We dug deeper into the issue of AWP equivalency, Caremark and the Texas Employees Retirement System adjustments first noted in a PharmPhlash last week. The corpse we dug up may well be independent pharmacy.

At my request, Rep. Chuck Hopson, RPh (D-Jacksonville) called a meeting Monday with ERS officials, Rep. Hopson's chief of staff Cheryl Lively, and Dennis Wiesner, RPh, senior director of government affairs for HEB. ERS attendees were Executive Director Ann Fuelberg, Director of Benefit Contracts Robert Kukla, and Paula Jones, general counsel and chief compliance officer.

This saga began when pharmacists got caught in the crossfire of a 2005 class action lawsuit brought by a New England union health benefit plans against First DataBank and McKesson Corporation. Pharmacies were never considered to be defendants or co-conspirators in this lawsuit. Compelling expert testimony noted community pharmacies are innocent bystanders in this long-running legal saga, but stand to suffer from the settlement terms more than the defendants to the lawsuit.

The plaintiffs claimed the defendants boosted profits by manipulating the AWP--average wholesale price, which is the benchmark used to set prices for the majority of brand name drugs. The federal judge ruled First DataBank and McKesson reached a secret agreement to raise the markup between the WAC--wholesale acquisition cost--and AWP from its standard 20 percent to 25 percent for more than 1,400 drugs, going back as far as 2001.

That case was settled in 2007, with First DataBank agreeing to roll back pricing by five basis points, from 1.25 to 1.20. The markup over WAC was used to calculate the AWP, reducing the price of most medications by 4 percent. In a later lawsuit, the other large supplier of electronic data files, Medi-Span, agreed to a similar roll back. First DataBank and Medi-Span now say that in addition to the drugs included in the settlement, they also intend to independently roll back the AWP benchmark price of 20,000 drugs not covered by the settlement. 

During our meeting Monday, we pointed out the obvious--if ERS implements this unfair cut, a number of pharmacists could go out of business. The ERS response:
Please contact your state legislators about ERS using money from small businesses to hide their health plan losses. Click here to find out who your state representative and senator is, and how to reach him or her. Share some of the points made in this PharmPhlash and let us know who you contacted and their response.

• Most pharmacy benefit managers nationwide adjusted prices to make the changes as revenue-neutral as possible to avoid causing pharmacies to lose money.
  
• In our opinion, ERS sees these changes as an opportunity to cover the shortfall in its health insurance benefits.
  
• Even though Caremark was willing to make the same adjustment for the ERS contract as they have made for other contracts nationwide, ERS turned down that offer.
  
• In a callous decision, ERS insists they cannot alter their contract with Caremark.
• ERS will reimburse pharmacies at the same percentage as they have been, even though the AWP, which has been reduced, has no impact on pharmacies' actual drug cost.
  
• From 2001 to 2005, the period covered by the lawsuit, pharmacy operations costs increased while third-party reimbursements steadily decreased.

Pharmacists now must decide whether to continue participating in the ERS plan.

• Pharmacists based their decision to participate in the ERS plan on their actual drug cost, the discount from the pre-rollback AWPs, and the resulting gross margin they would achieve. By leaving the percent of AWP at pre-rollback levels, ERS has unilaterally lowered that margin on brand-name drugs by 3.5 percent.
• ERS is effectively changing reimbursements on brand-name products from AWP minus 16 percent, to AWP minus 19.50 percent. Wholesale drug acquisition cost (WAC) is AWP minus 20 percent. ERS now will be paying pharmacies extremely close to acquisition cost plus a $1.50 dispensing fee.
  
• In contrast, Texas Medicaid determined that the cost of dispensing in Texas is more than $9.00. The Medicaid dispensing fee passed by the Texas legislature and approved by CMS in Washington, with the support of the entire Texas Congressional delegation, is $7.50.
• Caremark sent a letter Oct. 7 informing pharmacists that the program will reimburse at post-settlement AWP unit prices. Caremark also says that if you want to opt out of the new pricing structure for ERS beneficiaries, you must call Caremark by Oct. 16. This is not necessarily true! Review your contract. We bet you'll find that you can opt out of the network at any time.
  
• Clearly the artificial deadline of Oct. 16 is intended to pressure pharmacists to quickly accept the new reimbursement terms.

If you decide to no longer participate in the ERS plan, let us know and we will send you some talking points to use with your patients.

Stay tuned!