors to provide unrestricted access to information for the auditor’s office.

The report says there should be additional regulations on PBMs to separate Medicaid payments from non-Medicaid payments and to remove pricing variability from PBM contracts.

Sand, a Democrat who is the party’s nominee for governor, earlier this year released a health care platform pledging to crack down on pharmacy benefit managers.

Last year, Iowa lawmakers passed legislation placing several new regulations on PBMs, including requiring them to pay higher reimbursement rates to pharmacies.

A federal judge partially blocked portions of the law last summer while a lawsuit is pending from a coalition of business groups. It is awaiting an appeal.

Sand praised the law as “very good” but said “I think there’s a lot more that could be done.”

“The regulations that were contained in it would prevent some abuses,” he said. “But again, I think it’s very important to emphasize that auditors need to have access to this information to make sure that taxpayers are being protected, and they’re not being ripped off.”

Heather Nahas, a spokesperson for Gov. Kim Reynolds, said Iowa has recovered hundreds of thousands of dollars in improper fees charged to pharmacies.

“For the last several years, Gov. Reynolds and Iowa lawmakers have been leading the fight against abusive PBM practices, advancing reforms, strengthening oversight and defending those efforts against repeated challenges,” she said in a statement.

Nahas called Sand’s report “irrelevant and outdated,” saying the data he looked at does not reflect current practices at Iowa’s Department of Insurance and Financial Services or Medicaid pharmacy oversight.

Nahas said the report includes recommendations that Iowa Medicaid implemented more than three years ago.

“The auditor may be late to the game, but he’s finally arrived at the same conclusion that Iowans, the Republican legislature, and the Reynolds administration have known for years: PBM practices demand scrutiny, transparency and reform,” she said. “The difference is we’re doing something about it.”

Sand said his efforts to gather data were delayed by resistance from the PBMs and by a Republican-passed law, Senate File 478, that blocks the auditor from going to court against other state entities to force them to turn over documents.

“It took absolutely forever to get all of this data, to go back and forth with the PBMs, to evaluate legal claims about trade secrets or about SF 478,” he said. “And so as usual with this industry everything is much murkier and slower moving than any reasonable person would expect.”

Stephen Gruber-Miller is the Capitol bureau chief for the Des Moines Register. He can be reached by email at sgrubermil@registermedia.com, by phone at 515-284-8169 or on X at @sgrubermiller.