With small pharmacies disappearing, Medicaid cuts seen as culprit

Aug. 31--SIDNEY, Ohio -- More than 90 pharmacies in Ohio closed their doors last year and others say they may have to do the same because of a dramatic decrease in reimbursements from Medicaid managed care plans.

"We're spending money on Medicaid as taxpayers, but it's not going to the providers," said Bob Curlis, who owns Sidney Hometown Pharmacy, one of two independent pharmacies in this city of 20,564 people in Shelby County.

Curlis said independent pharmacies like his are particularly hard hit because they're not big enough to continually absorb losses. He said he is taking a loss on many Medicaid managed care prescriptions and unless the reimbursement levels are increased he may be forced to stop accepting Medicaid customers altogether.

Medicaid managed care plans are administered by private companies on behalf of the state, which gives the companies a sum from the federal Medicaid dollars it takes in. The plans reimburse health care providers for services, such as the dispensing of prescriptions.

The Ohio Pharmacists Association estimates pharmacy reimbursements from managed care plans were cut by more than $200 million in 2016. And the cuts have been even more severe so far in 2017.

Adding to the pharmacists' frustration is they say they're not being given explanations for the dramatic decreases.

"Not only did pharmacies receive those cuts without notification, but over that same time period, Ohio spending on prescription drugs actually increased," said Antonio Ciaccia, director of government and public affairs for the association.

The Ohio Department of Medicaid's expenditures on prescriptions increased from $1.82 billion in fiscal year 2014 to $3.36 billion in 2016. During that same period Medicaid average enrollment increased from 2.5 million people to 3 million.

Medicaid spending on prescriptions is projected to reach $3.9 billion in fiscal year 2018.

Ciaccia asked the same question many independent pharmacists have been asking: "If pharmacies got sweeping cuts, but Ohio's spending on prescription drugs increased at the same time, where did the money go?"

'We created a monopoly'

According to the independent pharmacists, the culprit for the slash in reimbursements is CVS Caremark, the company that negotiates on behalf of most Medicaid plans in the state.

Ohio currently contracts with five managed care plans and those plans cover more than 80 percent of the state's population on Medicaid.

CareSource, a a nonprofit with thousands of employees in its downtown Dayton offices, is the state's largest Medicaid managed care company and serves more than half of the state's Medicaid patients.

The other managed care companies are Buckeye Community Health Plan, Molina Healthcare of Ohio, UnitedHealthcare Community Plan, and Paramount Advantage.

Four out of the five -- including CareSource -- use CVS Caremark as their pharmacy benefit manager, or PBM, essentially allowing that company to dictate what is paid to pharmacists for Medicaid prescriptions in Ohio.

The use of PBMs, now widespread in the industry, is designed to keep costs down through negotiations with drug companies. The Pharmaceutical Care Management Association says Ohioans are on pace to save $24.7 billion over 10 years because of the deals the PBMs have been able to negotiate.

Critics charge that the PBMs actually inflate prices because the rebates they negotiate get factored into the initial cost of the drug.

Ohio's Medicaid managed care system was also created with an aim toward lowering drug costs by fostering competition.

But with just one company setting the reimbursement rate for most drugs dispensed under Medicaid, the dream of having competition lower prices hasn't happened, according to State Rep. Scott Lipps, R-Franklin.

"We created a monopoly," Lipps said. "And taxpayers are paying more."

CVS Caremark also has the same parent company as CVS retail pharmacies, raising suspicions among independent pharmacists that their lowered reimbursements are an attempt to drive them out of business and give more Medicaid business to CVS's more than 9,000 locations nationwide.

"I think they want to push the independents out," said Greg Fiely, co-owner of IHS Pharmacy in Xenia, which closed its retail business earlier this year.

"They want to be able to dominate in a community, and then they can dictate how much money they make," he said. "Everything is tipped in their favor."

'There is a firewall'

CVS Caremark said its PBM business works with a network of more than 68,000 pharmacies across the country, including a majority of the independently-owned community pharmacies.

"There is a firewall between the CVS Caremark PBM business and the CVS Pharmacy retail business," spokeswoman Christine Cramer said. "Any allegation that our PBM inappropriately steers business away from pharmacies participating in our network is untrue and contrary to our goal of having a diverse network of pharmacies to serve our clients."

Three of the five managed care plans responded to requests for comment. They all said they do not share information on reimbursements and said those amounts are determined by the PBM contract.

"The pressure being put on the entire health care system by the soaring cost of prescription drugs is a huge problem for the country with pharmaceutical spending in the U.S. tripling between 1994 and 2014," a statement from Molina said.

"In the face of increasing drug prices and growing utilization of pharmaceuticals, all parties involved in the payment and delivery of medications for Medicaid beneficiaries have a responsibility to work on controlling costs," Paramount said in a statement.

In an email, CareSource's Jim Gartner, vice president of pharmacy, said pharmacists are aware of pricing structures and sign contracts based on what has been negotiated.

"As a nonprofit health plan, we are uniquely committed to the well-being of those we serve and 94 percent of our revenue is spent on our members' care," Gartner said in the statement.

Buckeye Community Health and UnitedHealthcare did not respond by deadline. UnitedHealthcare is the lone plan in Ohio that doesn't use CVS Caremark.

'It's unfair to them'

Sidney Hometown Pharmacy has the type of atmosphere you would expect in a small town business. Technicians call customers by their first name and wish them a "Happy Birthday." An autographed photo of Pete Rose is on display in the cold and flu section along with photos of employees' families.

A collection of vintage pill bottles, many gifts from customers, sits above the vitamin shelves.

Medicaid customers make up about 14 percent of Curlis' business. Although Medicaid plans traditionally pay less for drug reimbursement than private insurance, Curlis said the recent cuts mean he's taking a loss on many Medicaid prescriptions.

So far in August, he said, he's lost money on nearly 100 transactions with CareSource, the plan that covers most of his Medicaid customers. A drug that costs the pharmacy $50 will be reimbursed at $38, he said; another drug that costs $1.62 gets reimbursed at $1.36.

"Even if I got that drug for free from my wholesaler... you still can't operate on $1.36 profit," Curlis said. "That doesn't pay for the preparation of it, let alone my taxes or keeping my lights on."

A blood pressure medication prescription the pharmacy filled last week cost $50.80 from the wholesaler, but CareSource's PBM only paid the pharmacy $38.24 for a loss of $12.56 plus packaging costs, according to records he shared with the newspaper.

Curlis said the business model is not sustainable and is the primary reason why so many independent pharmacists serving a high volume of Medicaid patients are closing their doors.

Medicaid's own studies have determined that in order for a small pharmacy to break even, they need an average margin of more than $13 per prescription. Curlis' transaction records show he's making considerably less than that on his Medicaid customers. By this summer, his average profit margin for most Medicaid prescriptions was $3.15, and some were even lower.

Fiely said the rapid decrease in profit margin on Medicaid prescriptions was a key reason he closed his Xenia retail pharmacy in July.

"In 2016, the margin on prescriptions was probably 20 percent," which he said allowed him to operate with a profit. But in January of this year, he said, the margin dropped to 10 percent.

"The community of customers was great, and actually we were getting busier," Fiely said. "But the more we sold the less we made."

Lipps, the Republican state representative from Franklin, introduced an amendment to the state budget this year in an attempt to address the problem, but it got stripped from the final version of the bill.

Lipps' amendment would have required managed care plans to reimburse pharmacies at the same rate as other Medicaid fee-for-service plans, which pay a minimum rate plus a dispensing fee.

Lipps said he hasn't given up on finding a solution to the disappearance of the small pharmacies in Ohio.

"It's unfair to say to them you're actually going to lose money on this," he said.

Greg Lopes, senior director of strategic communications for the pharmacy benefit manager trade group PCMA, said Ohio could reduce costs in Medicaid without cutting benefits by using "marketplace tools to negotiate lower rates and increase the use of generics."

'Predatory practices'

Harshad Patel knows how tough it is to be an independent pharmacist. He's been in the business since the 1970s and closed two of his three retail stores in the past three years. He still operates the St. Elizabeth Pharmacy at Elizabeth Place in Dayton and serves a clientele that is about 90 percent Medicaid recipients with seven employees.

"Studies after studies have proved that it costs pharmacies anywhere from $7.50 to $8.50 cost in dispensing, which includes the time of the pharmacist, the time of the staff, the label, the vial, the inventory," he said.

On some drugs, he said, his reimbursement from the Medicaid managed care plan is 15 cents. "And there is nobody from the Department of Medicaid or anyone else to oversee it."

While PBMs claim that the reimbursement contracts they sign with pharmacies are voluntary, Patel calls them predatory.

"Normally when you have a contract, it's a two-way street," he said. "PBM contracts are totally one-sided: here it is, take it or leave it. There is no negotiations."

And with Medicaid plans, Patel said, if he didn't agree to the contract, he'd have no clients.

"It's like putting a gun on somebody's head and saying ,'you will sign this,'" he said.

Less choice

The customers are the ones who will ultimately suffer, Patel said, because fewer pharmacies means a lack of choice in the marketplace.

Many of his customers can't afford transportation, he said, and often have to wait to get their prescriptions. That situation won't improve if there are fewer places where they can get their prescriptions filled.

"The freedom from the patients to choose is taken away," he said. "Independent pharmacies and small businesses have been the foundation of this country. When you go to an independent pharmacy the service level, the personal relationship the connection, the counseling... chains just don't have the time or resources to do it."

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