Bill to de-privatize Medicaid drug benefits and help independent pharmacists is moving, despite cost; some seek transparency

By Melissa Patrick
Kentucky Health News

FRANKFORT, Ky.  –  A bill to put the state back in charge of its Medicaid drug program is heading to the full Senate, but likely faces a "winding road" to its final passage, its sponsor says. The main obstacle appears to be cost, but that is countered by desires to open up the shadowy process in which a few companies make millions handling Medicaid prescriptions.

State Sen. Max Wise
"While it feels like every lobbyist in Frankfort has been hired to work against Senate Bill 5, local communities have stepped up their support," Republican Sen. Max Wise of Campbellsville told the Senate health committee Feb. 14, adding that community leaders all over the state have sent letters of support for the bill and its main lobby, independent pharmacies.

Wise said the problem is that pharmacy benefit managers, or PBMs, hired by Medicaid managed-care organizations, aren't fairly reimbursing independent pharmacies, putting them at risk of closing.

In addition to not paying a fair price for drugs, Wise said the PBMs are only paying independent pharmacists a "professional dispensing fee" of 85 cents per prescription, despite recommendations from the Centers for Medicare and Medicaid Services that says the fee should be around $10.64.

Rosemary Smith, a Beattyville pharmacist who co-owns six drug stores in Eastern Kentucky called Jordan Drug, said in a telephone interview that the low payments from the PBMs are "simply not sustainable."

"We have claims that we aren't even getting the cost of the drug, let alone any professional dispensing fee that would keep our stores in business," Smith said. "We've seen the reimbursement go down and down and now a lot of our prescriptions are being reimbursed at a low cost, with a 35 cent fee."

One of six pharmacies Rosemary and Luther Smith own (website photo)
Smith is co-founder of the Kentucky Independent Pharmacist Alliance, which represents the more than 500 independent pharmacies in the state. She said all they are asking for is a "level playing field."

"It's not Ace Hardware versus Walmart," she said. "We're not selling hammers. We're not selling nails. We are taking care of patients."

For example, she sees a conflict of interest with CVS Caremark, a PBM that is part of a company that operates a chain of pharmacies. CVS has contracts with four of the five Medicaid managed-care organizations in Kentucky.

"They are our competition and they are setting our prices," she said. "And what they are doing is, we call it a 'squeeze and buy' -- they are trying to squeeze us so we either go out of business or we have to sell to them."

CVS disagreed, saying in an e-mail that it is committed to providing its PBM members with a broad network of pharmacies that includes local, independent pharmacies.

"We reimburse our participating network pharmacies, including the many independent pharmacies that are valued participants in our network, at competitive rates that balance the need to fairly compensate pharmacies while providing a cost-effective benefit for our clients," said Christine Cramer, the senior director of corporate communications for CVS Health. "We also have a well-established appeals process for network pharmacies regarding reimbursement, and our responses to those appeals comply with all applicable laws."

Wise said at the Feb. 14 committee meeting that Medicaid in Kentucky spent $1.68 billion on pharmacy benefits last year, with about $1 billion of that going to pharmacies. He said the difference in the amounts went to pharmacy benefit managers, which have no obligation to report how they spent the money.

"PBMs currently set all the rules with little to no government oversight whatsoever," Wise said. "As a state senator, taxpayer, I don't think that's right." He said he has asked the Cabinet for Health and Family Services, which houses the Department for Medicaid Services, how that $1.68 billion is being spent, but has been unable to get an answer.

From left, Deputy Medicaid Commissioner Anne-Tyler Morgan, Chief of
Staff Eric Clark and Commissioner Stephen Miller address the committee.
Medicaid Commissioner Stephen Miller warned that if Wise's bill passes, it would cost Kentucky taxpayers an additional $36 million a year. That was his agency's official estimate of the bill's cost, attached to it as a "fiscal note."

Wise said the bill shouldn't cost the state any money, and asked Miller, "If the Department of Medicaid Services can't tell me how much PBMs are receiving, how can they come up with a fiscal note?"

Sen. Ralph Alvarado, R-Winchester, brought up a separate study by Optum that says the state would have a potential savings of up to $348 million if Wise's bill becomes law. A physican, Alvarado said that knowing what he knows, "I tend to believe this more."

After some back and forth with several committee members about the fiscal note, Miller said, "We still stand by our numbers."

Miller explained that because managed-care organizations are required to spend 90 percent of their monies on direct patient services, leaving 10 percent for administrative fees and profit, they haven't been concerned about the PBMs because the business model encourages MCOs to keep their costs low.

"So they are going to pay the PBMs as little as possible to provide the services, and then the PBMs are going to squeeze out the independent pharmacies to maintain their profit margin," said Sen. Danny Carroll, R-Paducah. "When you get to the crux of it, that's what happening,"

Miller suggested that an alternative would be to renegotiate contracts with managed-care organizations to require PBMs to pay pharmacies a higher dispensing fee, but he cautioned that for  every $1 the state increases the fee, it would cost $6 million of state money.

It was also suggested that there needed to be more competition among PBMs.

The bill passed the health committee with two members casting a "pass" vote, including its chair, Sen. Julie Raque Adams, R-Louisville. "We have a 36-million-dollar fiscal note attached to this bill and that's significant to me," she said. "That plays a role in everything else that we do relative to budgetary decisions. Those are real dollars and they are going to impact real people."

Sen. David Givens, R-Greensburg, also passed, but told the cabinet officials, "We're not pleased with your inability to adjudicate fairness." He noted that the problem is a national issue. West Virginia recently decided to manage its own pharmacy benefits, and Ohio and Arkansas are considering it.

Casey Ross of Stat, the health-and-science service of The Boston Globewrites in an in-depth article that Washington lawmakers are also concerned about PBMs. The President's Council of Economic Advisers released a report on drug prices last week that raised alarms about PBM consolidation, and calls for policy changes to encourage competition.

"PBMs say they are saving money for insurers and their members, but their contracts with drug makers and other parties are secret, so no one knows how much of that money is being passed on to consumers," Ross writes. "Furthermore, their ability to extract higher payments creates an incentive for drug makers to further raise their list prices, which leaves many consumers, especially the uninsured, facing higher out-of pocket costs. . . . People who work in the pharmacy benefit business argue the only way to reform it is to eliminate the secret discounts that allow these middlemen to thrive."

Jim Waters, president and CEO of the Bluegrass Institute for Public Policy Solutions, a libertarian, free-market think tank, writes that Wise's bill is indicative of a "sledgehammer-to-ant syndrome." He calls for more transparency from PBMs, suggesting that they be required to reveal their reimbursement rates for prescriptions, including how much they pay manufacturers, insurers, employers and pharmacists.

"If such transparency reveals monopolistic-like conflicts of interest or unholy alliances between the PBMs and big pharmacies, then – like a policy MRI – perhaps it will be clear where surgery is needed. Even then, a scalpel will be much-more effective than a sledgehammer." Waters writes.

Wise said he is open to other solutions, but said the managed care organizations and PBMs weren't likely to offer them unless "we show we're serious about moving legislation forward."

"Don't let the MCOs and PBMs win by withholding that information from us," Wise told his colleagues. "Rather, let's send a strong message that this committee and the Senate is going to stand up for local pharmacies and for small businesses, to keep the pressure up on those groups to offer alternative solutions."

Other business: The committee also passed Senate Bill 112, sponsored by Alvarado, which develops policies around telehealth payments and the oversight of telehealth providers, and would require physicians to be licensed in the state to be reimbursed. This bill is expected to increase healthcare access and savings to the state.

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