Bill to help independent pharmacies goes to the governor

Sen. Max Wise presented SB 50 on Feb. 20 in the Senate. (Legislative Research Commission photo)
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By Melissa Patrick
Kentucky Health News

A bill to resolve payment issues between Kentucky Medicaid’s drug middlemen and pharmacists who fill drugs for Kentuckians on the program has finally passed and been delivered to Gov. Andy Beshear.

Pharmacy benefit managers deal between insurance companies and drug manufacturers; they determine what drugs are offered, how much someone pays for the drug, and how much the pharmacists are paid.

Each of the state’s five Medicaid manged-care organizations (all but one an insurance-company subsidiary) contract with a PBM. Senate Bill 50 will require the state to hire a single PBM to manage Kentucky Medicaid’s $1.7 billion-a-year prescription drug business.

While going over the House changes to his bill, Sen. Max Wise, R-Campbellsville, said SB 50 is needed to protect community pharmacists, which he praised, pointing out that that they are on the front line of the response to the coronavirus. The Senate concurred with the changes on a vote of 33-1, with Sen. Julie Raque Adams, R-Louisville, voting against it.

Rosemary Smith of the Kentucky Independent Pharmacist Alliance, which says it represents 500 druggists, told Kentucky Health News that she cried tears of joy while watching the bill gain final passage on Kentucky Educational Television, since the Capitol has limited attendance. She said pharmacists from across the state called her in celebration, many of them saying, “We can make it now.”

“I really think we’ve saved community pharmacies across the state with this bill,” she said.

Smith told Kentucky Health News in February that said she and her husband were forced to close two of their drug stores because of PBMs’ low reimbursement rates. They own Jordan Drug pharmacies in Eastern Kentucky.

She also applauded the collaborative efforts of all of the stakeholders, the Republican lawmakers in  both chambers who championed the bill, the Democratic governor and his appointees in the Cabinet for Health and Family Services.

“Just to see both sides of the aisle, from the governor and the cabinet and the Senate and the House working with independent pharmacies — it just makes you proud to be a Kentuckian, it really does,” Smith said.

SB 50 aims to address many of the billing practices that pharmacists have long said are so unfair that they are putting some of them out of business.

Kentucky lawmakers have been working on these issues for years and hope that the transparency afforded by only having one PBM, along with the new regulations, will finally take care of them.

“It is a shame that we as a legislative body have had to debate this bill,” Wise said. “MCOs and the PBMs have had 10 years to fix these problems themselves. The legislature has passed four bills in six sessions trying to rein in the abuse of PBM activity and it feels like a lot of those bills have largely been ignored.”

The bill establishes a single preferred drug list, or formulary, to be used by each managed-care firm, instead of each one having its own separate list; and puts the state Department for Medicaid Services in charge of the reimbursement methodologies, including dispensing fees.

It requires the PBM to pay the managed-care firm the actual discounted pharmacy price negotiated with the pharmacy network, or “pass-through pricing;” prohibits 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 drug; and prohibits a whole list of fees.

The House amended the bill to include a clear definition of spread pricing to mean “any technique by which a PBM or other administrator of pharmacy benefits charges or claims an amount from an insurer or MCO for pharmacy or pharmacy services, including payment for a prescription drug, that is different than the amount the PBM or other administrator pays to the pharmacy or pharmacist that provided the service.”

Smith said, “That’s really critical because that’s how the money is leaving the state.” A state analysis last year called “Opening the Black Box” found that the PBMs made $123 million through spread pricing.

The bill prohibits PBMs from taking any retaliatory actions against pharmacies; prohibits the sole PBM from requiring a Medicaid recipient to use a mail-order pharmacy; and creates a committee to make recommendations to the state about reimbursement methodologies and dispensing fees.

It’s not universally popular

In one of the biggest changes, the measure will prohibit the PBM from requiring Medicaid recipients to get specialty drugs from a pharmacy that is owned or operated by the PBM.

After the bill passed the House March 12, CVS Health, the drugstore chain that holds most of the state’s current PBM business through its CVS Caremark subsidiary, said the bill would cost Kentucky $382 million each year without improving the health outcomes for people on Medicaid.

CVS told Kentucky Health News that its analysis, based on what has happened in other states that moved to a single preferred drug list, shows Kentucky can expect to see an 8 percent drop in its rate of dispensing generic drugs, which it said would cost the state $250 million.

It also said that if the state moves to the same dispensing rate as is currently used in fee-for-service Medicaid, which is the average cost of the drug plus a $10.64 dispensing fee, the state will see a $132 million increase in the fees.

Don Kupper, president of the Kentucky Pharmacists Association, disputed the CVS assertions, saying in an email that it is not uncommon for states switching to a single formulary to see a small drop in generic dispensing, but that isn’t likely to affect overall costs. “The gross impact figure provided by CVS doesn’t take into consideration the additional rebates Kentucky will receive by taking advantage of  a singular preferred drug list,” a system that CVS also takes advantage of, he said, noting that state law requires a pharmacy to dispense the lowest-cost prescription drug products.

As for the dispensing fees, Kupper said Kentucky pharmacists will work with the state to set those rates.

Further, he said, “Given that spread pricing accounted for $123 million in costs last year, we know that the state will save at least that much just by eliminating PBMs from using the practice.”

At the bill’s March 10 Senate hearing, Stephanie Stumbo of the Kentucky Association of Health Plans did not speak against the bill, but offered a long list of issues that she said needs to be considered as the state moves forward with a plan that hasn’t been tested in any other state.

For example, she said it was important that this new model be able to offer real-time pharmacy data to the managed-care organizations to better inform patient care, and that a disconnect between the PBM and the MCOs would likely lead to higher cost.

But for now, legislators like the idea of change. As the House passed the bill unanimously on March 12, Rep. Steve Sheldon, R-Bowling Green, said, “We will provide much needed relief to our community pharmacies in the form of more, fair reimbursements rather than below their costs many times. I believe this structure is adequate enough to fairly compensate providers and also has the potential for millions of dollars in savings in Medicaid costs.”

An emergency clause will make the take effect immediately upon Beshear’s signature, so the sole PBM will be in place when new managed-care contracts begin Jan. 1.