This article is the first of an occasional series on the consequences of state efforts to curb spiraling health costs.
Not long after the state rolled pharmacies into Medicaid managed care in March — an effort to save tens of millions of dollars a year — Ronald Barrett noticed something unusual at Oak Cliff Pharmacy, his store in southern Dallas. When he entered a child’s prescription into his computer to see how much he would be reimbursed by CVS Caremark, the managed care plan’s pharmacy benefit manager, he received an error message. A phone call indicated that the child’s prescription had already been filled, at a CVS pharmacy down the road.
“I asked the child’s mother, ‘Did you have the prescriptions sent over there?’ And she said, ‘No, I don’t even go over there,’” said Barrett, whose customers are overwhelmingly covered by Medicaid, the state health plan for the disabled and very poor. “We called the prescriber, and they said they didn’t know how they got over there either.”
Another pharmacist in Harlingen received a fax from a health plan managed by CVS Caremark rejecting a reimbursement claim for diabetic test strips with the message, “Please route patient to a CVS pharmacy.”
Such stories have fueled suspicions among independent pharmacies that CVS Caremark is capitalizing on Medicaid reforms to expand its retail business at the expense of locally owned pharmacies.
CVS Caremark, which this spring became one of seven pharmacy benefit managers handling Medicaid recipients’ claims, said that its rates are competitive, and there is a firm barrier between its benefit management program and CVS retail pharmacies.
The transition to managed care this spring was bumpy with numerous computer errors and miscommunications between the state Health and Human Services Commission, pharmacists and the pharmacy benefit managers.
Although the state said that the program has become more stable and that the health plans quickly resolved the problems, many independent pharmacists — particularly those who serve a high volume of Medicaid patients — are still upset. They say the drastically reduced reimbursement rates set by the managed care plans to save the state money are forcing them out of business.
“I can’t pay my employees; I can’t pay my light bill,” said Barrett, who estimates that the reforms decreased his revenue by 65 percent. He is currently living on his savings. “I have no earthly idea why the Legislature thinks that this is acceptable.”
State officials, who expect to save $100 million in the 2012-13 biennium by including prescription drugs in managed care, said they are not ignoring the complaints, and Texas lawmakers have held hearings to address pharmacists’ concerns. The Health and Human Services Commission is conducting an audit to evaluate the reimbursement rates.
Under the old Medicaid system, the rates were the same statewide. Now, pharmacists sign contracts with managed care organizations agreeing to accept the “maximum allowable cost” reimbursements for medications, as determined by the health plan’s pharmacy benefit manager. Because the rates are proprietary information and are not subject to open records laws, pharmacists do not know how much a health plan will reimburse or how its rates compare with those of other plans before signing a contract.
Stephanie Goodman, a spokeswoman for the commission, said the decrease in reimbursement rates is “very much in line” with what the agency expected, and it is the same for independent and chain pharmacies. The average dispensing fee paid to pharmacists for Medicaid prescriptions dropped from $7.13 to $1.53 in the new system, and pharmacists received $12.7 million less in dispensing fees in the first month than they would have under the previous system.
John Calvillo, president of the Rio Grande Valley Independent Pharmacy Association, said he has a list of 26 independent pharmacies that have closed or been sold to retail chains since the managed care reforms. He said CVS Caremark is largely to blame because it has the lowest reimbursement rates of the five managed care plans he accepts, and appears to be trying to poach independent pharmacies.
“In my opinion, it’s kind of a little conspiracy and the state is allowing this to happen,” he said.
In a memo distributed to CVS pharmacies in Dallas in March, Craig Goodson, a CVS pharmacy supervisor, told pharmacists that the reduced dispensing fees might “put many independent pharmacy owners in a pinch that they have never before felt.” He asked CVS pharmacists to keep their “eyes and ears open” and pass along information on how the changes were affecting independent pharmacies. “This poses a huge opportunity for us to grow our company and the scripts and patients that we service,” he wrote.
Michael DeAngelis, a spokesman for CVS Caremark, said in an email to The Texas Tribune that the company did not authorize Goodson to send the memo. DeAngelis added that it is not just independent pharmacies that are taking a hit. “Reductions to the Medicaid reimbursement rate in Texas are the same for both independently owned drug stores and retail chain pharmacies,” he said.
The state contracts with managed care organizations include language requiring pharmacy benefit managers connected to a retail pharmacy, like CVS Caremark, to “ensure no conflicts of interest exist and ensure the confidentiality of proprietary information.”
Christine Cramer, a CVS Caremark spokeswoman, said the company “maintains a firewall between our pharmacy service business and retail operations to prevent the dissemination of certain competitively sensitive information.” She also disputed allegations that CVS Caremark’s rates are particularly low, saying the company sets “competitive rates that balance the need to fairly compensate pharmacies while providing a cost-effective benefit to our client plan.”
Goodman said it is difficult to determine whether the reduced reimbursement rates have caused independent pharmacies to close or sell to chains. She said the closings have not affected Medicaid recipients’ access to care because there 39 more pharmacies signed up to accept Medicaid patients since the reforms kicked in.
Ultimately, expanding managed care will increase efficiency and reduce costs, said Bill Hammond, president of the Texas Association of Business, which counts CVS Caremark and other managed care companies as members.
If some pharmacies “are not able to operate under the new model, then it’s unfortunate, but that’s the way it should be,” Hammond said. “The concern should be with the taxpayer dollars being spent well.”
Many independent pharmacists support the state’s effort to save money. But rather than adding a pharmacy benefit manager into the equation, they say the state could require patients to use less expensive generic drugs, directly reduce reimbursement rates or set lower caps on patients’ supplies.
“Putting a middleman in between the state and people that actually dispense the drugs always increases the costs,” Barrett said. “They’re paying themselves out of the money that we should be due.”