Edge Proposal: $10 Million Tab for Medicaid?

August 31, 2010

Investigative Reports

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The NerveA change to a state budget proviso could result in South Carolina paying the highest Medicaid prescription drug rates in the nation, boosting pharmacy profits from the already financially strapped health care program for the needy.

It is estimated that the proviso change would increase the cost of Medicaid prescriptions in South Carolina by a total of $8 million to $10 million per year, and raise pharmacies’ per-prescription profit by 30 percent.

The South Carolina Pharmacy Association and the South Carolina Association of Chain Drug Stores lobbied for the proviso change in the legislative session that ended in June.

Combined, the two pharmaceutical industry groups hired five lobbyists and paid them a total of $69,500 to try to influence state lawmakers during the session, a review by The Nerve of State Ethics Commission disclosure reports shows.

Rep. Tracy Edge, R-Horry, proposed the proviso amendment. Edge did not respond to two phone and two e-mail messages from The Nerve on two different days last week.

The proviso change originated in the House Ways and Means Committee, which writes the House version of the state budget. Edge is a member of Ways and Means and chairman of the committee’s Health, Human Services and Medicaid Subcommittee.

That subcommittee wields vast regulatory and pocketbook power over the health care industry in South Carolina.

It has been widely reported that health care constitutes one-sixth of the U.S. economy.

In reviewing other Ethics Commission records, The Nerve also found that nearly 27 percent of Edge’s campaign contributions since 2008 were from the health care industry.

From the beginning of 2008 through June of this year, Edge reported approximately $193,950 in donations. Of that amount, $51,550 came from the health care sector.

The contributors to the health care subcommittee chairman include some of the largest pharmaceutical companies – Pfizer, Merck, Bristol-Myers Squibb – and health insurance giants such as United Healthcare Services and Blue Cross Blue Shield, as well as the South Carolina Hospital Association, the South Carolina Nursing Home Association and the South Carolina Chiropractic Association.

Edge’s occupation, as listed in the 2010 South Carolina Legislative Manual, is vice president of Burroughs & Chapin, a large real estate development company in Myrtle Beach.

Another state budget proviso, meanwhile, already has put South Carolina in an unenviable position with respect to Medicaid – being the only state in the nation prohibited from decreasing reimbursement rates paid to Medicaid service providers.

That proviso has been on the books since October 2008, when the full Ways and Means Committee wrote it into a budget adjustment bill as state coffers were feeling the brunt of the recession.

It is unclear which member or members of the committee backed the second proviso.

Gov. Mark Sanford vetoed the lock on Medicaid provider rates from the 2009-10 budget and from this year’s budget, and both times the General Assembly overrode him and kept it in.

Together, the provisos have the practical effect of helping to shield the health care industry’s Medicaid revenue from the economic downturn, which, in an ironic twist, has sent Medicaid enrollment skyrocketing.

Medicaid provides health care services to low-income people. The federal government and the states fund the program based on a matching formula.

The Centers for Medicare & Medicaid Services (CMS) administers the program at the federal level. The S.C. Department of Health and Human Services (HHS) oversees Medicaid at the state level.

More than 90,000 people have joined the Medicaid rolls in South Carolina since the onset of the recession toward the end of 2007, according to HHS spokesman Jeff Stensland.

Mostly because of that increase and not enough funding to keep up with it, the program is being strained to its financial limits.

The prescription drugs proviso change almost certainly would make matters worse.

However, the Centers for Medicare & Medicaid Services must approve it.

“It’s real debatable whether CMS would even allow us to do what the proviso says,” Stensland says. “I think they’re going to see this exactly for what it is.”

But if CMS does sign off on the change, it will cost Medicaid in South Carolina an additional $8 million to $10 million per year and propel the state’s rates for prescription drugs obtained through the program to the highest in the country, according to Stensland.

Based on the matching formula, he says, those increased costs would be split roughly 70 percent federal, 30 percent state.

Says a July 13 post on the DrugChannels.net blog: “This really is nothing more than a victory for politics over economics.” Adam Fein, founder and president of Philadelphia-based Pembroke Consulting, writes the blog and bills it as “expert viewpoints on pharmacy economics and the pharmaceutical supply chain.”

The proviso, 21.15, establishes rates at which Health and Human Services pays for pharmaceuticals through Medicaid. It has been part of the state budget for years.

But this year, at the behest of Edge, the proviso was changed to set the rates where they had been before a federal class-action lawsuit was settled in 2009. The case alleged that national pricing benchmarks for Medicaid prescriptions were inflated.

The settlement has been yielding cost savings for the state since it took effect, Stensland says.

Thus, the proviso amendment would essentially circumvent the results of the lawsuit, eliminating those cost savings and restoring Medicaid prescription rates in South Carolina to their previously higher level.

The language of the proviso this year directs HHS to submit a proposal to implement the change to the Centers for Medicare & Medicaid Services by Oct. 31.

Documentation obtained and interviews conducted by The Nerve show that Edge proposed the change.

Rep. Bill Clyburn, D-Aiken and a member of the Health, Human Services and Medicaid Subcommittee, says Edge sponsored it and advocated for it in the subcommittee, the Ways and Means Committee and on the House floor.

But Clyburn says he cannot recall whether he supported the proviso amendment or what the substance of it was. He says legislators often are presented with provisos at a rapid pace. “It’s not like you get time to sit down and study them,” Clyburn says, “and so you don’t spend enough time with them, as far as I am concerned.”

Four legislators serve on the subcommittee; the full Ways and Means Committee has 25 members.

In addition to contributions from some of the nation’s largest health care corporations, Edge has received donations from smaller players in the industry, too.

Those include Pediatrix Medical Group, Conway Adult Daycare, Coventry Health Care, Heritage Home of Florence, Southeastern Spine Institute and Sumter Cut Rate Drug Store, Ethics Commission reports show.

Edge also has received accolades from health care groups. He was named “legislator of the year” by:

  • the South Carolina Pharmacy Association and the Behavioral Health Services Association of South Carolina in 2005;
  • the South Carolina Emergency Medical Association in 2005 and 2006;
  • the South Carolina Medical Association and the South Carolina Chiropractic Association in 2006; and
  •  the South Carolina Primary Health Care Association in 2007.

The Chiropractic Association gave Edge $1,000 in December 2009 and October 2008. That is the maximum amount allowed per election cycle under state law.

In contrast to Clyburn’s fogginess about the change to the prescription drugs proviso, the South Carolina Pharmacy Association and the South Carolina Association of Chain Drug Stores were well aware of it during this year’s legislative session.

The Pharmacy Association paid $17,000 to lobbyist Richard Davis, president and owner of the Columbia firm Capitol Consultants, for his efforts on behalf of the group during the session, according to Ethics Commission records.

Asked about the proviso change possibly making South Carolina’s Medicaid prescription rates the highest in the nation, Davis told The Nerve, “I don’t have any comment about that. I don’t know that.”

The Association of Chain Drug Stores hired four lobbyists – James Quackenbush, Ronald C. Fulmer Sr., Damon Jeter and John West – and paid them a combined $52,500 during the session.

Most of that money went to Quackenbush, who referred The Nerve to the National Association of Chain Drug Stores.

The national group, headquartered in Alexandria, Va., near the nation’s capital, opposed and criticized the outcome of the federal class-action lawsuit over inflated national pricing benchmarks for Medicaid drugs.

In a legal brief aimed at countering the settlement of the case, the national association said it “would unfairly hurt retail pharmacies,” according to an April 2009 post in Chain Drug Review, an industry publication.

In a Chain Drug Review report in June, the association hailed the passage of the change to South Carolina’s Medicaid prescription drug rates proviso as a “major victory” for pharmacies in South Carolina.

Fulmer, a former state legislator, disagreed that the proviso change would cause South Carolina to pay more than any other state for Medicaid prescriptions. “I don’t think that’s true,” he said. “I think you’ve got some bad information.”

Fulmer added, “I do not think that we advocated anything that would harm South Carolina.”

Carmelo Cinqueonce, chief executive officer of the South Carolina Pharmacy Association, says he does not see the proviso change as an end run around the lawsuit settlement. “I understand what you’re getting at,” Cinqueonce says.

But he says the downward adjustment in Medicaid prescription drug rates resulting from the case “was not going to be fair to pharmacies.”

Fein, the consultant and author of the DrugChannels.net blog, doesn’t see it that way.

In his post about the proviso change, Fein says it would mean “that South Carolina’s Medicaid program will now pay far more than other states for its drugs even though pharmacy costs are no higher.”

He blasts the proposed change and sarcastically references the National Association of Chain Drug Stores celebrating it as a major victory: “Anyone concerned about the cost of health care should be very anxious about this ‘victory.’ I conservatively estimate that this change will cost the South Carolina Medicaid program almost $10 million per year.”

Fein says it “translates into a big jump in gross profits per script. On average, a South Carolina pharmacy will earn about $26 in gross profits for each Medicaid prescription – a 30 percent boost in gross profits despite no offsetting increase in dispensing costs.”

How to explain the change?

“While there is no logical cost-based explanation for the extra cash,” Fein asserts, “there is a perfectly plausible explanation drawn from the political decision-making process.”

Reach Ward at (803) 254-4411 or eric@thenerve.org.