Special Legislative Session Could Make Arkansas First to Regulate Pharmacy Benefit Managers

Story by Benjamin Hardy, Reporter (Arkansas Nonprofit News Network)

LITTLE ROCK, Ark. (ANNN) - On Monday afternoon, Governor Hutchinson said he would call a special session of the Arkansas legislature to address low reimbursement rates provided to pharmacies by middleman companies called pharmacy benefit managers, or PBMs. The special session will begin after the ongoing fiscal session — during which the General Assembly typically handles budgetary matters only — though the governor declined to give an exact date.

“Our local pharmacists … are an integral and critical part of our health care system in Arkansas,” Hutchinson said. “We’re a rural state. Independent local pharmacists are very important. … If they go out of business, that’s a problem for our state.”

Insurance carriers hire PBMs to negotiate better prices on pharmaceuticals with drug manufacturers. PBMs also handle pharmacy claims; when a patient with insurance fills a prescription at a pharmacy, the PBM reimburses the pharmacy for the drug in question on the insurer’s behalf. But Arkansas pharmacists say those reimbursement rates have recently dropped so low that they are losing money on many prescriptions, forcing them to lay off employees and, in some cases, go out of business.

The controversy is focused on CVS Caremark, the PBM used by the state’s largest insurance carrier, Arkansas Blue Cross and Blue Shield. In January, Blue Cross and CVS Caremark made changes that sent pharmacists’ losses skyrocketing, according to Scott Pace, CEO of the Arkansas Pharmacists Association.

“[CVS Caremark has] arbitrarily slashed rates ... to where pharmacists aren’t even being reimbursed the cost of their product,” Pace said in an interview last week.

Most of the 285,000 beneficiaries of Arkansas Works — which provides low-income adults with Medicaid-subsidized health insurance through private carriers — are on Blue Cross plans. That fact has compounded pharmacists’ losses and helped prompt demands for the legislature to intervene, perhaps by giving state regulators oversight authority over PBMs. Both Republicans and Democrats have called for more regulation.

Hutchinson said today that “the quickest remedy” to the problem was “a market-based solution” in which pharmacists, carriers and PBMs hammer out a pricing model without government intervention. But he also said that he approved of giving the Arkansas Insurance Department some authority over PBMs. If Arkansas begins regulating the companies, it could become the first state to take such a step, he added.

“I support giving the Insurance Department oversight. … It’s my understanding that no state has really put PBMs under regulatory authority yet,” the governor said. “I know a number of states are considering it.” Hutchinson said he believed there was general consensus in the legislature about vesting the Insurance Department with such authority, but that “we still have to develop the language of the specific legislation, and that’s up to the legislative body to do that.”

Rep. Michael John Gray (D-Augusta), the chair of the state Democratic Party, said his minority party was “on board with fixing this PBM issue” but that the fix had to be “more than window dressing.” Gray said there were several pieces of proposed legislation being floated.

“I think that’s why he’s allowing some time … to flesh it out,” Gray said, of Hutchinson.

When Blue Cross made the recent change to its pricing model that resulted in plummeting reimbursement rates for pharmacists, it did so in part in an attempt to control the cost of Arkansas Works. The program requires insurance carriers to stay beneath a certain average per-patient spending cap. Last week, Blue Cross spokesperson Max Greenwood said that the carriers had to drive down pharmacy costs below their 2017 level or risk running over the cap in 2018.

That was an “absolutely” valid concern on the part of Blue Cross, Hutchinson said today.

“I put pressure on the carriers to control their costs and keep underneath the caps, and they’ve responded to that. And it’s not just a pharmacy issue … they’ve reduced costs in other areas.”

He also said that PBMs can be effective at saving money for insurers (and, by extension, consumers and taxpayers). It’s not that PBMs “should be abolished,” Hutchinson said. “It’s just that you’ve got to make sure that there’s not too much of the margin taken out by the PBMs that is to the detriment of the pharmacists. And so you have to balance that. … We’ve put pressure on the carriers to control costs, and we’re asking them now to make sure that’s balanced as to who absorbs some of those cost-control efforts.”

The Monday announcement was a response to a letter sent to Hutchinson on Friday in which Senate President Pro Tempore Jonathan Dismang (R-Searcy) and House Speaker Jeremy Gillam (R-Judsonia) asked the governor to call a special session. Though the legislature may take up nonbudgetary bills in a fiscal session with a two-thirds vote of both chambers, legislative leadership has been reluctant to open the door to such legislation in past fiscal sessions.

Asked why he preferred to handle the PBM issue in a separate special session, Hutchinson said it was “more consistent with the historic view of that constitutional amendment that provides a fiscal session is for budget matters.”

The special session call will also include a separate, unrelated issue regarding a correction to a 2017 law regarding open containers of alcohol in vehicles; the change will qualify Arkansas for certain federal highway funds. Hutchinson said it is possible other matters may be added, but it is unlikely recent proposals to revise a 2017 law on firearms will be among them.

“This special session is not about gun legislation, and I don’t expect that to be on the call,” he said.

This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans. Find out more at arknews.org.

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