News: CJ Exclusives

Senate bill gives state power to audit pharmacy middlemen

A year ago, Debbie Townsend still hoped she could turn things around.

Her patients don’t know it, but she bleeds money filling many of their prescriptions. In a few weeks, she’ll lose the independent pharmacy she has run for the past 15 years.

“We’re going out of business. [The middlemen] are not reimbursing us for the cost of medications, straight up,” said Debbie Townsend, owner of the Raleigh pharmacy Wake Forest Drug. “We bill the insurance [middlemen], and they pay what they want to pay. … We just have to eat it.”

Senate Bill 432 aims to fix her problems with regulation. It would give the state the power to audit the pharmacy middlemen, and it would attempt to protect her from low reimbursements.

If it passes, she could appeal her reimbursement if the middleman pays her less than what she paid for the drug. If she wins, it would force the middleman to standardize the level of reimbursements.

S.B. 432 passed the House, 94-9, on Wednesday, Oct. 23, and now goes to the Senate.

Depending on who’s talking, this bill is either the savior of independent pharmacies, or a cuckoo planted by big pharma, which will gobble up patients’ wallets while masquerading as helpful legislation.

Insurers say the move would explode price controls, jacking up premiums and fueling rising drug costs. For their part, pharmacists accuse the middlemen of cronyism, and demand the transparency S.B. 432 would bring.

“The plight of the independent pharmacists is critical in this point in time. All I’m asking for is transparency and fairness,” Rep. Wayne Sasser, R-Stanly, said in the House Health Committee. “It is not a fair playing field out there.”

Pharmacy benefit managers — the wordy title for one of the many middlemen in health care — are supposed to control the cost of pharmaceutical drugs. They act as giant buying networks, lumping employers and insurers together under the umbrella of their bargaining power. In theory, this gives the average consumer leverage against big pharma.

“They are really the only thing we have to advocate for consumers in the pipeline,” said Michael Kraskin, executive director of N.C. Coalition for Fiscal Health. “They are essential to controlling drug costs. There is really no one else in the system who does that for consumers.”

In the health care world, PBMs enjoy a certain notoriety. Big pharma often uses them as scapegoats, and their critics smear them as crony monopolies. Three PBMs now control more than 70% of claims volume, and many PBMs also offer their own pharmacy services.

PBMs make their money from three channels — fees, rebates, and “spreads” between what they pay for drugs and what they are paid  — and they are under fire for every one.

Independent pharmacists complain fees steal from their already shrinking revenue; academics say pharmaceutical rebates are bribes to provide certain drugs. Regulators accuse PBMS of exploiting the “spread” to rip off both the state and the pharmacies.

It’s the last one that landed them in regulatory trouble.

In Ohio, after independent pharmacies closed in droves, pharmacy giant CVS became embroiled in scandal. It stands accused of using its PBM, the goliath CVS Caremark, to hamstring competition from independent pharmacies.

Ohio audited its Medicaid PBMs and terminated them all over its findings. Ohio Auditor of State Dave Yost found the state’s Medicaid PBMs pocketed $224.8 million from spreads in just one year.

“These are the people that are regulating pharmacies in the U.S. and N.C., and they are in the pharmacy business,” Sasser told Carolina Journal, and repeated Yost’s words: “We have hired a fox to look after the henhouse, but these are smart foxes. They don’t eat the chickens, they just wait and eat the eggs.”

The bill would give the state the power to audit PBMs. It requires PBMs to disclose their incentives, discounts, and rebates, forcing transparency onto a historically opaque system.

“The pharmaceutical supply chain is really complicated. There are so many different points where money is changing hands,” says Jennifer Reck, project director at the National Academy for State Health Policy. “And until recently, PBMs have been operating in a relatively black box. I see this bill opening up and shining a light on the transactions between pharmacies and PBMs.”

Such attempts aren’t unusual. PBMS are required to be licensed in 28 states, and 39 states are working on similar bills attacking spreads, according to Reck.

“They use all of this fictitious pricing stuff, and in the end, they make money, illegally. That’s what Ohio found,” Sasser told CJ. “We’re not accusing anybody of anything, we just want transparency. We want them to be audited, and we want fairness.”

The bill requires PBMs to standardize the levels of their pharmacy payments to match the national market. But because the appeals process would be handled internally, the bill’s actual ability to secure any kind of fairness remains unclear.

“It sounds like it doesn’t have teeth,” John Locke Foundation Legal Fellow Mike Schietzelt said. “A reason for denial? We don’t want to pay you that much. Period.”

But the bill could be powerful enough to raise the cost of health care.

“If this bill requires PBMs pay more for drugs to the pharmacy, costs will go up. They will pass that onto consumers,” Avalare Associate Principal Chris Sloan said. “If they end up paying more to pharmacies, that could lead to some increase in premiums.”

The bill would allow patients to count coupons toward their deductibles.

“This is another debate that is raging across the country right now. Patients are increasingly facing pretty high deductibles … and coupons have historically been a way to mitigate that effect,” Sloan said. “The downside is that health plans have that cost-sharing for a reason.”

The bill also forbids PMBs from requiring patients to take drugs with black-box warnings, which include generic antidepressants, Motrin, and Aleve.

“Many drugs with black-box warnings are typical first-line medications that are low-cost, usually extremely effective, and are some of our members’ most frequently used medications,” Blue Cross N.C. said in a statement. “Under this law we could not recommend ibuprofen be taken instead of opioids.”

Insurers argue that both the couponing requirements and the appeals process would cripple their ability to keep drug costs from soaring further upward.

“Insurance is already expensive because of existing regulations, BCBSNC Vice President Mark Fleming told the House Health Committee. “More regulations will not help.”

The State Health Plan asked to be removed from the bill because it shared insurers’ concerns over cost increases.

“Entities like pharmaceutical companies stand to gain quite a bit from a bill like this,” Kraskin said. “By removing the incentive to seek lower prices from one of the gatekeepers, in this case the pharmacist, pharma is better positioned to continue raising prices and passing them onto the consumer.”

But as the bill goes to the Senate, pharmacists praise it for increasing transparency, while warning independent pharmacies are imperiled.

“Independent pharmacies are in trouble,” Kinston pharmacist Miranda Wiggins told the House Health Committee. “A lot of them are waiting to see what happens with this bill. A lot of us are making our plans for closures. We cannot survive what is going on currently.”