In 2024, underwater reimbursement – that is, being paid less than the cost to acquire a drug – became the number one issue for pharmacies participating in PBM networks. Whether it is a commercially insured patient, a Medicare Part D beneficiary, or a Medicaid recipient, pharmacy providers are reporting more and more claims being paid underwater. Worse yet, the degree of per claim loss has also dramatically increased, with some pharmacies reporting losses of several hundred dollars per prescription.
Based on these losses, many pharmacy providers have sought ways to “stop the bleeding,” and have considered electing not to fill specific prescriptions or turning away patients when the PBM’s reimbursement rate puts the pharmacy underwater. This can be particularly difficult, because PBMs may have different reimbursement rates for various networks that they manage, making some of the PBM’s networks profitable, while others force the pharmacy to lose money. Equally challenging is that the economics on a drug-by-drug basis might mean that certain drugs are profitable, while others put the pharmacy in the red, even for the same patient with the same plan. As a result, it is not always entirely feasible for a pharmacy to seek to exit a PBM’s network altogether based on underwater reimbursement rates.
While turning away unprofitable prescriptions might seem like a wise business decision from a financial standpoint, it is not without risk under payor contracts and applicable law.
PBM Contractual Requirements
At the outset, several PBM manuals contain language that could be interpreted to prohibit turning away patients due to reimbursement concerns, or otherwise require pharmacies to process all claims through the system.
For example, certain agreements prohibit pharmacies from refusing to provide service or any covered drug to any member, except for a specified clinical reason. Likewise, other PBMs include requirements to submit all claims through the PBM’s online claims adjudication system, ostensibly in order to ensure proper DUR adherence. Additionally, other PBMs include member “hold harmless” that prohibit pharmacies from charging members for covered drugs. Finally, several PBMs include “non-discrimination” provisions, prohibiting pharmacies from refusing to provide services to patients on account of them being members of the PBM’s drug plan.
As a result, it is imperative that pharmacies closely scrutinize their agreements with PBMs when determining whether to turn away prescriptions.
PBM Enforcement
While enforcement of these provisions has been sporadic, we have recently observed an uptick in enforcement by certain payors, including Express Scripts. The PBM has recently relied on several of the above-referenced contractual provisions to issue cease and desist letters and termination notices to pharmacies that have refused to service patients because of reimbursement issues, or have sought to charge patients higher cash amounts than their stated copayments. This has been especially pronounced in the context of GLP-1’s being reimbursed underwater, such as Ozempic or Wegovy.
Potential Defenses
At the same time, however, there are many state laws that allow pharmacies to refuse dispensing below their acquisition cost. For example, in Oklahoma, 59 Okl. St. § 360 provides that a pharmacy may decline to dispense medications to a PBM’s patient if the pharmacy is to be paid less than the pharmacy’s cost for providing the drug. Likewise, in Louisiana, RS 22:1860.3 provides that any pharmacy who has a contract with a PBM administering any type of pharmacy benefit plan to provide covered drugs at a contractual reimbursement rate may decline to provide a covered drug if the pharmacy will be or is paid less than the acquisition cost for the covered drug.
In addition to these laws that allow pharmacies to turn away unprofitable prescriptions, there are other state laws that may provide relief against underwater reimbursement as a whole. For example, several states include “any willing provider” laws, that require PBMs to allow all pharmacies to participate on terms and conditions applicable to other participating pharmacies. It has long been argued that PBMs have sought to “get around” these laws by setting reimbursement rates below acquisition costs, thereby driving business to their wholly-owned pharmacies. However, it is generally expected that reimbursement rates be reasonable and relevant, thus, PBMs may be in violation of any willing provider laws when reimbursing underwater. In addition, several states have “minimum reimbursement” laws, that require PBMs to reimburse at or above a certain minimum threshold. For example, in Delaware, Delaware Ins. Code § 3372A(7) provides that a PBM may not pay or reimburse a pharmacy for the ingredient cost of a drug less than the NADAC price, or if NADAC price is unavailable, the WAC.
Thus, these state laws may provide some protection or relief in the event of below water reimbursement. It is important to note, however, that these state laws typically only apply to commercial claims.
Practical Strategies
In any event, pharmacies need clear and defined strategies to address underwater reimbursement, whether on a claim-by-claim level or across a PBM’s networks as a whole. Pharmacies should consider developing policies to rely upon when refusing to dispense medication, and these policies should aim to reduce exposure to PBMs. Frier Levitt works with pharmacies to evaluate their obligations under various PBM agreements and program requirements. In addition, Frier Levitt has worked with pharmacies to successfully challenge below water reimbursement rates, through negotiations with PBMs, through claim-by-claim pricing appeals, and through direct litigation/arbitration.
If you are facing below water reimbursement rates, contact Frier Levitt today.
