Fair Meds Act: Alabama bill spurs questions about how pharmacies negotiate for medications

Mar. 19—A new bill filed with the Alabama House of Representatives, HB 238 or the Fair Meds Act, is intended to shed more light on prescription drug costs in the state and require pharmacists to be reimbursed fairly, but the bill's opponents have said that transparency could have significant impacts on consumer healthcare costs.

The bill has sparked controversy since it was passed through the House Insurance Committee last week, primarily due to a $10.64 "tax" which pharmacists would be reimbursed for every prescription they filled. Rep. Phillip Rigsby (R-Huntsville), the bill's sponsor, told the committee that calling the fee a tax was an unfair description.

"This isn't a tax. This is the cost of doing business," he said.

Owner of Borden's Family Pharmacy, Chris Borden, explained that the amount of reimbursement pharmacists receive from insurance companies is set by pharmacy benefit managers. PBMs act as a type of middleman and negotiate drug costs between drug manufacturers, insurance companies and healthcare plan providers.

Borden said PBMs will then develop several networks with predetermined reimbursement amounts which pharmacists are not allowed to negotiate, even if it means operating at a loss.

"There's no negotiation, none whatsoever. They [PBMs] dictate terms to pharmacists," Borden said.

The alternative, he said, would be for pharmacists to opt out of a contract which might not offer fair reimbursements, but doing so would require them to turn away any patients covered under that network's insurance company.

In a press release, the Alabama Pharmacy Association noted that more than 300 pharmacies have closed in the state within the last six years due to unfair PBM reimbursements.

Audrey Newton, co-owner of Chad's Payless Pharmacy in Florence, Ala., told the Alabama House Insurance Committee that she worries that if the practices of PBMs aren't corrected, more pharmacies, including her's, might also have to close.

"I don't sleep well at night having to choose between turning these patients away and letting my family pharmacy close its doors. If that happens, I can't help anyone. I promise that you don't want to live in a community without pharmacies and the services they provide," Newton said.

Newton said that within the last year she lost nearly $4,000 for a single drug given to one patient. She said many pharmacies are being forced to close due to such losses.

Rite-Aid filed for Chapter-11 bankruptcy in October 2023, and according to research conducted by McKinsey the number of independently owned pharmacies is less than half of what it was in 1980. Rigsby told the committee that he was forced to close his pharmacy in October 2023.

The bill would require PBMs use a "cost plus" model which pays pharmacies the actual acquisition costs for medications as set by Alabama Medicaid, as well as the $10.64 "dispensing fee."

The fee was calculated by Alabama Medicaid in 2010 when it surveyed roughly half of the licensed pharmacies in the state. The survey asked for itemized expenditure lists including items such as personnel costs, annual overhead, rent or mortgage payments as well as utility costs and licensing fees.

Borden wasn't able to give an exact number, but said that the cost of operating a pharmacy has only increased within the last 14 years. He believes the $10.64 is fair, especially when considering the alternative.

"Here's what's so unusual about our industry: Insurance companies will still say they don't care if costs are going up. They still expect you to work for less. They're totally oblivious to inflationary pressures that businesses are facing," he said.

Borden said the fee would not be applied to all patients or to every prescription. He said Medicaid patients would be excluded, mostly because they already operate by a similar method. He also said that if a patient's co-pay exceeds the cost of the medication in addition to the fee, they would not see any additional costs at the counter.

Some officials have argued against the bill because of the possible long-term implications it could have on either patients or their plan providers. Neah Scott serves as legislative counsel for Retirement Systems of Alabama, which provides insurance and retirement benefits to educators throughout the state.

She said RSA is concerned that PBMs will simply pass along any increased costs accrued through the bill's mandatory reimbursement structure to plan providers, and that could have significant long-term consequences. She said that based on the RSA's preliminary calculations, the group was expecting a first year increase of about $20 million.

Scott said for a group the size of RSA, this figure was relatively manageable. The bigger concern, she said, was what that increase could look like in years to come when drug manufacturers began to realize PBMs were being forced to pay the actual costs for medications.

"My first year number is probably going to be lower. If it were just $20 million, we might not like it, but we can manage it. The concern is the long-term impact and how much that grows if you take away our ability to negotiate our terms," Scott said.

Scott also said RSA is concerned about how the bill would affect its ability to negotiate the amount of rebates it receives from PBMs. She said that last year, RSA received more than $160 million in rebates that were used to keep employer and member costs low.

"We haven't had to ask for more money from the legislature in the past nine years, and we haven't had to increase the costs for our members in that time either. Under the current structure, and how drug pricing works and the current supply chain, we need the PBMs for the rebates," Scott said.

One thing neither side of the debate has denied is that there is a cost associated with filling medications. Borden said the ultimate question is how that cost should be addressed.

"I think it all goes back to the question of, what kind of health care system do we want in Alabama? If we want the only pharmacies to be out-of-state, corporately owned pharmacies, then we should do nothing, because that is where we are being pushed," Borden said.

The bill was passed unanimously by the House Insurance Committee and now moves to the House floor for approval.

Note: The Cullman Times is owned by CNHI, which is financed by, and is a subsidiary of, the Retirement Systems of Alabama.