State says it won’t tolerate bad treatment of independent pharmacies by pharmacy middlemen in Medicaid program

Medicaid Commissioner Carol Steckel

By Melissa Patrick
Kentucky Health News

Kentucky legislators were assured at a July 8 meeting that the state is committed to resolving the payment issues that the states’ independent pharmacies have with pharmacy benefit managers in Medicaid, issues that the pharmacies have said are so bad they threaten their survival.

“We are not going to tolerate it, and we will do whatever we have to do to ensure that the taxpayers of the commonwealth and the beneficiaries of the Medicaid program are treated the way they should be treated,” Medicaid Commissioner Carol Steckel told the Medicaid Oversight and Advisory Committee.

Pharmacy benefit managers, or PBMs, are the middlemen between insurance companies and drug companies. They determine what drugs are offered, how much someone pays for the drug and the payments to pharmacists.

Steckel said her agency had a “new-found spine” when it comes to how much control it has over PBMs, and will build on that “power and control” in the updated contracts it is negotiating with managed-care organizations, which will take effect in July 2020. The MCOs subcontract with PBMs.

Steckel, who has worked with Medicaid for 30 years, later referred to the PBMs as “predators” and said, “It makes me angry to have this kind of player in the Medicaid program.”

A few days later, Attorney General Andy Beshear announced his office would be submitting a request for more legal help to further its investigation of PBMs’ pricing practices.

Beshear, the Democratic nominee for governor, launched an investigation in March to find out whether PBMs have overcharged the state and discriminated against independent pharmacies. “We all want to know if the actions of these companies have resulted in all of us paying too much for prescription drugs – and we’re going to find out,” Beshear said in a news release.

Lawmakers have been working on this issue for years. Sen. Ralph Alvarado, a Winchester physician who is Gov. Matt Bevin’s running mate for lieutenant governor, reminded the group that it once again felt like “Groundhog Day” — which Senate Democratic Leader Morgan McGarvey has said before.

Senate Bill 5 of the 2018 legislative session put the Department of Medicaid Services, rather than the managed-care companies, in charge of setting pharmacists’ reimbursement rates. It allows the department to regulate contracts between the companies, PBMs and pharmacists; requires more transparency in how PBMs spend the $1.7 billion a year they get for processing prescriptions; and gives the state authority to penalize the companies and PBMs for noncompliance.

In a report earlier this year, “Medicaid Pharmacy Pricing: Opening the Black Box,” the state said two PBMs kept $123.5 million last year from the Medicaid program by paying pharmacies a lower rate to fill prescriptions, while charging the state more for the same drug. Much of the discussion at the July 8 meeting was around SB 5 and the MCO contracts now being negotiated.

Trevor Ray, an independent pharmacist and co-owner of Midway Pharmacy, which has four locations in Grayson County, praised the efforts behind SB 5, but said many issues still need to be addressed to ensure “fair, transparent and adequate reimbursement” for community pharmacies.

Ray said low dispensing fees are still an issue, even though the Medicaid department increased this fee to $2 per prescription after SB 5 became law. The Centers for Medicare and Medicaid Services says this amount should be around $10,64, plus the cost of the drug being dispensed.

Mark Glasper, executive director and CEO of the Kentucky Pharmacists Association, told Kentucky Health News in an e-mail that while the new fee helps, the amount barely scratches the surface of what is needed. “Independents are scratching to stay in business,” he said. “The $2 dispensing fee afforded by SB 5 is merely a Band-Aid.”

Ray questioned “backdoor fees” and “spread pricing,” in which a PBM keeps the difference between what it bills Medicaid for medications and what it pays the pharmacy to dispense the drugs. The Medicaid department said the 2019 spread pricing in Kentucky through May was 12.92 percent. This number doesn’t include data from WellCare because it does not use this model.

Ray also explained a process in which pharmacies are paid one price for a drug, only to have a chunk of it taken back several months later, which he said is a problem with both spread pricing and “pass-through pricing,” which is what WellCare does. In pass-through pricing, an MCO is paid the actual discounted pharmacy price that the PBM negotiated with the retail pharmacy network.

The Medicaid department went over the changes proposed in the MCO contracts, including new language from SB 5; requirements that all PBMs use a “pass-through model;” language banning “take-back” fees; and language to remove any barriers to claims data. The new contracts will take effect July 1, 2020.

Steckel also told the lawmakers that DMS was using Kentucky data to replicate a West Virginia study showing the impact of removing pharmacy services from MCOs, which is what the pharmacists’ lobby and many legislators would like to see happen.  The West Virginia study found that the state saved $54 million by removing prescription drugs from Medicaid managed care.

Ray concluded, “We’re not asking for more money just to get paid more, we just want to be paid fairly.”

In 2016, Kentucky passed a law that allows the state Department of Insuranceto regulate PBMs much like insurance companies are regulated, and to provide an appeal mechanism to resolve pricing disputes between pharmacies and PBMs.

The law has resulted in CVS Caremark, a PBM for all but one of the Medicaid management companies in Kentucky, being issued a $1.5 million fine in July 2018 for hundreds of reimbursement violations involving individual pharmacies, and for giving the department ‘inaccurate or inconsistent” information. It also resulted in Caremark PCS Health being put on probation for one year.

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