FRANKFORT — A bill to eliminate the role of corporate middlemen who handle Medicaid prescription drug claims passed a Senate committee Wednesday, despite protests that it could have the unintended impact of cutting funds for hospitals and community health clinics that serve the poor.
“Our membership is very strongly opposed to the passage of this bill in its current form,” Nancy Galvagni, president of the Kentucky Hospital Association, told the Senate Health and Welfare Committee.
But Sen. Max Wise, a Campbellsville Republican and sponsor of Senate Bill 50, said he is determined to push through a measure to rein in middlemen known as “pharmacy benefit managers,” or PBMs, that he said are squeezing Kentucky pharmacies out of business.
Still, Wise said he is willing to continue to work with those opposed to SB 50, including Jane Wheatley, the CEO of his hometown hospital, Taylor Regional, who spoke against it at Wednesday’s hearing
“I do feel like were going to find a compromise,” said Wise, whose bill passed 8-0.
Committee members voted for SB 50, arguing it is needed to save local pharmacies from PBMs, even as they expressed concerns about unintended effects on a separate funding stream for hospitals and community clinics.
Among them was Stephen Meredith, a Leitchfield Republican and retired hospital CEO.
“We have to do something,” he said “What has happened to individual pharmacies is reprehensible. I think it’s immoral and it may be criminal.”
Supporters of SB 50 argue the state could save money by eliminating PBMs.
A spokesman for CVS Health, a national PBM which handles most of Kentucky’s Medicaid drug business, disputes that, saying its analysis shows cutting out PBMs would cost the state more.
“Every day, we help Kentucky’s Medicaid enrollees achieve better health outcomes while simultaneously holding down costs for the program and for Kentucky’s taxpayers,” said Joe Goode, senior director of corporate communications.
He said CVS is willing to work with lawmakers and others to “demonstrate that there is significant value in drug benefits being in managed Medicaid.”
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But the main focus of Wednesday’s hearing was on how to get rid of PBMs without hurting hospitals and clinics across Kentucky by cutting their access to a pool of funds from discounted drugs that totals millions of dollars a year.
Michael Stanley, CEO of Grace Health, a network of community health clinics in Eastern Kentucky, said his organization uses the money for extra services, such as providing nurses and clinics in local schools.
“There are consequences, unintended consequences of Senate Bill 50,” he said.
Wise said he will keep trying to address such concerns.
SB 50 is meant to aid pharmacies, particularly those in rural areas or small towns whose owners said they have been unfairly squeezed by the low reimbursements, “claw backs” of funds and other practices of PBMs that handle most of the state’s Medicaid prescription drug business.
Don Kupper, president of the Kentucky Pharmacists Association, and Rosemary Smith, founder of the Kentucky Independent Pharmacists Alliance, say they support eliminating PBMs from the state Medicaid program but are willing to discuss alternatives.
“Yes, we’re willing to compromise,” said Smith, owner of several Eastern Kentucky drugstores.
Currently, PBMs subcontract to outside managed care health companies that handle most of the state’s $ 11-billion-a-year Medicaid program.
Under SB 50, the state would “carve out” most of Medicaid’s $ 1.7 billion a year prescription drug business from the managed care companies, eliminating the role of PBMs.
Instead, the state would reimburse drugstores directly for prescriptions. Currently, claims go to the PBMs for payment.
But other health groups that get money through a federally approved program known as the “340B Drug Pricing Program” said Wise’s bill would have the unintended effect of cutting off access to millions of dollars they get through through steep discounts on prescription drugs covered by Medicaid.
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They include community health clinics, such as Family Health Centers in Louisville, and many hospitals — especially those in rural areas.
Under federal law, health facilities serving Medicaid patients get discounts from drug companies for prescription medicine. They, in turn, bill Medicaid at a higher standard rate for the drugs and keep the savings to pay for extra services for low-income patients.
The savings are, in effect, a subsidy from pharmaceutical companies and are available only to clinics and hospitals that serve low-income patients and bill through Medicaid managed care programs.
“It’s a really important source of revenue,” said Bill Wagner, CEO of Family Health Centers in Louisville.
But the discounts — and extra money for clinics and hospitals — end if the state begins to pay directly for prescription drugs through its Medicaid program. Officials said at Wednesday’s hearing they don’t believe it’s possible to somehow exempt hospitals and clinics if the state eliminates PBMs.
Since the program began in 1990, hospitals and clinics have used the money from discounted drugs to pay for extras, such as school clinics and better oversight of patients with chronic diseases, such as diabetes.
PBMs have been under fire in Kentucky and other states in recent years from pharmacists who claim they cut payments to drugstores while charging higher rates to state Medicaid plans and keeping the difference as profit.
That practice, known as “spread pricing,” was the subject of a state analysis last year called “Opening the Black Box,” a term some lawmakers and other officials have used to describe what they say is the secretive system of pharmaceutical pricing.
The February report found that PBMs took in $ 123 million through “spread pricing,” the difference between what the pharmacy benefit company pays the pharmacist and what it bills the state Medicaid program, according to the report.
In 2018, when Wise made a similar proposal to carve out prescription benefits, the administration of former Gov. Matt Bevin claimed it would cost the state $ 36 million, an amount some lawmakers disputed. Wise revised his 2018 bill to require more detailed reporting from PBMs and more analysis from the state.
More recently, a November report by an outside consultant, hired by the Bevin administration found Kentucky’s Medicaid program could save nearly $ 240 million a year on prescription drug costs by eliminating PBMs. But the administration later backed off the report and cautioned that there may have been some errors in data used by the accounting firm Myers and Stauffer and said further study is needed.
The state plans to release a revised version of the report later this year.
Reach Deborah Yetter at dyetter@courier-journal.com or 502-582-4228. Find her on Twitter at @d_yetter. Support strong local journalism by subscribing today: www.courier-journal.com/subscribe.