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Different Drug War Rages Over Savings, Prescription Costs

9 min read

Pharmacy benefit managers, the entities that process payments between drugstores and health benefit plans, are continuing their fight against an Arkansas law that they say will raise the cost of prescription medicine.

The appeal of a March 1 decision by Chief U.S. District Judge Brian S. Miller of Little Rock is the latest skirmish in a long-standing feud. Pharmacies accused PBMs of being unnecessary middlemen whose very existence has resulted in consumers paying more for prescription drugs. PBMs, on the other hand, describe themselves as champions of the consumer that negotiate better drug prices in exchange for a share of the savings.

The Pharmaceutical Care Management Association of Washington, representing the largest PBMs in the country, appealed Miller’s ruling, which upheld nearly all the components of Act 900 of 2015. Among other things, the state law requires PBMs to reimburse pharmacies at least the price they paid to buy a generic drug from a wholesaler.

Also troubling to the PCMA: The legislation allows a pharmacist to refuse to fill any prescription if the reimbursement from a PBM will be below the pharmacist’s acquisition cost. Last year, for instance, a Hot Springs Village pharmacist declined to fill a prescription because he would lose about $150 on the transaction dealing with a PBM.

Arkansas Attorney General Leslie Rutledge, who was named as a defendant in the PCMA’s lawsuit, has until June 15 to file a response to the appeal at the 8th U.S. Circuit Court of Appeals in St. Louis.

Before Act 900 went into effect in July 2015, Arkansas pharmacies complained that about 10 percent of the generic prescriptions processed by PBMs were money-losers. Arkansas is one of more than 30 states that have enacted legislation dealing with PBMs in recent years.

Arkansas’ law, though, is considered one of the strongest for pharmacies because Rutledge’s office has interpreted the law to mean “‘that it is a deceptive trade practice for a PBM to reimburse a pharmacist in an amount below the acquisition cost,’ even if that pharmacist had not yet appealed a reimbursement,” the PCMA said in the complaint challenging the constitutionality of the law.

The National Community Pharmacists Association believes its efforts have encouraged more states to regulate PBMs. “We’ve shown light on the PBM industry,” said Fara Klein, manager of state government affairs at the association. “People are slowly beginning to recognize who they are and what they do.”

The NCPA accuses the PBMs of profiteering at the expense of consumers and plan sponsors. The PCMA insists it creates savings. On its website, the association projects that its PBM members will save employers, unions, government programs and consumers $654 billion — up to 30 percent — on drug costs over the next decade.

Scott Pace, CEO of the Arkansas Pharmacists Association, told Arkansas Business last week that he was encouraged by Judge Miller’s ruling, but more needs to be done.

“Act 900 has been helpful in fixing one problem, but what I think we’ve seen for a number of years is that when one gets fixed, or at least under control, another one pops up,” he said.

Pace said policymakers in Arkansas and other states should determine what oversight they want for PMBs.

“How do you put some sensible regulation in place that protects the consumer, that protects the employers and the providers who are providing those services?” Pace asked.

PCMA President Mark Merritt said bills are being pushed nationwide by the “independent drugstore lobby to make more money for them and by forcing the employers who offer benefits to pay them more for drugs whether they cost more.

“We’ll continue to fight these things in state legislatures, but we also have the ability to address them in court if need be as well.”

‘A Lucrative Business’

Pace agreed that the PBMs started out as the darlings of the health care industry when they cropped up decades ago.

PBMs worked for employers, unions and public employee programs and offered to reduce drug prices by signing contracts with pharmacies. Similar to physician networks, participating pharmacies agreed to lower reimbursements in exchange for having patients funneled to their stores under terms of PBM contracts.

Originally, PBMs made money by subtracting administrative fees from the amounts they paid to the pharmacies after the PMBs were paid by insurers.

After a patient fills a prescription, the pharmacist submits a claim to the patient’s PBM. And usually that’s where the conflict begins.

The PBMs have a confidential “maximum allowable cost” list that shows the highest amount a plan will pay for generic drugs. The PBMs also use MAC lists to guarantee pricing terms to their customers, the health plans and self-insured employers. But only the PBM knows what is being paid to each side.

“Nobody has to hire a PBM,” said PCMA’s Merritt. But the reason employers and other benefit plans do is because “PBMs can make recommendations on how to make their dollars go further.” He said the PBMs can reduce the payers’ prescriptions costs by about 30 percent by promoting generic drugs and other alternatives like mail-order pharmacies. “Our clients don’t want to overpay for drugs,” Merritt said. “Our job is to encourage people to use the least expensive ones wherever possible in their community.”

Critics say the PBMs grew too big and now have near monopolistic control over drug prices.

“I think the evidence is that not only are they basically not functioning to reduce drug prices, but they are actually in many cases … fueling drug prices,” said Ted Okon, executive director of the Community Oncology Alliance of Washington.

For one thing, the PBMs have developed a revenue source besides administrative fees: They elicit rebates from drug manufacturers, Okon said, in exchange for including drugs in the formulary, which is the PBM’s preferred drug list.

“This has become a very lucrative business,” Okon said. “When you see drug prices going up, you see these rebates going up, you see their profits going up, you have to say there’s a problem here.”

Merritt, meanwhile, said that the MAC lists are profitable for drugstores. Sometimes the wholesaler may charge more than what’s on the MAC and sometimes less, he said.

“When you look at thousands of drugs that are in our formulary, overall, it’s worth a drugstore’s time to join a network, or else, by definition they wouldn’t join one,” Merritt said.

Pace, of the Arkansas Pharmacy Association, said joining is not as voluntary as Merritt makes it sound. He said pharmacists are effectively held hostage by the PBMs because more than 90 percent of prescriptions are paid for by a third party, and they all use some form of PBMs as the claims processor.

PBMs administer prescription drug plans for more than 266 million Americans, according to the PCMA’s website. And pharmaceuticals account for about 10 percent of all health care spending.

A pharmacy that turns down a PBM contract loses access to the patients who are affiliated with that PBMs, Pace said.

‘Tremendous Stress’

The state of Arkansas took a stab at legislation involving PBMs when it passed Act 1194 in 2013. One of the highlights of that legislation was an appeal procedure allowing pharmacies to challenge the maximum allowable cost in certain situations.

But that didn’t seem to solve the problem pharmacists were having. The Arkansas Pharmacists Association said in 2015 about 11 percent of generic drugs processed by PBMs were money-losers for pharmacies.

In 2013, losing money on drugs and dealing with PBMs pushed Dana Woods of Mountain View to sell his pharmacy, Woods Pharmacy & Soda Fountain, after 28 years in business.

“If it wasn’t for pharmacy benefit managers, I probably never would have sold my pharmacy,” the 59-year-old Woods told Arkansas Business last week. “It adds a tremendous amount of stress to the daily workload, trying to take care of your customers.

“It would really be a roller-coaster ride,” he said.

In some cases, the reimbursement might be 4-5 percent below the amount he paid to buy the drug; in others it was 40-50 percent.

Woods saw his profits slide 8-10 percent during the last three years he was in business. He declined to say how much he sold the business for, but he said it wasn’t enough for him to retire. Merritt, the PBM representative, said that if the reimbursement is too low, it might be because the pharmacy paid too much for the drug.

“So there’s a lot of different ways to look at this, and there’s two sides to the story,” Merritt said.

The number of pharmacies licensed in Arkansas has ranged from 743 to 793 over the past four years; the current number is 788.

2015 Legislation

The pharmacists again turned to the Arkansas General Assembly for help.

In April 2015, the Legislature passed Act 900, which made several changes to the 2013 law. Instead of just allowing an appeal, the legislation required the PBM reimbursement for generic drugs to be at least as much as the pharmacist paid. And if a pharmacist still isn’t satisfied, the PBM must provide an administrative appeal procedure.

Act 900 went into effect on July 22, 2015, and the PCMA sued three weeks later. The PCMA said the law shouldn’t be enforced because it is unconstitutional.

The Arkansas “legislature has enacted what appears to be a relatively simple statute, only a few pages, yet it is having an ever more dramatic effect on how prescription drugs are purchased here and, also, frankly around the country,” PCMA’s attorney, Dean Richlin of Boston, said during a November 2015 hearing. A transcript of the proceeding was included in the case file.

He said the act interferes with private contacts and “removes an important check on runaway drug prices.” Richlin also said the act “will either require consumers to pay more for their scrips, or cause pharmacists to decline to fill requested scripts.”

Michael Butler, the owner of Village HealthMart Drug in Hot Springs Village, did decline to fill a prescription in 2016.

Butler told Arkansas Business last week that he had been losing between $5 and $20 on about 20 percent of the prescriptions he filled for Aetna Health Management LLC and its subsidiary, Coventry Prescription Management Services Inc. But, he said, Aetna was going to pay only $50 for a drug that cost him $200. The $150 loss was more than he could bear.

“We have to make money,” he said.

Aetna kicked him out of its network for refusing to provide coverage but he was allowed back in after he sued.

Butler said he hasn’t had to refuse service to another customer.

“We’ll work with the patient and the doctor’s office to make sure they are medicated,” he said.

‘Economic Distress’

Miller, the federal judge in Little Rock, on March 1 ruled in favor of the PCMA on one of its claims involving the Employee Retirement Income Security Act of 1974, the federal law that sets minimum standards for most private-sector pensions and health plans.

“Act 900 is invalid as applied to PBMs in their administration and management of ERISA plans,” Miller wrote in his 23-page order.

But he upheld the other challenges.

“It is undisputed that the Arkansas pharmacies were in economic distress, that MAC lists are confidential and unregulated, and that contracts allow PBMs to reimburse pharmacies for generic drugs in any manner they see fit,” Miller wrote.

“The fact that Act 900 may incidentally benefit pharmacies in the process of protecting the public’s ability to access pharmacies does not render the law an insignificant or illegitimate use of the state’s police power.”

On March 20, PCMA filed its notice of appeal to the 8th Circuit.

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