Program Review and Investigations Committee




<MeetMDY1> January 23, 2012


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Monday,<MeetMDY2> January 23, 2012, at<MeetTime> 3:00 PM, in<Room> Room 129 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jimmy Higdon, Co-Chair; Representative Fitz Steele, Co-Chair; Senators Vernie McGaha, Joey Pendleton, John Schickel, Brandon Smith, and Katie Kratz Stine; Representatives Dwight D. Butler, Leslie Combs, Terry Mills, David Osborne, and Arnold Simpson.


Legislative Guests: Senator Julie Denton; Representative John Will Stacy.


Guests: Rosemary Smith, Pharmacist and Owner, Jordan Drug, and Board Member, Kentucky Independent Pharmacist Alliance. Luther Smith, Pharmacist and Owner, Jordan Drug. Jason Wallace, Pharmacist and Owner, Grant County Drugs. Neville Wise, Acting Commissioner, Department for Medicaid Services, Cabinet for Health and Family Services.


LRC Staff: Greg Hager, Committee Staff Administrator; Christopher Hall; Sarah Harp; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; Kris Harmon, Graduate Fellow; Stella Mountain, Committee Assistant. Bobby Sherman, Director.


Medicaid and Independent Pharmacies


Rosemary Smith thanked Chairman Steele for the opportunity to testify on behalf of independent pharmacies. Eighty-five days into its implementation, managed care has been disastrous for Kentucky’s independent pharmacists. Jordan Drug is among Kentucky’s 560 independent pharmacies. It has operated eight pharmacies in rural eastern Kentucky for over 40 years. She cited examples of Jordan Drug being the only pharmacy or one of only two pharmacies servicing a community or county. The pharmacy’s business is 95 percent prescription volume, of which close to 40 percent is Medicaid. They offer personalized service and provide expert medication counseling and other cost-saving services to customers.


The reimbursement cuts under managed care endanger patients’ access to a pharmacy of their choice and will force many independent pharmacies out of business. As a result of the implementation of managed care, Jordan Drug has laid off 11 of its 50 employees (22 percent).


In the summer of 2011, she and Luther Smith started the Kentucky Independent Pharmacist Alliance (KIPA), whose membership has grown rapidly. KIPA is collecting data on lay-offs, store closures, and stores being forced to sell to chains as a result of managed care. Managed care organizations (MCOs) and pharmacy benefit managers (PBMs) are killing independent pharmacies and are compromising the health of patients by preventing access to medications. Independent pharmacies are continually forced to fill prescriptions for less than it costs them to buy the medication. She described the experience of Michael and Elizabeth Berry, who opened a pharmacy in Maysville, but are in danger of losing their business due to the implementation of managed care. Pharmacy is the only provider group that had no opportunity to contract with the three new MCOs. Pharmacy was rolled into existing national contracts that many pharmacists still have not seen.


She cited two studies of the cost of filling Medicaid prescriptions: $5.83 in Kentucky in 1993 and $9.59 in Minnesota in 2006. Prior to the implementation of managed care on November 1, dispensing fees for Kentucky Medicaid were $4.50 for brand drugs and $5.00 for generics, and the state maximum allowable cost (MAC) list was uniform and reasonable with an effective appeal process. Under managed care, dispensing fees are approximately $1. Most MAC appeals are denied even when the pharmacy submits invoices indicating that its cost to fill a prescription is less than the MAC price.


The 2012 legislative session is critical to the survival of independent pharmacies. KIPA’s goals include passage of HB 262, which restores the pre-managed care Medicaid co-payment structure; reasonable rates for Medicaid managed care; transparency of MAC pricing; that mail order not be mandatory for patients; and that Medicaid patients be afforded the same consumer protections as those with private insurance. Ms. Smith concluded by urging the committee to obtain PBMs’ contracts and investigate their practices.


Representative Steele described his recent experience in obtaining a needed prescription from his local independent pharmacy after not being able to do so at chain drugstore pharmacies. Local independent pharmacies offer prompt and personal service.


In response to a question from Senator Pendleton, Mr. Wallace said Passport has not changed reimbursement for prescriptions and there is a big difference in payments to pharmacies among the other three MCOs. One MCO is treating independent pharmacies fairly and met with them about the contract prior to implementation. The other two MCOs are killing independent pharmacies. Senator Pendleton said that is what he is hearing from pharmacists in his area.


In response to a question from Senator Pendleton, Mr. Wallace said that getting paid promptly is not an issue at this time. At issue is how much independent pharmacies are being reimbursed for the cost of drugs; the cost is arbitrary. The details of contracts are unknown.


Senator Pendleton asked whether a pharmacy will be reimbursed if it cannot get immediate prior approval from an MCO but dispenses a partial filling of the prescription anyway. He asked how long it takes to get prior approval. Mr. Wallace said if it is a Medicaid patient, the patient will probably go without the medication. Sometimes a pharmacy gives just sufficient medication to patients while getting prior approval, but the pharmacy does not receive reimbursement for medication given until the date of prior authorization. In response to a question from Senator Pendleton, Ms. Smith said that getting approval is a problem with all three MCOs.


Senator Pendleton expressed his hope that this issue can be addressed in this legislative session. He said there are no big box stores in rural Kentucky. He is aware of other health care areas besides pharmacies having trouble with prior authorizations.


Senator Stine asked for the Cabinet’s assessment of the current situation. She asked whether the Cabinet envisioned disparate treatment for pharmacies and providers, and whether it envisioned that reimbursements would be less than the actual cost of the medicines. Mr. Wise said the requirement of the MCOs is to assure that the Medicaid recipients have access to services. The Cabinet envisioned that the MCOs would have to pay sufficient rates to providers to ensure that recipients do have access to services. The Cabinet did not envision that MCOs would piggyback the independent pharmacies onto existing commercial contracts. The Cabinet understands the plight of the independent pharmacies. The two MCOs that independent pharmacies are not happy with have made some concessions and there have been productive meetings. But how much it has helped depends on whom one speaks with.


Senator Stine said if independent pharmacies are unable to stay in business, patient access would be a problem. Mr. Wise said there would be sanctions if there was no access under the MCOs.


Representative Simpson asked if there are thresholds that MCOs must pay independent pharmacies. Mr. Wise said the rates must be sufficient for providers to participate. Representative Simpson asked how independent pharmacies can continue to operate if they are paid less than their actual expenses. Mr. Wise said for now, the independent pharmacies are continuing to participate. Representative Simpson asked whether the MCOs would be willing to pay more if the independent pharmacies resigned as providers. Mr. Wise said the MCOs would have to continue to provide access for the members and they would have to take measures to ensure access. Representative Simpson asked whether the state can address the problem if the MCOs do not enforce their contracts with the independent pharmacies. Mr. Wise said that the two MCOs that were not paying sufficient rates have increased their rates.


Ms. Smith clarified that two MCOs increased the reimbursement on dispensing fees only for generics but then decreased the drug reimbursement, which cancelled it out. This increase went to a few independent pharmacies in rural areas; it did not affect Passport or independent pharmacies in urban areas. In January, there were drastic cuts to MAC reimbursements, so independent pharmacies lost money. Mr. Wallace added that the MCOs slashed drug reimbursement by over 20 percent on generic drugs. This meant that his pharmacies lost over 20 percent in payments for the top 45 drugs they dispense. Even with the increase in dispensing reimbursement, a pharmacy in an underserved area would still be in the hole.


Senator Schickel said that in Northern Kentucky this is an access issue. He thanked Mr. Wallace for the service he provides and said that the legislators take this very seriously as it is a critical issue for citizens.


Senator Higdon asked how reimbursement works and how reimbursement can be lower than the cost of the product. Mr. Wise said trying to get at the bottom of what actual ingredient costs for pharmaceuticals are has been the most complicated matter he has experienced in implementing managed care. Pharmacies have anti-disclosure clauses in their contracts with their suppliers, so it is very difficult to find out the cheapest amount for which a drug is available from a supplier. Senator Higdon said that reimbursement for a product dispensed should be at least for what it costs. He cannot imagine how they have a formula that lets the MCOs pay less. Mr. Wise said that the MCOs are saying that they know of a source where these drugs can be purchased at that lower price. Mr. Wallace said that they would like to see where that source is. Senator Higdon asked how they can show this to the independent pharmacies. Mr. Wise said it is very hard to trace this because of competitive agreements.


Senator Higdon said that the Program Review and Investigations Committee is the only committee in the legislature that has subpoena power. He asked whether they need to exercise that power to find the answers to this situation. Mr. Wallace said they would like to know how they arrive at these reimbursement rates. There are three or four regional wholesalers that all independent pharmacies have access to. If the MCOs were using the drugs that the independent pharmacies have access to, they would like to know how they determine the reimbursement rates.


Senator Pendleton made a motion to exercise the committee’s subpoena power and get the MCOs in for questioning. Representative Steele seconded the motion.


Representative Stacy said that, in the interest of full disclosure, he is a partner in two independent pharmacies in rural Eastern Kentucky. He said that if something is not done in this session concerning this issue, there will be hundreds of Kentucky independent pharmacies going out of business. If MCOs do not honor these contracts, once a provider is lost in a rural area, it will take a long time to regain access. The big chain drugstores are not here today. They are owned by wholesalers and thus, their profit is built in. The problem goes beyond the MCOs. Buying groups bear a lot of responsibility. Independent pharmacies are held to terms of a contract with a buying group they cannot see. PBMs also have contracts the independent pharmacies cannot see. It is the fault of the buying groups, the PBMs, and to a lesser extent, the MCOs. If they just reimburse the independent pharmacies at cost, the independent pharmacies cannot stay in business; they must be able to make a profit.


Representative Steele explained that the motion is to exercise the committee’s subpoena power but that staff would first gather more specific information to be reviewed by the committee. Representative Simpson asked for clarification that this motion pertains to the broad topic of issuing a subpoena and letting third parties know that this committee is going to do that, but that the committee is going to further define the information needed by committee action, with staff input.


Representative Simpson suggested that the original motion and second be withdrawn and that a new motion be made. Representative Steele withdrew his second of the motion. Senator Pendleton said that he wanted clarity before he would withdraw his motion. He said that the only time that the committee has issued a subpoena was when he was chair. When witnesses were put under oath, responses were more informative. His motion was to exercise the committee’s subpoena power to get the necessary groups together and put them under oath.


Representative Simpson asked if the subpoena would apply to documents as well. If so, the scope of that would have to be defined. Representative Stacy said that if the motion is a broad motion to subpoena individuals and records associated with this issue, that gives the co-chairs and staff enough room to bring in people and/or documents that may be needed.


Senator Pendleton withdrew his motion. He made a second motion that the co-chairs get together concerning the exercise of subpoena power and report back to the committee by February 1.


Mr. Sherman said that if the motion passes, staff would work with the co-chairs of the committee to suggest documents for consideration by the full committee when it meets next month. Such documents might include potential subpoena documents once the committee decides how it wants to proceed.


Senator Schickel seconded Senator Pendleton’s motion. The motion was adopted by roll call vote.


Senator Smith moved to have the emergency information to committee members by the following day or as soon as possible. Representative Steele said it would take staff longer than a day to gather the information. Representative Combs asked that information be provided no later than the following Monday. Representative Steele agreed with the request.


Approve Minutes for December 8, 2011


Upon motion by Senator Higdon and second by Senator Schickel, the minutes of the December 8, 2011 meeting were approved by voice vote, without objection.


Consideration of report Kentucky’s Community Mental Health System Is Expanding and Would Benefit From Better Planning and Reporting: An Update (presented at October 13, 2011 meeting)


Upon motion by Senator Higdon and second by Representative Simpson, the report was adopted by roll call vote.


Selection of Study Topics for 2012


This item on the agenda was not addressed in the meeting.


            The meeting was adjourned at 4:05 p.m.