CVS
Medicaid, the federalstate health program for the poor and disabled, will spend about $3.2 billion on prescription drugs in Ohio this year. CVS Caremark, an arm of the company that manages pharmacy benefits, handles most of that money by billing insurers that contract with the state and then reimbursing pharmacies that fill patients’ prescriptions.
Ohio Medicaid Director Barbara Sears stressed, “This is not an Ohio Medicaid problem. This is impacting all 50 states. It’s a CVS Caremark issue, and it’s not just impacting independent pharmacies.” Sears said “larger chains” also have complained about reimbursement rates.
Ohio contracts with five managed-care companies to coordinate health-care services for 89 percent of Medicaid patients, paying them a set per-member, per-month fee. The managed-care companies hire pharmacy-benefit managers, dubbed PBMs, which decide which drugs are covered, negotiate rebates with drug companies, and set how much pharmacies get paid to dispense them to patients.
Not only does CVS operate Ohio’s second-largest retail pharmacy chain, but CVS Caremark is the pharmacybenefit manager for four of Ohio Medicaid’s five managed-care companies.
Like Medicaid managedcare companies, PBMs are supposed to save taxpayers money.
Patrick Stephan, director of managed care for the state Medicaid program, said “managed care and pharmacy-benefit managers are saving Medicaid dollars.”
But the public doesn’t know exactly how much of the more than $3 billion spent on pharmaceuticals goes to pharmacies and how much simply fattens PBMs’ bottom lines.
Ciaccia said he suspects that CVS Caremark is engaged in “spread pricing” — using one list with a low price to reimburse the pharmacist, and another list with a high price to bill the managed-care program, and pocketing the difference. It’s impossible to know exactly what’s happening because the creation and use of such “maximum allowable cost” lists happens behind a veil of secrecy, he said.
“The (maximum allowable) price is not an objectively defined and publicly available, transparent pricing list,” Ciaccia said. “It is PBM-defined, and it is proprietary.”
Ohio House Finance Committee Chairman Ryan Smith, R-Bidwell, said that “independent pharmacists are getting killed. Their rates are going down, but prescription costs are going up. It seems like the middleman is making out.”
CVS spokeswoman Christine Cramer didn’t answer questions about whether the company engages in spread pricing. She did say that the company has measures in place to ensure that its pharmacy-benefit arm does nothing to advantage its retail arm.
“There are strict firewalls between our retail business, CVS Pharmacy, and our PBM business, CVS Caremark,” she said in an email. “CVS Pharmacy has no insight into CVS Caremark’s reimbursement of independents.”
However, Ciaccia said the company’s pharmacy operation wouldn’t have to know what its PBM was doing to get an advantage out of the arrangement.
“Officially, they have maintained that firewall,” he said. “But it doesn’t take a rocket scientist to figure out that, ‘Hey, over here on the PBM side, if we lower reimbursements to the pharmacy marketplace, then our pharmacy is probably going to benefit from that.’ They’re going to be able to put people out of business.”
State regulators say they know how much they pay the managed-care companies, and how much they are paying their pharmacy-benefit managers, but they have no idea how much the PBMs are paying pharmacies.
Starting in July, Ohio is requiring Medicaid managed-care companies to report how much PBMs are paying pharmacies to allow “more transparency” on prescription costs.
CVS’ Cramer said her company is working to get the best deal for taxpayers and pharmacies.
“We reimburse our participating network pharmacies, including the many independent pharmacies that are valued participants in our network, at competitive rates that balance the need to fairly compensate pharmacies while providing a cost-effective benefit for our clients,” she said. “In fact, reports from the independent pharmacies themselves show that their average profits and prescription volumes have remained largely unchanged over the last decade.”
But pharmacists say it’s clear to them that PBMs are profiting while they are losing money.
“What are PBMs pocketing? That’s the million-dollar question. I guarantee it would make you fall off your chair,” said one Columbus pharmacist who asked to remain anonymous because of confidentiality clauses in his PBM contract.
Low Medicaid reimbursements threaten to prompt the closing of independent pharmacies such as his and others that can’t absorb the losses.
“The PBM industry has run amok,” said Max Peoples, who owns Uptown Pharmacy in Westerville and another drugstore in Marengo. “Reimbursement rates for Medicaid are more volatile and much lower. If the PBM is paying us less than what we can buy it for, it’s a problem.”
Peoples’ Marengo pharmacy serves a large number of Medicaid patients, and it breaks even or loses money on 35 to 40 percent of the prescriptions it fills, he said. In Westerville, the rate is 25 percent.
The PBMs also routinely ban pharmacists from advising patients about pricing.
Peoples said he had a patient whose prescription co-payment was significantly higher than the amount the pharmacy was being reimbursed, and the patient could have saved money by paying out of pocket rather than using insurance coverage. “But in our contract, the PBM does not allow us to discuss pricing, so we advise patients to ask for the cash price,” he said.
“They take every opportunity to disguise the facts. That’s how they make their money,” Peoples said. “Transparency. That’s the only way we know we’re not getting ripped off. Everything has to be out in the open.”
The Columbus pharmacist hopes that state officials act soon.
“I’m staying in business because I’m praying and hoping it changes, but if it doesn’t, I won’t survive,” he said.
Peoples provided several examples to illustrate the problem. In one, the pharmacy paid $44.61 for a one-month supply of muscle relaxant tizanidine. The PBM reimbursed the pharmacy $11.25, for a loss of $33.36.
“If I’ve got the drug, I am obligated to dispense it,” the pharmacist said. “We don’t have to stock the drug, but I can’t not stock every drug. My patients need them.”