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On January 1, 2017, the KHI News Service became part of KCUR public radio’s new initiative, the Kansas News Service. The Kansas News Service will continue to cover health policy news and broaden its scope to include education and politics. All stories produced by the former KHI News Service are archived here. Stories and photos may be republished at no cost with proper attribution and a link back to KHI.org.

Pharmacists, benefit managers look for middle ground on price control

Bill introduced by pharmacist legislator would place more scrutiny on prescription drug controls

By Andy Marso | February 12, 2015

Pharmacists, benefit managers look for middle ground on price control
Photo by Andy Marso Sen. Vicki Schmidt, at center in blue, gathers a group of pharmacists and health insurance industry representatives after a Thursday hearing on a bill about drug reimbursement price controls.

Kansas pharmacists butted heads with health insurance industry representatives Thursday at a hearing about reimbursement price controls.

After a contentious hearing, Sen. Jeff Longbine, the chairman of the Senate Financial Institutions Committee, urged the parties to come to some compromise on Senate Bill 103. The bill would increase state scrutiny of pharmacy benefit managers, or PBMs, which insurers use to control prescription drug costs.

Longbine said the committee could debate, amend and vote on the bill late next week.

After the hearing, Sen. Vicki Schmidt, a Topeka Republican and pharmacist, gathered the stakeholders for an impromptu discussion of how to find common ground before then.

There appeared to be some chance that would happen, though the PBM representatives expressed frustration at having to negotiate a compromise in one week with possible action on the existing bill hanging over the negotiations.

Senators appeared largely reluctant to wade into a debate about health care financing mechanisms between two major players in the industry: pharmacists and health insurers.

Health insurance companies contract with PBMs to lower the costs of reimbursing policyholders for prescription drugs.

One of the main tools the PBMs use to do that is a maximum allowable cost, or MAC, list for generic drugs. The MAC list is a set of reimbursement limits that is tied to the lowest national wholesale price of a specific generic medication.

PBMs and health insurers say using the MAC list encourages pharmacists to aggressively shop for the best prices on prescription drugs, which controls costs. Pharmacists say the MAC limits don’t always keep up with the actual wholesale cost of the drugs in their region, and it’s often fruitless to appeal a reimbursement.

Shrinking pharmacy profit margins

Pharmacists testified Thursday that they are losing money on certain prescriptions because they cost more to fill than they receive in reimbursement.

Doug Funk, president of Funk Pharmacy in Concordia, said that as recently as 2013 he took a financial loss on only about 3 percent of the prescriptions he filled. But that percentage has burgeoned since.

“By the end of 2014 it was up to 12 percent (of prescriptions) below our actual invoice cost, and a lot of that has to do with what the MAC is,” Funk said.

Jody Reel, pharmacist at Sabetha Health Mart, acknowledged that pharmacies make large profit margins on some drugs. But she said increasingly those margins are not enough to offset the costs of the drugs they lose money on, and it’s driving pharmacists out of business, especially in rural areas.

If changes aren’t made, she said, rural consumers will start to see the effects in the form of longer trips to get their medications.

“These local businesses are becoming not viable financially because of the fact we cannot set our sale prices,” Reel said.

Other pharmacists and the executive director of the state pharmacy association also testified in favor of Senate Bill 103.

The bill, introduced by Schmidt on behalf of the state’s pharmacists, would require PBMs to send updated MAC pricing lists weekly, limit the types of drugs that can be included in MAC lists, impose fines for noncompliance and empower the Kansas insurance commissioner to revoke PBM registrations, which the state requires for them to do business.

Encouraging ‘aggressive shoppers’

Opponents of the bill included representatives from three PBMs: Prime Therapeutics, Express Scripts and CVS Health.

Allyson Blandford, a government affairs manager for Express Scripts, the nation’s largest PBM, said limiting the type of drugs that can be placed on a MAC list could drive up costs for insurers.

She said the manuals her company distributes to pharmacy providers list the MAC reimbursement rates, and updated lists are available upon request. If a pharmacy believes a MAC-limited reimbursement rate is too low, it can go through the appeals process, which Blandford said is simple.

Blandford said her company has no financial interest in bleeding pharmacies dry.

“It doesn’t benefit us in any way to put a pharmacy out of business,” she said.

David Root, the senior director for Prime Therapeutics, which is the PBM for Blue Cross and Blue Shield of Kansas, emphasized that the goal of the MAC list is to encourage pharmacists “to be the most aggressive shoppers they can be.”

Root said some pharmacists pay more than they have to for certain drugs because they belong to a pharmacy services administration organization. These organizations pool independent pharmacies’ resources to help with administrative functions, such as purchasing wholesale drugs and filing reimbursement claims.

While participating in a pharmacy services administration organization might be a convenient way to purchase wholesale drugs, Root said, it does not guarantee the lowest price on some drugs.

He said that PBMs and their MAC lists cannot be held responsible if pharmacists lose money on a drug because their pharmacy services administration organization failed to negotiate the lowest purchasing price.

Root also encouraged the Senate committee to look at pharmacies’ entire financial portfolio rather than “cherry-picking” those prescriptions on which they lose money.

“They do lose money on some drugs,” Root said. “However, there are a number of drugs that they make a significant sum of money on, and there are even more drugs that they make a reasonable amount of money on.”

That seemed to resonate with Sen. Rob Olson, a Republican from Olathe who requested that the committee’s researchers find more information on prescriptions with high profit margins for pharmacists.

‘Governmental intrusion’

A lobbyist for America’s Health Insurance Plans also testified against the bill, urging the Legislature not to insert itself in the issue. Kansas Chamber of Commerce CEO Mike O’Neal provided similar testimony, calling the bill an “unnecessary governmental intrusion on free, competitive enterprise.”

Schmidt is one of a handful of moderate Republicans left in the Senate whose seats have been targeted by the Kansas Chamber in previous Republican primaries.

She said SB 103 is similar to an optometry reimbursement measure enacted overwhelmingly last year after it was promoted by Sen. Jim Denning, a more conservative Republican from Overland Park whom the Kansas Chamber has supported. Denning works for Discover Vision.

Other proponents of SB 103 said it borrows from regulations already imposed on PBMs working for the three insurance companies administering Kansas Medicaid under KanCare and regulations the federal government is putting into effect for Medicare.