New prescription benefits contract to yield ‘modest’ initial savings to state

A new pharmacy contract is expected to save the state money, but not nearly as much as officials had hoped. Photo by Getty Images.

An effort to save the state hundreds of millions in employee prescription costs will yield only “modest amounts” for the foreseeable future, Maryland Budget Secretary Helene Grady said Wednesday.

Her comments came at a Board of Public Works meeting at which the three-member board unanimously approved a contract that will pay San Diego-based MedImpact Healthcare Systems more than $1.3 billion to administer pharmacy benefits for state employees, retirees and welfare benefits plans.

The contract comes with two optional two-year extensions that could bring the full seven-year agreement to more than $2.4 billion.

The contract was bid under a “reverse auction” process in which bidders compete against each other to provide what the state requested. The winning bidder is typically the one who is willing to accept the lowest amount.

Similar processes have been used in other states to lower the costs of prescription plans for government employees.

In Maryland, however, the auction attracted only two qualified bidders.

“When compared to the current contract, we estimate the MedImpact contract is expected to save the state modest amounts in the initial years, starting with about a million dollars in calendar year 2025, $12 million in calendar year 2026, and $22 million in calendar year 2027,” Grady told the board. “The projected savings increase in the outer years of the contract term.”

The current contract holder, CVS Caremark Health, filed an appeal with the Maryland State Board of Contract Appeals when it failed to retain the contract. But last week, the contract board dismissed the appeal, not on the merits of the case but because Caremark filed its appeal late.

State law allows for an appeal to be filed within 10 days of a decision. The deadline includes Saturdays but not Sundays or legal holidays. Caremark officials said they initially believed there was precedent that would let them file on Monday.

“Obviously we regret that decision at this point, but it was in our effort to ensure we had the most detailed and accurate information to present to the board of appeals,” said Cheryl Byron, vice president of sales and account services for CVS Caremark.

Byron asked the board to remand the contract for a rebid.

“We believe that the state’s rollout of its new reverse auction procurement process led to a situation in which competitive bids were not objectively compared to each other,” Byron said. “There is too much of a stake for the contract to be rushed through when so many questions remain.”

Byron said her company was prepared to continue the current contract but offer lower prices contained in their bid for the new contract.

“Our offer, as I indicated, was highly competitive, and we’re prepared to offer … our first year, price points that would provide the state with more than $100 million in savings in value in the first year,” Byron told the board.

Comptroller Brooke Lierman (D) said she was concerned that Maryland, which used the reverse auction process for the first time since the law was passed in 2020, had not maximized the potential savings.

“I do believe that the reverse auction process is the right process,” Lierman said. “It’s yielded major savings in other states, like New Jersey, where they are projected to save about two-and-a-half billion dollars in drug spending over a certain number of years.

“I think that the challenge here that I have — and that I hope will be remedied the next time we do this — is that we only have two bidders. You really just don’t accrue the savings that they’re supposed to in a reverse auction when you only have two bidders,” she said. “And I don’t even know that it totally fulfills the legislature’s intent to utilize this aggressive reverse auction process to ensure the savings.”

Lierman said she believes the state should attempt to rebid the contract at the end of the initial three-year term.

“I don’t think it should be a given that these renewal options will happen,” she said. “It’s certainly not a given in my book, given that there are only two bidders.”

‘Crossing Ts and dotting Is’ on port assistance

The board also approved an $800,000 modification to a contract intended to set up a system for issuing supplemental loan checks for federal workers affected by an anticipated government shutdown last fall and this spring. That never happened, but the program was converted this spring to administer payments to port workers after the collapse of the Francis Scott Key Bridge.

That shift concerned Lierman and another board member, Treasurer Dereck Davis (D).

Davis said he was “fully on board” with assisting port workers but questioned the mechanism, comparing it to a practice no longer used in the legislature in which a bill would be stripped and repurposed.

“The attorney general’s office ultimately told us that we couldn’t continue doing that, that it was unconstitutional,” said Davis. “I use that to say that the vehicle that we’re using was originally for the federal shutdown, which was an emergency procurement, but nothing else between what we’re doing today and that are similar, other than it was just an emergency procurement.”

Davis asked if state Commerce officials sought an opinion from the Office of the Attorney General before moving ahead.

“So how confident are you all that this will hold up to scrutiny?” Davis asked. “We took a procurement contract that wasn’t related to the Key Bridge, but the federal shutdown, and we’re basically stripping all of that out and putting this in, and then going forward without having to do a procurement.”

Commerce Deputy Secretary Jason Perkins-Cohen sidestepped the question, telling Davis he believed there were “a lot of similarities” between the port emergency and a potential government shutdown.

“In both cases, we’re asking to build an externally facing portal for workers in the state of Maryland who didn’t have the opportunity to work, through no fault of their own,” Perkins-Cohen said. “And in both cases, the expectation was that it would be of a relatively short duration, and that they would be able to go back to their jobs once that crisis was averted, whether it was a shutdown or the bridge, and that, because it was essentially the same overarching requirements, we thought it made sense.”

The state sent out roughly 44,000 bridge relief checks totaling $55 million to affected workers and businesses, through various programs created after the March 26 collapse of the bridge that killed six people. Those payments include assistance to about 3,300 workers who were affected by the temporary closure of the port while crews worked to clear the federal shipping channel in the Patapsco River.

Even so, Lierman said “the treasurer and I have had concerns about this particular contract over the last six months, and so I appreciate the challenging situation that the department found itself in and would just ask sort of in the future that we make sure that we’re crossing Ts and dotting Is with our AGs before doing this type of substitution.”

Ultimately, Davis and Lierman joined Gov. Wes Moore (D) in approving the modified contract.