Program Review and Investigations Committee




<MeetMDY1> February 13, 2012


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Monday,<MeetMDY2> February 13, 2012, at<MeetTime> 2:00 PM, in<Room> Room 129 of the Capitol Annex. Senator Jimmy Higdon, 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 Perry B. Clark, Julie Denton, Vernie McGaha, Joey Pendleton, John Schickel, and Katie Stine; Representatives Dwight D. Butler, Leslie Combs, Terry Mills, David Osborne, Ruth Ann Palumbo, and Arnold Simpson.


Legislative Guest: Representative John Will Stacy.


Guests: Auditor of Public Accounts Adam Edelen. Rosemary Smith, Pharmacist and Owner, Jordan Drug, and Board Member, Kentucky Independent Pharmacist Alliance. Jason Wallace, Pharmacist and Owner, Grant County Drugs. Neville Wise, Acting Commissioner, Department for Medicaid Services, Cabinet for Health and Family Services. Managed Care Organizations: Jim Giardina, Vice President, Pharmacy Services; Thomas Salinsky, General Counsel; Coventry HealthCare. Marty White, Vice President of External Affairs, Kentucky Spirit. Mike Minor, President; Alan Daniels, Pharmacy Director; WellCare of Kentucky. Pharmacy Benefit Managers: Bill Wolfe, President, Catalyst Rx. G. William Strein, Vice President Provider Relations, Medco Health Solutions. Don Nagy, Vice President, Pharmacy Networks, US Script. Pharmacy Service Administration Organizations: Alan Chazen, Executive Vice President of Managed Care Services, EPIC Pharmacy Network. Kenny Sanders, Vice President of Professional Affairs, American Pharmacy Cooperative.


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.


Approve Minutes for January 23, 2012

Upon motion by Senator Pendleton and second by Representative Combs, the minutes of the January 23, 2012 meeting were approved by voice vote, without objection.


            Representative Mills welcomed two independent pharmacists from his district: Mr. Steve Hill and Mr. Pat Mattingly.


Senator Higdon welcomed Senator Denton as a new member of the committee.


Selection of Study Topics for 2012

Senator Higdon said that he and Representative Steele recommend the following study topics for adoption by the committee: 1) boards and commissions, 2) Kentucky Retirement Systems and Teachers Retirement Systems, 3) impact and importance of the coal industry to Kentucky, 4) personal care homes, 5) four bills that have become law but the executive branch has not implemented, and 6) the medically fragile designation in the foster care system. Upon motion by Representative Mills and second by Senator Stine, the six study topics were approved by roll call vote. Senator Stine explained her yes vote by saying that there are other worthy study topics, and that the committee should not be limited in studying additional topics to ensure that government operates efficiently and serves the people. Senator Higdon said that additions to the topics can be made.


Senator Higdon welcomed Auditor Adam Edelen to the meeting.


Medicaid Managed Care and Independent Pharmacies

Senator Higdon mentioned that members’ folders have handouts on pharmacy reimbursement and possible legislative action. He asked staff to display and explain a diagram that shows how Medicaid managed care for pharmacy is set up.


Van Knowles showed a simplified diagram of how managed care works for Medicaid in Kentucky with regard to the pharmacies. He said the Department for Medicaid Services contracts with three managed care organizations (MCOs): Coventry Cares, Kentucky Spirit, and WellCare. Each contracts with a pharmacy benefit manager (PBM), in this case Medco, US Script and Catalyst Rx. The PBMs then offer Medicaid and other health plans to the pharmacy services administrative organizations (PSAOs) and the pharmacies. PSAOs are organizations that provide services to independent pharmacies to allow them to be more efficient and to get better pricing. As far as staff knows, the three PBMs have contracts with all the major PSAOs and with some independent pharmacies.


In response to a request from Senator Higdon, Mr. Knowles said that the MCOs are organizations that take on the risk of providing health services, including the pharmacy benefit. They agree to perform services for a fixed fee per member. Generally, MCOs do not provide pharmacy benefits directly. PBMs tend to have specialized software, expertise, and are already in the business of providing prescription service. PSAOs assist independent pharmacies with administrative tasks such as contracting for health plans. The PSAOs are formed in part because the independent pharmacists are prevented by anti-trust laws from banding together and organizing on their own. Most of what happens inside this diagram, however, is unknown. It is confidential proprietary information, particularly with regard to the amount of payments.


In response to questions from Senator Stine, Mr. Knowles said that a PSAO is a free-standing independent organization that works for the independent pharmacies, similar to a purchasing organization. Independent pharmacies contract with PSAOs, PSAOs sign contracts and agreements with PBMs, PBMs contract with MCOs, which contract with the state. A few independent pharmacies contract with PBMs without going through PSAOs.


Senator Stine asked if people are being served and have access to services. Mr. Knowles replied that the service requirements for MCOs should be passed along to the subcontractors.


In response to questions from Senator Stine, Mr. Knowles said that the basic structure for pharmacy services for Passport is similar to that of the new Medicaid managed care system. His recollection was that University Health Care contracts with AmeraHealth Mercy, and Perform Rx is the PBM.


In response to questions from Representative Combs, Mr. Knowles said that the diagram illustrates the relationships among entities for pharmacy services and all of it would not apply for other types of services. The money flows through the MCOs. They receive a fixed amount for each member in order to provide services needed.


Senator Stine asked what the difference is between the previous Medicaid system and the new system regarding reimbursement for cost of drugs and dispensing fees. Mr. Knowles said both systems have a drug cost and a dispensing fee but he has not obtained information about specific amounts. The dispensing fee under the previous system was $4.50 for brand drug and $5 for generic. His understanding is that the dispensing fee under the new system is considerably less than that. The reimbursement for the cost of the drugs has decreased. In response to a question from Senator Stine, Mr. Knowles said the payment information is included in the contracts between the PBMs and the PSAOs. Independent pharmacies have to agree to become part of that contract and by doing so, they accept the payment rate.


Senator Denton commented that only one of the three PBMs set up a separate Kentucky Medicaid plan. The other two PBMs folded Kentucky Medicaid into existing contracts. Pharmacies were not given an opportunity to negotiate that contract but had to accept the contract or be removed from the network. Within the contracts, the pharmacies may not turn anybody away but have to fill all the prescriptions within that contract; if they do not, they would be removed from the network. The pharmacies have no control as to what the reimbursements are going to be and they cannot decide which prescriptions they want to refill based upon whether they are going to be paid enough to cover their costs. Senator Denton commended the Auditor for looking into reimbursements on a global basis but it needs to be determined where all the money is going. Before managed care came into effect, the dispensing fee was $4.50. Now there is sometimes no dispensing fee. The average national actual dispensing cost is approximately $9, so the pharmacies are at a disadvantage.


Mr. Giardina said that Coventry, which has Medicaid health plans in 10 states, serves approximately 230,000 Kentuckians. In Kentucky, the company is known as Coventry Cares of Kentucky. It is committed to fixing problems quickly and will work with affected parties to understand and address their issues and concerns. Coventry contracts with the PBM Medco, which processes all pharmacy claims, provides 24/7 pharmacy customer service, and contracts with pharmacies to participate in the Medco network. Medco then makes the pharmacies in its network available to Coventry’s members to obtain covered drugs. Coventry is not privy to the terms of Medco’s contractual relationship with its contracted pharmacies.


Coventry develops and maintains the formulary, which is the list of drugs that are covered under the benefit plan. The company requires prior authorization before it will cover some drugs. The company handles requests by prescribing providers to cover drugs that are not on the formulary. All denied requests are reviewed by a physician licensed to practice medicine in Kentucky. He described Coventry’s transition program for members who were taking drugs not on the formulary prior to the Kentucky Medicaid contract. For members taking specified behavioral health and epilepsy drugs prior to managed care, Coventry removed the formulary restriction and prior authorization requirements.


On average, Coventry pays for 100,000 prescriptions each week for its Kentucky members at pharmacies that contract with Medco. Coventry reviews approximately 1,100 exception requests weekly for drugs that are not on the formulary, drugs that have prior authorization criteria, and quantity limits. Reviews are completed within two business days, and approximately 60 to 70 percent of these requests are approved.


Senator Denton asked Mr. Giardina if the committee has the contract between Coventry and Medco. Mr. Giardina said that Medco is providing this.


In response to questions from Senator Denton, Mr. Giardina said that the contract with Medco did not cover reimbursement or dispensing fees.


In response to a question from Senator Denton, Mr. Giardina said that the turnaround on preauthorizations for pharmacies is within two business days. Senator Denton cited the example of a preauthorization by Coventry for delivery of a baby that took 14 days.


Senator Denton asked what percentage of money paid by Coventry to Medco is for actual claims. Mr. Giardina said that he would have to ask for permission to provide that information.


Senator Pendleton said that if 60 to 70 percent of preauthorizations are accepted, what happens with the remaining 30 to 40 percent. Mr. Giardina said that for the 30 to 40 percent denied, with reasons given for the rejection, and instructions on how to appeal, are sent to the member. Senator Pendleton commented that if requests keep coming back because there is no preauthorization, this will cost more money. Mr. Giardina said that this should not happen because alternative drugs are offered as part of the preauthorization process.


Representative Stacy asked for the general counsel for Coventry to come to the table. In response to a question from Representative Stacy, Mr. Salinsky said that HB 262 would not cause a problem. He clarified a question from Senator Pendleton that there are 100,000 preauthorizations a week of which only 11,000 are exceptions. The 30 to 40 percent denied are of those 11,000 a week.


Representative Combs asked where the main office of Coventry is and whether there is an office in Kentucky. Mr. Salinsky said the main office is in Bethesda, Maryland; the state office is in Louisville.


Marty White testified that in many areas Kentucky Spirit’s members only access to pharmacy services is through independent pharmacies. The relationship between Kentucky Spirit Health Plan, US Script, and Centene is unique. Centene is a leading multi-line healthcare enterprise. Kentucky Spirit Health and US Script, its PBM, are wholly-owned subsidiaries of Centene. Don Nagy, with US Script, began meeting with pharmacists before Centene and Kentucky Spirit were awarded the Kentucky Medicaid contract and he has continued to do so.


Kentucky Spirit has been fair in contracting with pharmacists by providing a Kentucky-specific contract and by reimbursing pharmacies using a dispensing fee that is comparable to what was received under Medicaid fee for service. Updates to maximum allowable cost (MAC) pricing have been timely. Kentucky Spirit is committed to paying pharmacists in a timely fashion. Early in the implementation process, as the result of a system glitch, some payments were delayed or inaccurate. Pharmacists were notified, and the problem has not been repeated. Kentucky Spirit’s payment cycle to Kentucky pharmacists is timelier than is contractually obligated.


Based on discussions with pharmacists, exemptions to the four drug limit were expanded. Based on discussions with pharmacists and the behavioral community, a policy change grandfathered most behavioral health medicines that patients take that have proven effective in their treatment. He closed by saying that Kentucky Spirit respects and understands the important services independent pharmacists provide to the plan’s members and that he is confident you will hear the same from pharmacists.


In response to a question from Representative Combs, Mr. White said that Kentucky Spirit’s head office, Centene, is located in St. Louis, Missouri, and the Kentucky office is in Lexington. The company has about 200 Kentucky employees.


In response to a question from Representative Steele, Mr. White said that Kentucky Spirit has no problem with HB 262.


In response to a question from Representative Osborne, Mr. White said the contractual relationship between Kentucky Spirit and US Script is unique and provides the advantage of having one team work with pharmacists.


In response to questions from Senator Denton, Mr. White said that the contract between Kentucky Spirit and US Script did not cover pharmacy payments. US Script negotiated new Medicaid contracts and did not fold them into existing contracts. He said that he would provide the contract. He said that the company is caught up on the backlog of claims, and claims are now processed within two days. Senator Denton asked what percentage of money paid by Kentucky Spirit to US Script is for actual claims. Mr. White said that he would provide this information as well as the dispensing fee.


Mike Minor testified that WellCare wants to have as many qualified pharmacies as possible in network and available to its plan members. The company remains focused on ensuring access to services in the context of providing comprehensive, quality health care services for members. When Medicaid managed care was initiated in November, WellCare had 1,021 pharmacies; it has 1,116 pharmacies now, a 9 percent increase. Almost all WellCare members have access to at least one pharmacy within 15 miles.


He said that, after listening to pharmacy concerns, WellCare offered a second proposal, with higher reimbursement to Kentucky independent pharmacists using previously unbudgeted funds. Nearly all of the independent pharmacies accepted. Pharmacies that accepted this contract are now reimbursed at aggregate levels that are equal to or higher than what pharmacies receive from Medicare and the private, commercial insurance markets.


Based on feedback from pharmacists, WellCare initiated a number of approaches designed to ease the transition for pharmacies and our members they serve. These include not implementing mail order pharmacy in Kentucky and not enforcing the four prescription limit used in traditional fee for service. WellCare also developed a 90-day transition of care plan that allowed members to continue existing pharmacy medications.


Subsequent feedback from independent pharmacists was that WellCare’s PBM’s MAC rates for certain drugs did not match what the independent pharmacies had to pay to acquire those drugs. In response, WellCare implemented a daily MAC appeal process for Kentucky pharmacies through which drug pricing for pharmacy providers is adjusted in real time and price adjustments are retroactive.


Since November 1, WellCare has paid over 675,000 pharmacy claims and only received 332 appeals. Over 50 percent of the appeals were from 12 pharmacies; one pharmacy accounts for over 10 percent of all appeals. No comments have been heard on medications where the MAC price allows pharmacies to make above average margins. For every drug for which the MAC is equal to or lower than the cost a pharmacy’s wholesaler is charging, there are many more drugs for which cost reimbursements are much higher than what pharmacies are paying. He asked if independent pharmacists want Kentucky’s Medicaid program to eliminate all instances where the MAC price is lower than what they are paying through their PSAO’s suppliers, and whether WellCare should also attempt to eliminate all instances where the same system provides margins that are significantly higher than costs.


The MAC developed by WellCare’s PBM Catalyst is based on nationally available drug acquisition sources. Catalyst uses the same MAC pricing for all of WellCare’s Medicaid states and receives no profit from WellCare’s MAC. There is no incentive for Catalyst to limit drug buying choice.


Mr. Minor concluded by saying that WellCare’s pharmacy payment for Medicaid is equal to or higher than the same prescriptions being filled for private, commercial carriers and Medicare.


In response to a question from Representative Combs, Mr. Minor said that the parent company of WellCare is located in Tampa, Florida. There are Kentucky offices in Ashland, Bowling Green, Hazard, Lexington, Louisville, and Owensboro, with almost 170 Kentucky employees.


In response to a question from Senator Denton, Mr. Minor said that the contract does not address pharmacy reimbursements and dispensing fees. Senator Denton asked what percentage of money paid by WellCare to Catalyst is for actual claims. Mr. Minor said that there are two payments: administrative and reimbursement for medical costs. One hundred percent of the latter goes for pharmacy payments.


Senator Denton asked about a $10 voucher offered by WellCare that can be used through mail-order to obtain over-the-counter drugs. She said that a pharmacist had contacted her about a prescription for cough and cold medicine being denied on the grounds that it would be covered by the voucher. Mr. Daniels said that they have learned of situations like this and are addressing the concerns. There is a cough and cold list; most products are available.


In response to a question from Senator Denton, Mr. Minor said that HB 262 does not present a problem for WellCare.


Bill Wolfe testified that Catalyst Rx provides PBM services to over 18 million people through a contracted pharmacy network of over 60,000 pharmacies in all states. Catalyst Rx’s business model is built on pass through pricing, which means that 100 percent of any contracted discount with the pharmacy network is passed on fully to the client.


Catalyst Rx is paid the same administrative fees from WellCare whether there is a MAC or not, no matter what the MAC discount yields on a particular item. Catalyst Rx uses the same MAC for all pharmacies in Kentucky and for all contracted Medicaid pharmacies in Kentucky, New York, Georgia, Ohio, and Florida. The MAC is proprietary but is based on industry standard protocols developed over the last 13 years determined through review by external consultants. Catalyst Rx reviews product cost information on a continual basis, updating prices up or down as dictated by marketplace changes. Catalyst Rx implemented an expedited review process for appeals of MAC pricing in Kentucky in November. As of January 31, 2012, after adjudication of 628,102 claims since November 1, there have been 332 appeals.


There are currently 1,119 pharmacies contracted in Kentucky to fill prescriptions for WellCare members; 66 pharmacies have asked for appeal reviews. In other states in which Catalyst processes managed Medicaid claims under the same MAC, 57,265 participating pharmacies have filled prescriptions. Since November 1, over 3 million claims have been processed with only 447 MAC appeals. Mr. Wolfe concluded by saying that he was unaware of any significant pharmacy withdrawals from Catalyst Rx’s network in any of the operating states.


In response to questions from Senator Stine, Mr. Wolfe said that the Department for Medicaid Services does not have access to Catalyst’s contracts with PSAOs and pharmacies. He assumes that the department can access Catalyst’s contract with the MCO, but he was unsure whether the cabinet does access the contract.


In response from a question from Senator Stine, Mr. Wolfe said that he did not know why there seem to be more complaints under the new system than with Passport.


G. William Strein testified that Medco is the PBM for Coventry nationally and in Kentucky. He said that if there are questions today for which Medco does not provide the committee with sufficient answers, it can provide an answer later and can provide clarification of any response if the committee requests it.


Medco provides benefits for approximately 50 million covered lives nationally and approximately 691,000 lives prior to November 1 in Kentucky and now an additional approximately 230,000 lives in Medicaid managed care. In other states, Medco has set up programs to use community pharmacists to close patient gaps in care and reimburses pharmacies for that clinical work. It has tried to discuss such a program with Kentucky pharmacists, but has not found Kentucky pharmacists to be interested.


Once a pharmacy is credentialed and becomes a Medco provider, it chooses to sign different rate sheets, or pricing schedules, for different networks for different clients. In some instances, when a new client is starting, Medco sends out new rate sheets, or pricing schedules. In other instances, Medco can use pricing schedules that have already been signed by pharmacies to create a network for the client. The pricing schedules include dispensing fees and reimbursement amounts for brand and generic prescription drugs.


As part of the pricing of prescription drugs, virtually all payers, including state and the federal government, use MAC lists to set reimbursement for generic products. Mr. Strein summarized a handout on MAC pricing that was distributed to committee members. According to the document, MAC pricing is used by 86.6 percent of private employer prescriptions drug plans for retail generic prescriptions, and 46 state Medicaid programs use MAC lists. MAC lists have been adopted largely to create uniformity in pricing and reimbursement for generic products and to ensure that pharmacies do not attempt to maximize their profits on generic products at the expense of the client and consumer. Because pharmacies can acquire generic drugs at substantial discounts from published list-price benchmarks such as average wholesale price, in the absence of a MAC list an individual pharmacy could earn a higher profit by dispensing the generic drug made by a manufacturer with the highest list price.


Medco set its MAC prices based on research. Medco also maintains communications through community pharmacy owner advisors directly and with PSAOs representing independently owned pharmacies, and who also monitor MAC pricing, and submit appeals on behalf of the independent pharmacies. Medco attempts to ensure pharmacies receive a reasonable margin to promote the use of generics. It has a process by which a pharmacy can appeal the MAC reimbursement, and Medco adjust pricing continually. In the Kentucky Medicaid program run through Coventry, Medco reimburses independent pharmacies more for MAC-listed generic drugs than it does the large chain pharmacies. Medco believes that the large chain pharmacies have the ability to purchase generics more cheaply and sets its reimbursement accordingly.


Approximately 40 percent of the generic drugs that are being dispensed by Kentucky pharmacies for the Coventry program are also on standard $4 generic lists available at other pharmacies. On average, a Kentucky pharmacy is receiving between $7.88 and $8.88 per prescription for those same $4 drugs. The pricing schedule, which is inclusive of the dispensing fee and MAC list being used in Kentucky, is being used nationwide. Since November 1, 2011, Medco processed 3.2 million generic claims from pharmacies in Kentucky with 302 MAC appeals.


Mr. Strein concluded by saying that the state has the option to mandate the use of the Kentucky MAC list—run by a state vendor—for the managed Medicaid business. If the state would like to increase reimbursement to Kentucky pharmacies for Medicaid prescriptions to ensure access is available at all independent pharmacies, it should do so. The additional cost is one that would ultimately be borne by Kentucky and its taxpayers.


Representative Stacy asked what would be considered reasonable reimbursement. Mr. Strein said that it would be the midpoint between acquisition cost, and giving the payer savings and the pharmacy a margin. There is no defined percentage. MAC pricing should never be below acquisition cost of the generic product in the market place. Representative Stacy asked why Medco is reimbursing below acquisition cost. Mr. Strein said that he has asked for written documentation of MAC prices being below acquisition costs and has not received it. In response to a question from Representative Stacy, Mr. Strein said that the MAC price list is proprietary. Representative Stacy commented that it was unreasonable not to provide the company’s price list while asking pharmacists to document their costs. Mr. Strein said that the company does not make any money on MAC reimbursement. In response to a question from Representative Stacy, Mr. Strein said that the company makes money through the contract with the MCO. Representative Stacy asked how it is fair that reimbursement is below pharmacists’ costs. Mr. Strein repeated that reimbursement should not be below costs.


In response to questions from Senator Clark, Mr. Strein said that all independent and corporate pharmacies understand the MAC pricing and dispensing cost and know what they are getting paid for their services. Pharmacies have the right to look at and examine the contract under which claims are paid. Some contracts have been signed and executed by the PSAOs, other contracts have been executed directly with Medco. There is some uncertainty about reimbursement until the claim is processed, because the MAC price is not posted, and until that claim response comes back, the pharmacy does not know what the reimbursement is on that generic product on that day.


Representative Combs asked how long it takes to address appeals. Mr. Strein said that the internal standard is within six days but he thinks it is less than that in practice. The problem is that many appeals are not going to the 24/7 system available through the website.


Senator Higdon asked that contracts be provided today.


Don. Nagy testified that US Script, founded in 1999, represents in excess of 3 million covered lives, of which approximately 1.5 million are from managed Medicaid beneficiaries from the Centene Corporation.


Over the past two years, he has worked with independent pharmacy associations and advocacy groups in Mississippi, Kansas and Georgia addressing concerns consistent with the topics this committee has brought forth. He conducted meetings with individuals from the Kentucky Pharmacy Association, the Kentucky Retail Federation, and independent community pharmacists as early as April 2011. The covered topics included use of existing commercial contracts and rates between US Script and PSAOs and retail reimbursement. As a result of these meetings, US Script proactively addressed some of the key issues of concern to the committee. Starting August 3, 2011, US Script solicited Kentucky Spirit specific pricing addendums to PSAOs with member pharmacies in Kentucky. US Script choose to create custom rates similar to the current Kentucky fee-for-service rate. US Script offered economically equivalent reimbursement rates to any willing provider for participation in US Script’s retail pharmacy network and specialty pharmacy network. Prior to implementation of Kentucky Spirit, US Script made available to members of the Kentucky Pharmacy Association its MAC list, MAC pricing philosophy, and price setting process.


When managed care was implemented on November 1, Mr. Nagy said that he visited Eastern Kentucky community pharmacies to get immediate feedback when a MAC reimbursement fell below the pharmacy acquisition cost. US Script identified the top 20 generic drugs with MAC prices being filled for Kentucky Spirit members and proactively raised pricing comparable to the Kentucky fee-for-service MAC list. MAC pricing inquiries submitted by Kentucky pharmacists during the month of November were responded to within 24hours.


Since November 1, US Script has received 106 MAC appeals from Kentucky pharmacies, of which 93 (87 percent) were approved.


In response to a question from Senator Denton, Mr. Nagy said that the contracts between the PBMs and the PSAOs were made available to pharmacies.


In response to a question from Senator Denton, Mr. Nagy said that he did not know how PSAOs make money. The PSAOs are paid centrally for all their member pharmacies, which in turn disseminate the money to the individual pharmacists. The claims come to the PBM, they get processed, and the remittance payment is paid on a weekly basis to the PSAOs.


Representative Palumbo said that there were 106 appeals, of which 87 were accepted and 2 denied. She asked what happened to the other 17. Mr. Nagy said that 11 were suspended and temporarily removed from the MAC list due to shortages. Some of them were not processed because the form with the acquisition cost, which is part of the appeals process, was not provided or a claim for the price enquiries was never returned. Representative Palumbo asked what it meant that a drug was suspended. Mr. Nagy said that if a drug had three or four sources but went down to only one source, it was removed from the MAC list. In response to a question from Representative Palumbo, Mr. Nagy said that pharmacies were notified when drugs were removed from the list. They can retroactively reprocess the claim for the updated price.


Senator McGaha asked for the independent pharmacists in the audience to raise their hands if they contract with US Script. Most audience members raised their hands. Senator McGaha asked them to keep their hands up if US Script was reimbursing them at below cost. Everyone lowered their hands. Senator McGaha asked for the independent pharmacists in the audience to raise their hands if they contract with Medco. Most audience members raised their hands. Senator McGaha asked them to keep their hands up if Medco was reimbursing them at below cost. Few if any lowered their hands. Senator McGaha asked for the independent pharmacists in the audience to raise their hands if they contract with Catalyst. Most audience members raised their hands. Senator McGaha asked them to keep their hands up if Catalyst was reimbursing them at below cost. Few if any lowered their hands.


In response to questions from Senator McGaha, Mr. Nagy said the MCOs contract with the cabinet for a fixed dollar amount per member per month. The PBM contracts with the MCO for direct reimbursement for brand name prescriptions of average wholesale price (AWP) minus a certain percentage plus a dispensing fee. US Script has an exact reimbursement methodology with the PSAOs of AWP minus a percentage plus a dispensing fee for brand drugs and a MAC list for generic drugs. Mr. Nagy did not know how the PSAO remits payments to the pharmacies.


Senator Higdon introduced one of his constituents, Mr. Leon Claywell.


Mr. Wallace spoke on the appeals process. He said that he was not allowed to mention any of the PBMs by name so he played a recording. The recording was a message from a Medco employee, informing Mr. Wallace that Medco had reviewed his request for reimbursement of a prescription filled in November 2011 and had determined that he has been properly reimbursed based on the current market conditions. Mr. Wallace said that is the end of the appeal. Every time that prescription has been filled since November, it has been dispensed at a loss because Medco refuses to adjust the claim and refuses to adjust the MAC price on that drug despite Mr. Wallace demonstrating that he cannot find the drug for that price.


Mr. Chazen explained that once EPIC Pharmacy Network receives the funds from the PBMs, the remittance shows how much to pay each pharmacy and 100 percent of that amount is passed on to the particular pharmacy.


Concluding the meeting, Senator Higdon said that a big problem exists and more information is needed. Another meeting will be scheduled to continue this discussion.


            The meeting was adjourned at 3:57 p.m.