Pharmacists say laws passed in Arkansas in 2015 and 2018 have lessened but not ended under-cost reimbursements by pharmacy benefit managers, and now they are hoping a law passed this year will further reduce underpayments.
John Vinson, executive vice president and CEO of the Arkansas Pharmacists Association, said pharmacists now aren’t usually reimbursed less than their wholesale cost of the drug, but it does happen. And reimbursements often don’t take into account all expenses such as labor and facility costs.
“Overall, there have been some improvements, but it’s far from a fixed problem,” he said.
Vinson had received a call the previous day from a pharmacist who was reimbursed $20 for a drug that cost her $105 to purchase; the reimbursement had been $150 the month before. In that situation, a large employer fell under a federal exemption under the Employee Retirement Income Security Act, or ERISA, which was passed by Congress in 1974.
Pharmacy benefit managers act as middlemen between health insurance companies and pharmacies. Their reimbursement rates are supposed to incentivize pharmacies to find lower wholesale drug prices. Eighteen are licensed in Arkansas with one pending application, but three dominate the market – CVS Caremark, which is part of the corporation that operates the CVS drugstore chain, OptumRX and Express Scripts.
Greg Lopes, assistant vice president, strategic communications for the Pharmaceutical Care Management Association that represents PBMs, said, “Pharmacy benefit managers, PBMs, help keep prescription drugs accessible and affordable for consumers by encouraging competition among drug manufacturers and drugstores. In Arkansas alone, PBMs will save health programs $6.5 billion over ten years.”
Legislators in a 2018 special session passed the PBM Licensure Act, which went into effect at the beginning of the year and required PBMs to be licensed by the Arkansas Insurance Department rather than simply being registered as a third party administrator, which is how most states treat them. It made state laws regulating the industry enforceable by the department in addition to the attorney general, who already had that power. The department reviews sample contracts between PBMs and pharmacists and approves PBMs’ compensation programs to ensure reimbursements are fair and reasonable.
PBMs did increase reimbursements in some plans after the law was passed, said the APA’s Vinson. But he was unsure if the change occurred as a result of the legislation or the public pressure being exerted on health insurers and PBMs.
Dean Watts, who owns Dean’s Pharmacies in Stuttgart, Marianna and DeWitt and is president of the Arkansas Pharmacists Association, said the PBM Licensure Act by itself was of limited value, but it did contribute to an improving climate for pharmacists.
“I think they reversed course or at least eased up on some of the pressures they were putting on us in January of 2018, but just barely,” he said.
Watts guessed that before the 2018 law was passed, three out of 10 prescriptions at his pharmacies were being reimbursed below costs or within pennies of the cost. He guessed that now, one out of 10 prescriptions is reimbursed below the cost of the medication, but that doesn’t include other costs such as labor.
“At one point at the beginning of 2018, it was scary to stand back there and work,” he said.
Brittany Sanders, owner of the Pharmacy at Wellington in west Little Rock, said reimbursements immediately improved after the 2018 legislation was passed after reaching unsustainably low levels. In some plans, the market basket as a whole was under cost based on the wholesale cost of the drugs.
The PCMA’s Lopes said PBMs are trying to serve consumers and pharmacies.
“Unfortunately, there have been widespread misconceptions about reimbursement rates in Arkansas,” he said. “PBMs have been, and continue to be, committed to reducing prescription drug costs while also fairly compensating pharmacies.”
DISPENSING FEES DISAPPEARING
Over the years, the reimbursement methodology has included a professional dispensing fee that is separate from the ingredient cost. It pays for the pharmacist’s time to do a drug utilization review to make sure it’s safe and effective and that there’s not a drug interaction, to counsel the patient, and to pay for other costs such as the bottle and label. Those have eroded to where some of the new contracts have dispensing fees as low as zero.
Sanders said the actual cost of dispensing a drug is about $10 per prescription. The state’s Medicaid program pays pharmacists a dispensing fee of $10.50 for generic and preferred brand drugs and $9 for others as an incentive to lower costs.
In November 2018, her pharmacy received notification that it would be billed retroactively for drug charges. These kinds of reimbursements, known as generic effective rates, brand effective rates, and direct and indirect renumeration (DIR) fees, which occur primarily in Medicare Part D plans, allow PBMs to use a formula to claw back money paid for claims filed over time. Sanders said her pharmacy now works with a company that helps it escrow money for these charges.
The PCMA’s Lopes said DIR fees help lower the cost of prescription drugs to consumers.
In response, legislators this year passed Act 994. It stops the retroactive collection of fees. It prohibits paying a pharmacist below the national average of drug acquisition costs maintained by the federal Centers for Medicare and Medicaid Services, though it doesn’t guarantee a dispensing fee. It prohibits spread pricing, where the pharmacist is paid less than what is reported to the state. And it clarifies the process for pharmacists to appeal below-cost payments.
Pieces of that bill went into effect July 24, but Vinson said it’s too early to tell what kind of a difference it’s made. He’s hearing mixed reviews. Sanders said contracts haven’t changed since the law took effect, so it’s too early to know its impact.
But like the 2018 legislation, it applies only to state-regulated plans. Large self-insured companies are covered by the federal ERISA law, which state laws cannot preempt. It also doesn’t apply to drugs purchased through Medicare.
“It hopefully will help control some of the problem, but it doesn’t fix all the problems. … We need a national solution,” Sanders said.
U.S. Sen. Charles Grassley, R-Iowa, and Sen. Maria Cantwell, D-Washington, have introduced legislation in the Senate that would require the Federal Trade Commission to study PBMs’ activities and provide policy recommendations to Congress. Arkansas Insurance Department spokesman Ryan James said the National Association of Insurance Commissioners is working towards a model act or regulation for PBMs.
‘DRAW A LINE’
The dispute over underpayments by PBMs is not new. Under Act 769 of 2009, they are required to pay what they receive for pharmacy services to the pharmacist, or to be transparent on state-funded claims when they don’t. In 2011, legislators passed Act 517 to regulate PBMs’ and insurance companies’ processes for auditing pharmacies.
Then legislators in 2015 passed Act 900 allowing pharmacists to appeal reimbursements directly to the PBMs. PBMs maintain a listing of drugs that sets the maximum allowable cost (MAC) on which they base reimbursement rates. If the drug is not available below the pharmacist’s acquisition cost from its primary wholesaler, then the PBM must adjust its list above the cost and allow the pharmacy to rebill the claim. If pharmacists aren’t satisfied with their appeals, they ultimately can sue the PBMs under the state’s Deceptive Trade Practices Act. Also under the 2015 law, pharmacists can refuse to fill a prescription if they will lose money, and PBMs cannot reimburse their own pharmacies at different rates than they do others.
Independent pharmacies know as the transaction is being completed what their reimbursements will be. When it’s under cost, they either lose money on the sale or tell the patient that they’ll need to go elsewhere.
“There’s a point at which you have to make a decision: Is it something you can even afford to fill?” said Sanders. “Can I afford to lose a hundred dollars on this prescription, or can I afford to lose $500 on this prescription? And at some point, you just, you have to draw a line. There’s a limit as to how far under you can go.”
Sanders said her pharmacy has filled prescriptions where it lost hundreds of dollars. But it also has declined to fill prescriptions.
When that happens, the patient will normally go to a large chain pharmacy, where the pharmacist doesn’t see the reimbursement rate and doesn’t have a personal financial incentive to make a profit on sales.
But in rural areas, there may not be a chain drugstore nearby. And it’s better for the patient to fill all their prescriptions in one place so the pharmacist can more easily monitor for drug interactions, Sanders said.
Watts said most of his losses now are in the $5 to below range, but they are numerous. He said pharmacists decide on a case-by-case basis when to fill a money-losing prescription and when to decline.
“I cannot find a line because every customer’s needs are different,” he said.
Pharmacies can appeal reimbursement levels to the PBM, but that’s time consuming. Sanders said PBMs often respond by saying that the pharmacist could have bought the drug elsewhere. She said, “Out of the appeals that we’ve filed, very few have resulted in an increase in reimbursement.”
Watts said he’s paying one of his pharmacists to spend hours on these. Many appeals are returned by PBMs saying the drugs are covered by ERISA plans. Those included one of his own pharmacy’s employees, who was not covered by ERISA.
The Insurance Department’s James said many of the complaints the department receives are covered by ERISA or Medicare. As of July 31, the office has had 105 complaints filed by pharmacists this year and has recovered a total of $1,497.51.
Watts said the lack of complaints filed by pharmacists is “a direct result of our frustrations from past appeal processes.” He believes the number of appeals will increase as there are more positive responses.