From left: Independent pharmacy owners Kyle Lomax, Kristen Riddle and Clint Recktenwald share their businesses’ financial struggles due to low reimbursement rates from pharmacy benefit managers with the Arkansas Legislative Council’s Executive Subcommittee on Thursday, Sept. 19, 2024. (Mary Hennigan/Arkansas Advocate)
The Arkansas Insurance Department will require pharmacy benefit managers (PBMs) to include dispensing fees in their reimbursements to pharmacies for prescription drugs, a legislative panel ruled Thursday.
The new rule will financially benefit pharmacies, especially independently-owned ones in rural areas, as a remedy for years of unfair PBM reimbursements that put them at risk of closing, pharmacists and Insurance Department officials told the Arkansas Legislative Council’s Executive Subcommittee.
PBMs are companies that serve as middlemen to negotiate prescription benefits among manufacturers, distributors, pharmacies and health insurance providers. The companies rank prescription drugs, with the highest-tiered products costing consumers the lowest out-of-pocket costs.
Act 900 of 2015 required PBMs to pay pharmacies at least as much as the national average of what drugstores pay wholesalers for the drugs. The law was challenged in federal court upon its passage, and the U.S. Supreme Court reviewed the law in 2020.
Despite the law, pharmacies send the Insurance Department about 1,500 complaints per month about PBMs illegally paying pharmacies below the federally-set national average drug acquisition cost (NADAC) prices, Insurance Department general counsel Booth Rand said Thursday. He said the same thing to the Joint Insurance and Commerce Committee in June.
Almost all the complaints have come from independent rather than chain pharmacies, Rand said, and many of these independent pharmacists were present at Thursday’s meeting, identifiable by their white lab coats.
PBMs have long been a source of frustration for local pharmacies nationwide. 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. The Federal Trade Commission released an interim report in July saying these conglomerates are eliminating competition and increasing drug prices at the expense of patients.
Pharmacies’ struggles and state action
Three independent pharmacists from rural areas testified to the committee that PBM payments have made it difficult for them to cover their overhead costs.
“Yesterday I had a patient whose copay was set at $0.20, and the PBM paid me $0.19… Clearly, this is not fair nor reasonable,” said Kristen Riddle of Greenbrier, who owns a pharmacy in Clinton. “This is one example of many that every one of us in the room and every pharmacist and pharmacy owner – big box or independent – deals with every single day, all day long. Some of those complaints go to our insurance commissioner’s office and some of them do not, because I can barely pay for my technician just to put that label on that vial.”
Kyle Lomax, who owns five Northeast Arkansas pharmacies, told the committee that so far this year, PBMs have paid below NADAC on 3% of all commercial insurance claims, paid less than $1 above NADAC on 20% of claims and $5 or less above NADAC on 61% of claims.
Fulfilling 100 prescriptions in one morning might generate either a loss or pennies’ worth of profit, said Clint Recktenwald of Mountain Home, who owns a Gassville pharmacy.
He decried PBMs’ “greed” and “sleight of hand” and said he has exhausted his savings to cover his employees’ payroll. He also said giving his staff extra pay to cover for him while he spoke to the subcommittee would likely lose him money, but the need to ask lawmakers for help took precedence.
“In the role of government, you’re supposed to help the little guy, and that’s where we’re at. We’re the little guy,” Recktenwald said.
There are 737 active pharmacy permits in Arkansas, close to the same number as 20 years ago, but a cumulative 267 pharmacies have closed in that time, said John Kirtley, director of the Arkansas State Board of Pharmacy.
Rand said the closure of independent pharmacies in sparsely populated areas would force residents to spend extra time and money traveling to chain pharmacies for their medications.
The state has further attempted to regulate PBMs since passing Act 900. In May 2022, the state sued the drug manufacturers Novo Nordisk, Sanofi and Eli Lilly, accusing them of conspiring with Caremark, OptumRX and Express Scripts to inflate the cost of insulin. The case is still pending in Pulaski County Circuit Judge Mackie Pierces court.
In June, Attorney General Tim Griffin filed a Pulaski County Circuit Court lawsuit against Express Scripts and OptumRX, alleging that they used data from drug manufacturers and distributors to maximize their financial gain instead of using it to mitigate the opioid addiction epidemic.
Rand told lawmakers earlier in June that the Insurance Department planned to start fining PBMs $5,000 per violation in response to the large volume of complaints from pharmacies. The department followed through in August, fining Caremark, Express Scripts, Magellan and MedImpact a cumulative $1.47 million.
Impacts on pharmacies and consumers
Health insurance providers have told the Insurance Department that imposing a $9 dispensing cost per drug would raise premiums by 3.5% to 4%, though these numbers are “speculative,” Rand said.
However, insurers could reduce or prevent these increases by “applying all unused brand name rebates” to the dispensing costs, the rule states. Rand said West Virginia residents saw no rise in premium costs after insurers put the rebates to this use after the state passed the same PBM law in 2019 that Arkansas did in 2015. Insurers will be required to report their use of the rebates to the Insurance Department, he said.
Republican Sens. Ricky Hill of Cabot and Missy Irvin of Mountain View both said they wanted pharmacies to be financially stable but were concerned that rising premiums would burden their constituents. Hill said Rand’s reassurances were “easy to say unless you’re that family that’s barely getting by” while other types of insurance have become more expensive.
Others expressed support for the fees, which will be mandatory if the full Arkansas Legislative Council gives final approval Friday.
“I think it would be fair to say the people in my district wouldn’t want to have anything increased, but they would not want to lose their pharmacy,” said Rep. Jack Fortner, R-Yellville. “They would be willing to pay a little more to make sure that service was available because the local pharmacies do so much more than just give out pain pills.”
Sen. Ben Gilmore, R-Crossett, said his rural Southeast Arkansas district already does not have enough health care resources and cannot afford to lose more. He added that the number of complaints the Insurance Department receives indicates the state has not adequately enforced Act 900 since its passage.
“If we don’t enforce this law, I think we’re going to see significant changes in this sector, and not for the good,” Gilmore said.
Lomax said his pharmacy in Leachville, a city of about 2,000 people, has taken “drastic measures” to stay afloat, such as no longer stocking “expensive brand-name medications” and “turning away prescriptions that would otherwise lose money.”
The drugstore reduced its operating hours from five to three days a week in August but returned to five days based on customers’ needs, Lomax said, and he has since implemented pay cuts and staff layoffs.
Sen. Jimmy Hickey, R-Texarkana, asked all three pharmacists who testified Thursday for their federal tax returns from the past three years in order to verify their statements. He said he was concerned that state employees would face higher premiums as a result of the dispensing fees and wanted to be prepared for feedback, as co-chair of the employee benefits divisions of the Arkansas Legislative Council and the Joint Budget Committee.
Lomax, Recktenwald and Riddle all agreed to Hickey’s request.
The subcommittee approved two motions on voice votes: one from Irvin to seek information about the impact of the dispensing fees on both state employee benefits and Medicaid, and one from Gilmore to require the Insurance Department to give the subcommittee monthly reports on its PBM monitoring efforts.
Rand said he will present the subcommittee in October with the Insurance Department’s methodology for determining the dispensing fee amounts.
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