When states rethink PBM policies, Medicaid works better for patients and taxpayers

Across the nation, policy makers are trying to solve a problem: how to get Medicaid drug costs under control without compromising patient access to the medicines they need. For patients and families, this is not an abstract budget issue. Affording medication can mean the difference between receiving prescribed treatment on time and facing delays, higher out-of-pocket costs or limited pharmacy options.

For years, the debate has centered on pharmacy benefit managers (PBMs). These are the companies that negotiate between health plans, drug manufacturers and pharmacies. In theory, they’re supposed to help lower patients’ costs. However, in practice, many states have rightly begun to question how well this system actually works. Spread pricing, complex rebate arrangements and a general lack of transparency make it unclear how much patients really benefit and where Medicaid dollars actually end up.

That skepticism has led some states to try something different. They’ve started experimenting with ways to bring pharmacy benefit administration under more direct state oversight. Interestingly, the states leading the way — West Virginia, Ohio and Kentucky — have each taken different approaches, yet all have led to positive outcomes for patients and taxpayers.

Mountain State Medicaid

West Virginia has perhaps made the most dramatic change. In 2017, the state removed private PBMs from its Medicaid program entirely by carving pharmacy benefits out of managed care and bringing them back under the state’s fee-for-service system. In simple terms, the state took over the role that PBMs had been playing. That meant West Virginia could directly manage pharmacy benefits, capture rebates itself and set more predictable reimbursement levels. The state also raised pharmacy dispensing fees, stabilizing payments for many local pharmacies that struggled under the traditional PBM system.

Despite concerns that the change might increase costs, the opposite occurred. In the first full year after the switch, West Virginia reported about $54.4 million in net Medicaid savings — even after paying pharmacies higher dispensing fees.

Buckeye State benefits

In Ohio, instead of removing PBMs entirely, the state has made changes to simplify and tighten the pharmacy benefit structure.

For years, Ohio’s Medicaid managed care plans each hired their own PBM. That made it difficult for the state to oversee how pricing worked or where money was going. Then in 2022, the state decided to consolidate these programs by requiring a single PBM contract for Medicaid pharmacy benefits. They also began mandating pass-through pricing, which prevents PBMs from keeping hidden spreads between what the state pays and what pharmacies receive. Additionally, the state increased dispensing fees to ensure pharmacies were paid more consistently for filling prescriptions.

Reports indicate that Ohio’s reforms have saved approximately $140 million over the first two years, while also providing the state with a much clearer understanding of how its pharmacy benefit program truly operates.

Bluegrass State control

Finally, in Kentucky, the state moved to a single PBM structure and aligned policies across Medicaid managed care plans by creating a unified preferred drug list in 2024. The idea was straightforward: Simplify the system and give the state more control over how drugs are covered and reimbursed. The savings have been significant. State analysis found that Medicaid pharmacy spending would have been about $172.5 million higher in 2021 and another $110.2 million higher in 2022 without this state-passed reform.

Lessons for the other 47

So, what can these states teach the rest of us? West Virginia decided to run the pharmacy benefit itself. Ohio kept a PBM but redesigned the contract to eliminate spread pricing and improve transparency. Kentucky consolidated its system into a single PBM and a single drug list. Despite taking different approaches, each state’s reforms helped ensure Medicaid pharmacy benefits are administered in a way that is transparent, accountable and designed to ultimately serve patients.

Other states can also reap the benefits of bringing PBM practices under control by focusing on just that: transparency, accountability and patient protections. With the right structure, states can regain control over Medicaid pharmacy benefits, protect patient access and save taxpayer dollars simultaneously. Reforming PBMs doesn’t have to mean cutting access to medications or destabilizing pharmacy networks. If anything, these examples suggest the opposite.

Amanda Myers, M.D., FACR, is a practicing rheumatologist in Evanston, Illinois, and serves as chair of the Government Affairs Committee for the American College of Rheumatology.