Draft rule requiring pharmacy payments hits roadblock

A draft Arkansas Insurance Department rule that would have required pharmacy benefit managers to reimburse pharmacists for 110% of their drug acquisition costs plus a $10.50 dispensing fee has hit a roadblock.

The Insurance Department is studying the impact of the proposed rule based on a measure passed in Kentucky that included the dispensing fee. It has asked insurance providers to provide data about the costs by May 24.

The department had considered introducing the rule in the summer or fall, but it is not filing it until it reviews those costs and other issues. At this point, based on descriptions by sources speaking on background, the momentum appears to be stopped, in part because of the potential of the $10.50 charge being passed on to Arkansas consumers.

Pharmacy benefit managers, or PBMs, act as middlemen between insurance companies and pharmacies. They can negotiate lower rates with pharmacists because they are national companies and because only a few of them control the market.

The draft rule by Arkansas Insurance Commissioner Alan McClain said PBMs would reimburse pharmacies for prescription drug or device services at a rate that is no less than 110% of the current National Average Drug Acquisition Cost plus a $10.50 dispensing fee for all generic and branded drug transactions.

For drugs with no NADAC price, which is set by the federal Centers for Medicare and Medicaid Services, the minimum reimbursement would be the wholesale acquisition cost plus 10% along with a $10.50 dispensing fee.

The draft rule stated that an “emergency” exists regarding pharmacists’ reimbursements. The Insurance Department has been receiving more than 1,800 complaints monthly from pharmacists who say they are being paid below those levels.

Medicaid permits a $10.50 dispensing fee for each prescription. The rule would apply the same fee to insurance plans.

The rule would not have applied to any health benefit plan where it would increase drug coverage costs to the point that they would actuarially increase premiums by 2% each year.

The NADAC plus 10% provision would be “unprecedented,” said Jonathan Buxton, senior director of state affairs for the Pharmaceutical Care Management Association, the group that represents PBMs. He said a preliminary look at last year’s data where 10% was added would add $267 million in additional drug spending in Arkansas. The mandated $10.50 fee could add $359 million.

Tyler Hale, communications officer for the Arkansas Department of Commerce, which houses the Arkansas Insurance Department (AID), said the draft rule is not ready for public comment.

“Any policy decision by AID is worked on with appropriate stakeholders before it is finalized. This draft rule did not follow normal internal review and any speculation about it being final or ready for emergency consideration is inaccurate,” he said.

The draft rule met with some skepticism from two lawmakers. Sen. Jimmy Hickey, R-Texarkana, who co-chairs the Arkansas Legislative Council’s Employee Benefits Division Oversight Subcommittee, and the same subcommittee in the Joint Budget Committee, said PBMs must be made to comply with state law. But he said there were too many unknowns, and the rule could add $25 million a year to state insurance benefit costs.

“My personal opinion is, is that’s way too stout,” he said.

Likewise, Sen. Missy Irvin, R-Mountain Home, chair of the Public Health, Welfare and Labor Committee, said she hadn’t had conversations about the subject until the previous Thursday. She noted that legislators recently started digesting a Medicaid sustainability report. In this year’s fiscal session, they passed a flat budget.

“My initial read of this would be that it would dramatically change our Medicaid budget and wreck it,” she said.

Lawmakers met in special session in 2018 to pass the Arkansas Pharmacy Benefits Manager Licensure Act, which established rules regarding the Insurance Department’s ability to regulate PBMs. At the time, lawmakers were concerned that PBMs were reimbursing pharmacies they controlled at higher rates than they were other pharmacies. The law outlawed the practice. One of the big PBMs is CVS Caremark, which is owned by the same company as the CVS chain of drugstores.

That practice to some degree is still happening, said John Vinson, CEO of the Arkansas Pharmacists Association. He said 69 pharmacy permits that existed in 2020 don’t exist in 2024. Small town pharmacies have closed or been sold because of the financial pressures facing pharmacies, and so have Walgreen’s stores.

The draft rule stated that pharmacy benefits managers must create an electronic process for receiving appeals by pharmacists with a claim that the rule was not followed.

Vinson said appeals were supposed to be safety nets, but pharmacies can’t do enough appeals when so many reimbursements are low.

Under the draft rule, PBMs that did not process appeals within 30 days of receipt would pay a 12% interest penalty per year. If a pharmacist complained to the Insurance Department after an appeal and the department determined the claim was not correctly paid, the PBM would pay a $5,000 fine. If a pattern or trade practice of violations were found, the PBM would be subject to a $50,000 fine and other sanctions. A PBM found in repeated violation of the rule could have its license suspended or revoked.