ObamaCare Big Boon for CVS


ObamaCare has winners and losers. One of the big winners is CVS.

Much has been made of the unholy alliance between Big Pharma – the pharmaceutical manufacturers – and the Obama administration that passed the ObamaCare legislation in 2010. Much less has been said about how the drug stores that serve as middlemen in the process have made a killing off ObamaCare, too.

The Wall Street Journal editorial board says CVS operates a pharmaceutical benefits manager (PBM) that acts as a middleman between insurers, pharmacies and drug manufacturers. PBMs decide which drugs are listed on a formulary, how much pharmacies are reimbursed and how much insurers pay.

For example, Ohio contracts with five managed-care organizations (MCOs) to administer Medicaid benefits, four of which outsource their drug benefits management to CVS Caremark, the CVS PBM. So CVS has 80% of the market in the state of Ohio.

The state uses drug claims data to set its annual drug budget. Therefore, if claims increase the state will allocate more Medicaid funds for drugs the following year. However, CVS appears to be billing the state for far more than what it is paying pharmacies, which drives up taxpayer costs. CVS does not report actual drug payments to the state or the MCOs.

WSJ says CVS is attempting to eliminate its competition from independent pharmacies. They interviewed eight current or former independent pharmacists in Ohio who complained CVS had slashed payment rates below the pharmacists’ wholesale drug costs. CVS then pockets the increased “spread pricing” – that is the difference between what the PBM pays the pharmacies and what they charge the state.

ObamaCare’s Impact

This situation has greatly increased as a direct result of ObamaCare. The Medicaid expansion encouraged by ObamaCare has increased Ohio’s Medicaid population by more than half to 21.4% of all Ohio residents. This is mostly due to the redefined eligibility for Medicaid under ObamaCare in those states that voted for expansion. The result is Medicaid is now the biggest insurer in rural areas where independent pharmacies predominate.

Ohio state Senator Dave Burke, who runs an independent pharmacy and also serves on the state Joint Medicaid Oversight Committee, says two-thirds of the Medicaid drug claims he processes are below what he pays for the drugs. He says CVS payment rates are “take it or leave it.” If pharmacists refuse to accept Medicaid prescription, they risk losing CVS contracts for Medicare Part D and commercial plans that are the main source of profit in their business.

The impact of all this on independent pharmacies in Ohio has been huge. In the last three years, Ohio has lost 164 independent pharmacies while CVS has added 68.

This problem is not limited to Ohio. Arkansas Independent Pharmacies found that CVS Caremark billed Medicaid plans more than twice as much on average as what their pharmacies got paid. Data from fully-insured commercial health plans showed that CVS paid itself over $60 on average more per prescription than independent pharmacists.

This is just more evidence that the expansion of Medicaid has been a costly exercise in government control of healthcare that is being exploited by private industry. The winners are CVS and others like them; the losers are Medicaid patients, independent pharmacies and taxpayers.

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