Since Jan. 1, Brandon Cooper, a pharmacist at Soo’s Drug Store in Jonesboro, has turned away a number of patients seeking to fill routine prescriptions. The problem is not that the pharmacy lacks the drugs in question or that the patients don’t have insurance, Cooper said. It’s that the state’s largest insurance carrier, Arkansas Blue Cross and Blue Shield, recently changed the way it pays for pharmaceuticals.
Blue Cross, like most insurers, handles prescription drug claims through a middleman company known as a pharmacy benefits manager, or PBM. When someone covered by a Blue Cross plan fills a prescription, Blue Cross pays its PBM to pay the pharmacy a reimbursement. Blue Cross’ PBM, CVS Caremark, began slashing reimbursement rates for generic drugs at the beginning of this year.
Now, Cooper said, Soo’s Drug is losing money. “Some you may lose a dollar or two on, and some of them it’s upward of $50, $80. That’s just not a sustainable business model,” Cooper said.
The business sometimes eats the loss, he said, but other times, it turns people away. “We’ve had to send them down the road, and a day or two later a patient comes back and says, ‘We tried three other pharmacies and they wouldn’t do it either.’ "
Many of the medicines in question aren’t exotic. For the generic equivalent of Tamiflu, an antiviral used to treat influenza, Soo’s Drug Store now receives a reimbursement from Blue Cross that is $50 less than what the pharmacy pays a wholesaler for the drug. Monthly birth control pills are also reimbursed below the pharmacy’s cost, Cooper said, as are certain dermatological creams and ointments. About a third of his store’s patients have Blue Cross insurance, he said.
Scott Pace, CEO of the Arkansas Pharmacists Association, said CVS Caremark’s reimbursement cuts are hitting his members hard. “There have been several pharmacies that have closed … [and] I will tell you that there are layoffs galore that have happened,” Pace said.
On Friday afternoon, leaders of both chambers of the state legislature sent letters to Governor Hutchinson asking him to call a special session of the General Assembly to address the pharmacy issue. A spokesperson for Hutchinson said on Friday the governor will respond to the request from Senate President Pro Tempore Jonathan Dismang (R-Searcy) and House Speaker Jeremy Gillam (R-Judsonia) early next week.
The legislature is in the middle of the 2018 fiscal session, during which it typically only handles budgetary matters. But some members, such as Sen. Ronald Caldwell (R-Wynne), have threatened to hold up the budget process if they don’t get assurances of action on the pharmacy issue. That has prompted Dismang and Gillam to take the unusual step of requesting legislative session when one is already ongoing.
"It’s been pretty difficult to have a conversation about the budget … [because] most of the conversation has been centering around policy issues," Dismang said. "We felt like we needed to recenter and refocus the session on what we were sent here to do, which is fiscal matters." The fiscal session typically lasts about a month, meaning a special session could occur in mid-to-late March at the earliest.
If the governor calls a special session, it remains to be seen what legislation will be filed to address reimbursements. Caldwell has introduced a measure that would make PBMs subject to regulation by the Arkansas Insurance Department, but he said he was in the process of revising the bill. “We’re trying to make it shorter and more concise,” he said. A companion bill was introduced in the House by Rep. Michelle Gray (R-Melbourne).
The executive branch has gotten involved as well, with state Attorney General Leslie Rutledge announcing on Feb. 8 that she would be investigating whether CVS Caremark’s pricing violated the state’s Deceptive Trade Practices Act.
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Blue Cross maintains that it was compelled to switch to a more competitive pricing model. The insurer’s mandate is to hold down premiums and other costs for members, which include tens of thousands of Arkansans who buy individual plans on the health insurance marketplace and hundreds of thousands of beneficiaries of Arkansas Works, the state’s hybrid public-private approach to Medicaid expansion.
“We were paying a lot more in [drug] reimbursement than our competitors,” Blue Cross spokesperson Max Greenwood said, referring to rivals QualChoice and Ambetter, the two other carriers in Arkansas’s individual marketplace. That effectively meant Blue Cross customers “were subsidizing the marketplace” by paying a higher rate to pharmacists, according to Greenwood. “So, effective Jan. 1, we selected an approach that was offered by our pharmacy benefits manager that … was being used by other carriers in the marketplace.”
CVS Caremark is at the center of the reimbursement dispute. Though most consumers never interact directly with PBMs, these entities play a crucial role in the health care system by negotiating prices with pharmaceutical companies on behalf of insurers. By pooling together many carriers, PBMs have the necessary volume to leverage better deals from big drugmakers. CVS Caremark’s website says the company boasts some 90 million plan members, or over one-fourth of the population of the U.S. Nationally, PBMs have also attracted widespread criticism for a lack of transparency and alleged profiteering.
Before January, Cooper said, QualChoice and Ambetter were using a pricing model that reimbursed pharmacists for generic drugs at a much lower average rate than the one used by Blue Cross. But those carriers have a far smaller share of the Arkansas market, so pharmacies could tolerate losing money on the occasional claim. When Blue Cross directed CVS Caremark to switch to the new pricing model, pharmacists’ losses shot through the roof.
Things were made worse by the fact that most of the state’s 285,000 Arkansas Works beneficiaries are covered by a Blue Cross plan, subsidized by Medicaid expansion. When Arkansas chose to expand Medicaid under the Affordable Care Act in 2013, it created an unusual hybrid program that used private carriers as the vehicle for providing coverage to the newly eligible population. Under the program — now called Arkansas Works — the state’s rate of uninsured residents has plummeted.
“Last year on Blue Cross [Arkansas] Works plans, we were getting an average margin of anywhere from $10 to $15 on prescriptions,” Cooper said. “From Jan. 1 to the 13th [2018], that margin dropped to an average of 99 cents. And then, Jan. 14, they had another round where they lowered it even more, and it went down to 18 cents on average.”
Soon after the pricing change was made, Greenwood said, “it was brought to our attention that … pharmacists were getting reimbursed on a lot of their prescriptions below their cost. Way below their cost. And they were appealing those [to CVS Caremark], and those appeals were not being resolved in their favor.”
A 2015 state law prohibits PBMs from reimbursing pharmacists at a rate below the cost of a drug, but Pace, of the pharmacists association, said the law is not being followed.
“Appeals are not being responded to, or there’s no resolution to the appeal that’s happening,” he said. “So of the appeals that occur … about one percent are resulting in any change in pricing.”
It is unclear how much profit CVS Caremark is making in the process — that is, the size of the spread between the amount it charges Blue Cross and the amount it pays retail pharmacies for a given claim. “I think the problem was that the amount of money that the PBM was taking as their share versus what was being disseminated down to the pharmacy — there was a wide gap,” Greenwood said.
Christine Cramer, a spokesperson for CVS Caremark, said in an email that the PBM was working on introducing a rate structure that would “provide independent pharmacies in Arkansas with generic reimbursement predictability. This will balance the need to fairly compensate pharmacies while providing a cost-effective benefit for our clients and will reimburse independents in Arkansas at a higher rate than larger national chains.
“We also have a well-established appeals process for network pharmacies regarding reimbursement, and our responses to those appeals comply with all applicable laws,” Cramer wrote.
Blue Cross has been meeting with the pharmacy association, Greenwood said, and it is reevaluating its switch to the new pricing model. In a Feb. 13 letter to legislators, the carrier stated it intended to return to a model “similar to a fee for service structure that we have used in past years.”
Pace said it remains to be seen whether that will solve the problem. “[Blue Cross has] made zero definitive statements to us on what the financial impact would be to the pharmacists,” he wrote in an email. “We are hopeful that there will be a true positive difference, but they have not shown us anything to indicate the financial impact.”
Greenwood acknowledged that Blue Cross won’t simply be reverting to the same reimbursements it paid last year. That’s partly because of Arkansas Works. Under the hybrid program, carriers are paid to cover those low-income beneficiaries that qualify for Medicaid expansion. They must stay beneath a certain average per-patient spending cap, and Greenwood said returning to the 2017 reimbursement rates for pharmacy costs would put Blue Cross over that cap.
“There [is] a finite amount of dollars for Arkansas Works,” she said. “What we are trying to do is work within the cap that has been set by the state, but also make sure that we provide transparency and that [more of] the dollars that are being used for the prescription drug aspect of the program … will go to the pharmacy than to the PBM” when compared to the rates now in place.
Meanwhile, as the pharmacy dispute plays out, the future of Arkansas Works is itself in question. Each year since the program began, a group of conservative Republican legislators opposed to Medicaid expansion has attempted to block funding for its reauthorization; the appropriation has typically passed by only a one- or two-vote margin. Sen. Caldwell, the sponsor of the legislation that would regulate PBMs, was one of seven senators who refused to vote for Arkansas Works in 2017.
This year, three vacancies in the Senate will make it even harder for the governor to reach the necessary threshold of votes to reauthorize the program. The empty seats won’t be filled until elections are held in May. That’s led to speculation that the Arkansas Works appropriation may itself need to be tackled in a special session that would take place only after the new senators are seated.
This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans. Find out more at arknews.org.