state contracts conceal the profits being made by pharmacy benefit managers for squeezing pharmacies

Drastic cuts in what Illinois pharmacies are paid for filling Medicaid patients’ prescriptions will cause many to lay off employees or close in coming months, pharmacy advocates say.

The financial crisis for owners of independent and small-chain pharmacies has accelerated since the April 1 expansion of the state’s Medicaid managed-care program to all 102 Illinois counties, according to the Illinois Pharmacists Association.

“We’ve got to fix this,” said Garth Reynolds, executive director of the Springfield-based association. “This is far and away the most egregious situation we’ve seen.”

Many owners of the state’s more than 500 independent pharmacies and smaller chains — including those in the Springfield area — are being paid less than the “acquisition cost,” or wholesale price, of the medicines they dispense to Medicaid patients.

Reynolds said pharmacies also have seen their per-prescription “dispensing fee” from Medicaid — designed to cover professional services — drop from $5.50 for generics and $2.40 for brand-name drugs under the previous “fee-for-service” system to the current 45 cents per prescription.

At least one of those PBMs, CVS Caremark, pharmacy benefit manager for the huge CVS Pharmacy chain, appears to be working with CVS Pharmacy to put smaller pharmacies out of business so CVS can acquire them, Reynolds said.

“It’s kind of a predatory market practice and misuse of state tax dollars,” he said.

CVS officials didn’t respond to requests for comment.

PBMs are hired by private companies called managed-care organizations, or MCOs, to process payments to pharmacies. MCOs have contracts with the state to carry out the Medicaid managed-care program now serving 80 percent, or 2.7 million, of Illinois’ 3.14 million Medicaid recipients.

The Illinois Department of Healthcare and Family Services has said Gov. Bruce Rauner’s expansion, or “reboot,” of Medicaid managed care will lead to annual savings of $200 million to $300 million, or more than $1 billion in savings over the life of the four-year contract for HealthChoice Illinois.

A bill that would require Healthcare and Family Services (HFS) to pay pharmacies “fair and reasonable” reimbursement rates — at least equal to the former fee-for-service rates — has bipartisan support and passed the Illinois House, 87-16, on Thursday.

Those voting “yes” to House Bill 3479 included Reps. Sara Wojcicki Jimenez, R-Leland Grove; Tim Butler, R-Springfield; and Sue Scherer, D-Decatur. Rep. Avery Bourne, R-Raymond, was absent from the vote but is listed as a co-sponsor of the bill, which now will be considered by the Senate.

Health and Family Services, an agency controlled by the Republican governor, opposes the bill but didn’t respond to a request for comment from The State Journal-Register.

Also opposing the legislation are two organizations representing private companies that are part of the Medicaid managed-care program.

Samantha Olds Frey, executive director of the Illinois Association of Medicaid Health Plans, said in a written statement that the bill could require Medicaid plans to pay above fee-for-service rates.

She said the bill “removes all incentive for all pharmacies throughout the state to acquire pharmaceuticals in a cost-efficient manner.”

Members of Frey’s association “see great value in independent pharmacies, especially those in rural communities throughout the state,” she said. “No one can argue that they are not an important part of our health-care system. However, this bill does not just address independent pharmacies. It requires more taxpayer dollars going to chains and ‘big-box’ stores.”

Officials at Deerfield-based Walgreens — another of the state’s largest pharmacy chains — declined comment.

The Pharmaceutical Care Management Association, based in Washington, D.C., and representing pharmacy benefit managers, said in a written statement that HB 3479 would “grant a ‘blank check’ to independent drug stores by requiring higher payments for prescription drugs in Medicaid while removing incentives to dispense lower-priced, equally effective options for patients.”

The proposed law, according to the PCMA, “pads the profit margins of Illinois independent drug stores at a time when consumers are concerned about rising health costs and the state faces serious budget challenges.”

Reynolds responded that pharmacy benefit managers are the ones getting a blank check from the state because of the state’s lack of oversight.

“We’re trying to keep pharmacies operational to be available to patients in their communities,” he said.

Pharmacist David Falk, who supports HB 3479, is the owner of the Decatur-based Sav-Mor Pharmacy chain, which includes stores in Virden, Nokomis and 11 other downstate communities.

Falk said his drug stores posted an average profit per Medicaid prescription of $6.77 under the fee-for-service system. That profit took into account the wholesale cost of medicines and dispensing fees.

Under Rauner’s reboot of managed care, however, Falk’s average profit has dropped to 89 cents per Medicaid prescription. Depending on the store, Medicaid represents between 18 percent and 42 percent of his stores’ total revenue, Falk said.

Unless the situation changes, he said, “I will go out of business.”

Two of his pharmacies — in Neoga and Toledo, both in Cumberland County, northeast of Effingham — “won’t make it until the end of the year,” he said.

The financial pain has been similar for Michelle Dyer, a pharmacist and owner of Michelle’s Pharmacies in Carlinville, Gillespie and Bunker Hill, where Medicaid makes up about 40 percent of total revenues.

“I can’t pay my bills,” she said, adding that she has had to borrow to make ends meet.

Pharmacist Byron Berry, who owns and operates Pharmacy Plus sites in Carrollton, Roodhouse, Winchester and Barry, gets 25 percent to 35 percent of his revenues from Medicaid.

It’s frustrating that state contracts conceal the profits being made by pharmacy benefit managers for squeezing pharmacies, Berry said.

It’s unknown how much of that “savings” is being passed on to managed-care organizations or the state, he said. Also unknown, he said, is how much money pharmacy benefit managers are receiving in “rebates” from pharmaceutical manufacturers to pad their own profits.

The pharmacy owners said it’s wrong when CVS Caremark hits small pharmacies with low payment rates for serving Medicaid patients and CVS Pharmacy follows up with letters to those same pharmacies containing offers to purchase.

A copy of one such letter, distributed to lawmakers by the Illinois Pharmacists Association, says CVS wants to ease the stress of what the letter describes as “mounting challenges” that include “declining reimbursements.”

Not all pharmacies that end up going out of business will end up being acquired, Berry said. Some will close and leave large swaths of downstate Illinois without a local pharmacy, he said.

“We take care of our people in these small towns,” Berry said.

Several states are taking a closer look at how Medicaid managed care is affecting small pharmacies, Reynolds said. Arkansas lawmakers and that state’s governor recently approved a new law to regulate pharmacy benefit managers.

At an Illinois House subcommittee last week, several lawmakers were receptive to pharmacy owners’ complaints about pharmacy benefit managers. Lawmakers said fewer pharmacies will mean less access to care for patients.

“What is the patient supposed to do while we’re searching around for the best deal?” asked Rep. Mary Flowers, D-Chicago.

“We’re talking about people’s lives. … We need the pharmacists. We do not need the middleman; they are not accountable to anyone.”

The payment cuts threaten the future of pharmacist Beax Cole’s Medicine Shoppe pharmacies in Springfield and Jacksonville. Those stores receive up to one-quarter of their revenues from Medicaid, Cole said.

Rachel Hinkle of Auburn said the Springfield Medicine Shoppe has provided expensive, compounded medicines to help her 8-year-old son, Matthew, deal with neurological problems and a genetic condition known as Angelman syndrome.

Cole has had to wait months for thousands of dollars in reimbursements for the life-sustaining medicines under the fee-for-service Medicaid system, and now he said he is having problems getting the medicines covered under the managed-care reboot.

Hinkle she doesn’t know what she would do if she lost access to the Medicine Shoppe.

“Thank God they think of the patient,” she said. “They just want to make sure Matthew is taken care of. Shouldn’t people be the priority?”

Medicare and Medicaid are suppose to grant beneficiaries the “freedom of choice” of providers… Of course, if the bureaucracy reduces reimbursement to a point it drives out many of the providers… “freedom of choice” may come down to a few providers – mostly corporate providers that may – or may not – meet the pt’s needs.

It is generally considered that it costs $12.00 to fill a prescription – to cover all the costs of the pharmacy and according to this article, the state of Illinois has reduced “profits” to $0.89. While such entities – like CVS Health/Caremark – a PBM…  whose administrative costs are not accountable to anyone… is also a competitor to many of the smaller pharmacies that they are determining the profitability of those competitors.

Here is a recent post  Lawmakers, Pharmacists Meet with CVS over Regulation of Pharmacy Benefit Managers   where the Treasurer of Arkansas did a CVS/PBM price audit on some 250 + different medications and ON AVERAGE… CVS/Caremark paid CVS pharmacies $60.00 to fill a prescription over what they paid their competitors.

Presuming the $12/Rx overhead cost of filling a prescription. Under this program CVS pharmacies were paid FIVE TIMES what it cost to fill a prescription.  Is this just predatory business practices or anti-competitive behavior ?

3 Responses

  1. […] state contracts conceal the profits being made by pharmacy benefit managers for squeezing pharmacies […]

  2. CVS, walgreen, walmart pharmacies…….can you say monopoly?????????

  3. This is also called collusion between state/federal government agency for profit,which is illegal.Thee other piece of info I share is,,and this applies to all private business the government hires out..The reason they LIKE to hire private business,,is because they are NOT subjected to all the laws that govern a government agency,UNDERSTAND,,Bottum line is,,corrupted agency have no use for truth,and its all corrupted now a days,,maryw,

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