Feds Reject Higher Medicaid Pharmacy Rates

January 31, 2011

Investigative Reports

Print Friendly, PDF & Email

The NerveIn a story that might have contributed to a smackdown of a key state legislator, South Carolina apparently is not going to pay the highest rates in the nation for Medicaid prescription drugs.

The federal government recently turned down a petition from the S.C. Department of Health and Human Services for the state to begin doing so.

Why would the agency make such a request?

Because it was following state law. A change this year to a state budget proviso required Health and Human Services (HHS) to ask the feds to allow the department to revise a formula the agency uses to determine how much it will pay for Medicaid prescriptions.

The new formula would have increased Medicaid costs by an estimated $8 million to $10 million per year, according to HHS officials and pharmaceutical industry experts.

The recalculation also would have resulted in South Carolina paying more for Medicaid drugs than any other state, the experts say.

Not surprisingly, the federal government said thanks but no thanks.

As The Nerve first reported in August, S.C. Rep. Tracy Edge, R-Horry, pushed for the proviso change and made it happen. Edge earlier told The Nerve that he did so because national pricing benchmarks for Medicaid prescriptions, which the state bases its payments on, are being eliminated.

The South Carolina Pharmacy Association and the South Carolina Association of Chain Drug Stores lobbied for the proviso change in the 2010 legislative session.

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, The Nerve’s first report said, citing State Ethics Commission disclosure reports.

Medicaid is a health care program for the needy. The federal and state governments fund it, typically in a 70 percent/30 percent split, respectively.

The federal Centers for Medicare & Medicaid Services (CMS) oversees the program and must sign off on most changes to it, such as the proposed revision to South Carolina’s payment formula for Medicaid prescriptions.

Using the state Freedom of Information Act, The Nerve recently obtained a copy of a letter from CMS Administrator Dr. Donald Berwick to the Department of Health and Human Services. In the letter, dated Dec. 1, Berwick rejects the state’s proposed change to its reimbursement equation for Medicaid drugs.

Berwick cited several reasons for his decision. For one thing, he said the recalculation would not comply with federal law requiring “that states have methods and procedures in place that payment rates are consistent with efficiency, economy, and quality of care.”

“In addition,” Berwick wrote, “the state failed to demonstrate why the increased rate was needed to ensure adequate pharmacy payment … ”

Summarizing his explanation, Berwick wrote, “In view of these facts, the state has not provided sufficient evidence to support the proposed payment rate increase.”

“And we anticipated that response,” says Jim Assey, a Medicaid pharmacy consultant for HHS.

Enter the smackdown.

Edge proposed the higher rate for Medicaid prescriptions as chairman of a legislative panel that wields frontline authority over a vast swath of state health care spending, and as a recipient of beaucoup campaign funding from pharmaceutical and other health care companies.

Edge sits on the Ways and Means Committee, which writes the House version of the budget. And, when he sponsored the proviso amendment, Edge was head of the committee’s Health, Human Services and Medicaid Subcommittee.

Not anymore.

For this year’s legislative session that began yesterday, Edge’s subcommittee duties have changed. He has been reassigned to chair the Economic Development and Natural Resources Subcommittee.

Committee chairmen make subcommittee assignments.

To replace Edge as head of the panel with jurisdiction over Medicaid, Ways and Means Chairman Dan Cooper, R-Anderson, tapped a close confidant – Rep. Brian White.

Like Cooper, White is a Republican from Anderson. In addition, the two budget-writing lawmakers are colleagues at Capstone Insurance Services in Greenville. The General Assembly’s website lists Cooper as vice president of the firm and White as an insurance agent with Capstone.

The Health, Human Services and Medicaid Subcommittee, the name of which has been shortened to just Healthcare, exercises authority over hundreds of millions of dollars allocated each year to a bevy of state agencies.

Some of those government functions are among the largest in South Carolina. Besides HHS, they include the departments of Health and Environmental Control; Social Services; Mental Health; Disabilities and Special Needs; and Alcohol and Other Drug Abuse Services.

The Nerve’s initial report on this issue, posted Aug. 31, told how a review of State Ethics Commission records found that nearly 27 percent of Edge’s campaign contributions to that point since 2008 had come from the health care industry.

From the beginning of 2008 through June, Edge reported approximately $193,950 in donations, according to Ethics Commission filings. Of that amount, $51,550 came from the health care sector.

The contributors to the then-health care subcommittee chairman included 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 did not respond to a phone message and an e-mail last week from The Nerve. He also did not return phone and e-mail messages for The Nerve’s initial report.

However, in a September phone interview for a follow-up story, Edge told The Nerve that he advocated for the proposed change to South Carolina’s payment formula for Medicaid prescriptions because national pricing benchmarks are being discontinued.

“We didn’t do it to give anybody a rate increase or anything like that,” Edge said.

Concerning the projected $8 million to $10 million cost increase of the change, the lawmaker said, “If somebody would have told us it was $10 million, the proviso would have never got past first base.”

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

Edge’s proposed change to it would have set the rates where they had been before a federal class-action lawsuit was settled in 2009. The case alleged that the national pricing standards for Medicaid prescriptions were inflated.

The settlement has been yielding cost savings for the state since it took effect, according to HHS spokesman Jeff Stensland.

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

Says Assey, the Medicaid pharmacy consultant for HHS, “I think, in fairness, the pharmacies took a hit when the formula was redefined [after the lawsuit].”

With the national pricing benchmarks possibly going by the wayside, Stensland says the agency is working with pharmacies in South Carolina to establish a new payment formula for the state. “We must have something new in place by October 1.”

For state lawmakers, meanwhile, Edge’s subcommittee reassignment holds a lesson: As the legislative bosses giveth, so the legislative bosses taketh away.

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