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Surprise Cuts in Medicaid Reimbursements and the Impact on Independent Pharmacies

Pharmacy Benefit Managers (PBMs) use many different tactics to increase their revenue, and spread pricing has long been a common way to generate incremental revenue from each transaction. This has become a state-wide problem in Kentucky, especially for the Department for Medicaid Services (DMS). Pharmacy costs have become the fastest growing budget items in the Kentucky Medicaid budget. In the calendar year 2018, PBMs reported being paid $957.7 million from DMS for spread pricing contracts, $123.5 million (12.9%) of which was not paid to pharmacies and kept by the PBMs as the spread.

In order to facilitate transparency and to better assess contracts between entities providing Medicaid pharmacy benefits with public money, the Kentucky legislature passed Senate Bill 5 (SB5) in its 2018 regular session. SB5 was enacted on July 1, 2018. This bill mandates that PBMs, among other things, provide a 30-day notice in advance of any proposed change of over 5% in the reimbursement rates for a pharmacy licensed in Kentucky and the DMS may disallow the change within 30 days of such notice. 

Despite this clear legislative pronouncement, it has become apparent that PBMs have no intention of carrying out its duties and obligations under the SB5. Specifically, WellCare, one of the state’s managed care organizations, and CVS Caremark, WellCare’s subcontracted PBM, slashed WellCare reimbursements for medications by more than 5% (and at least against one pharmacy, it reduced reimbursements by an average of 50%) without prior notice or required state approvals. PBMs have often coupled these lowered reimbursements with offers to then buyout independent pharmacies. 

However, DMS has stated that fines will be imposed for violations of SB5 beginning June 1, 2019. If your pharmacy has been impacted by unlawful price reductions in Kentucky, it is critical that independent pharmacies and the general public take action against PBMs to control the hidden cash flow. Contact Frier Levitt today to speak to an attorney.