Arkansas panel turns down proposal to allow drug dispensing fee surcharge

Arkansas lawmakers on Thursday rejected a proposed rule that would have allowed pharmacists to be paid a dispensing fee by drug middlemen who reimburse them for prescription costs.

Members of the Administrative Rules subcommittee of the Arkansas Legislative Council spent about two hours questioning the Insurance Department's legal counsel about the necessity for the proposal before rejecting it by voice vote. There was at least one audible dissent.

The rule would have allowed the insurance commissioner to determine the amount health insurers and pharmacy benefit managers (PBMs) would have to tack on to reimbursements to pharmacists, department legal counsel Booth Rand told lawmakers Thursday.

The dispensing fee could range from zero to a maximum of $10 based on data collected from PBMs and other interested parties, Rand said. An earlier survey of health plans projected an increase in health premiums between 3% and 4% if the dispensing fee was $9.

The rule was intended to replace an emergency rule approved in September that expires in mid-January. The emergency measure authorized the Insurance Department to review reimbursement rates to "ensure that pharmacies will at least be paid [federally determined] minimums" and to add a dispensing fee if the commissioner determines a pharmacy's reimbursement "is not fair and reasonable." A 2015 state law regulating PBMs, requires reimbursements to be "fair and reasonable" but doesn't define the term.

In response to a question from Rep. Matthew Shepherd, R-El Dorado, Rand said the department has the authority to collect the data without the rule, "but if the commissioner decided to impose a fee, the PBMs could object that there's no rule in place authorizing it."

PBMs are companies that negotiate prescription benefits among drug manufacturers, distributors, pharmacies and health insurance providers.

The nation's three largest PBMs — CVS Caremark, OptumRX and Express Scripts — are owned by much larger corporations that each also own a top-10 health insurer. Together they control about 80% of the prescription market in the United States, according to a Federal Trade Commission interim study released in July.

Current PBM practices are "unfair and unreasonable, not only to independent pharmacies but chain pharmacies as well," Rep. Stephanie Flowers, D-Pine Bluff, said Thursday. Ultimately, this affects "our constituents," patients who don't know who to complain to if their pharmacy closes or they have an issue with prescription payments by their insurer, she said.

"When you control 80% of the prescriptions," Flowers said of PBMs, "you have control over determining the formularies, you silence your pharmacists who must contract with you because you control all of the prescriptions, you own pharmacies, you own insurance companies … How do we ensure what is fair and reasonable within the law since they basically control the business, control the market, control reimbursements?"

Allison Hatfield, Commerce Department chief of staff, responded, "We see this rule as a mechanism to enforce the fair and reasonable language in the law."

Asked by subcommittee co-chair Sen. Kim Hammer, R-Benton, how that would increase the cost of business, Hatfield replied "there would be no change," if a PBM is paying a fair and reasonable reimbursement rate.

Some lawmakers said they also viewed the proposal as giving the insurance commissioner blanket authority to impose a fee without further legislative input.

Rule-making should occur within the constraints of existing law, Shepherd said, but "shouldn't be viewed as blank-check authority."

Sens. Missy Irvin, R-Mountain View, and Jimmy Hickey Jr., R-Texarkana, also objected to giving the insurance commissioner the authority to levy an indeterminate dispensing fee, saying it usurps legislative authority.

"We can't delegate our authority to an individual," Hickey said.

Irvin called the proposal tantamount to levying a new tax on consumers because the cost of a dispensing fee would be passed on to them.

"I don't agree you have the authority through the [PBM] licensing act … to create a new tax," she said.

Irvin said much the same thing on Monday during a five-hour debate on the proposed rule in the Joint Insurance and Commerce Committee that ended when the panel's chairman declared the proposal reviewed.

Republican Sen. Mark Johnson of Little Rock asked Rand what would happen if the proposed rule failed to pass the committee.

"You're likely going to get a dispensing fee bill from pharmacies" in the 2025 legislative session, Rand replied.

Tuesday evening, Gov. Sarah Huckabee Sanders issued a statement saying her administration will not allow PBMs "to skirt the law" and will continue to hold PBMs accountable. She cited the $1.5 million fine "we imposed on rule-breaking PBMs this summer." The administration will also continue to work the the Legislature to "further protect Arkansans," she said.

Arkansas Advocate is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Arkansas Advocate maintains editorial independence. Contact Editor Sonny Albarado for questions: info@arkansasadvocate.com.