State fines Caremark, top pharmacy benefit manager, $1.5 million for violations including 'inaccurate and inconsistent' information

By Melissa Patrick
Kentucky Health News

The state Department of Insurance has issued a $1.5 million fine to a subsidiary of CVS Caremark -- a pharmacy benefit manager for all but one of the Medicaid management companies in Kentucky -- for hundreds of reimbursement violations involving individual pharmacies, and for giving the department "inaccurate or inconsistent" information. The department put Caremark PCS Health on probation for one year.

Pharmacy benefit managers are middlemen between insurance and drug companies. They not only determine what drugs are offered, but how much an individual pays for the drug and how much pharmacists are paid for them.

The "order of civil penalty and probation" cited 454 violations regarding denials of reimbursement claims and 38 violations where Caremark provided "inaccurate or inconsistent information," the department said in a news release.

“The Department simply does not issue penalties of this nature lightly,” Patrick D. O’Connor II, deputy commissioner for policy, said in the release. “However, we have to ensure companies fully comply with our laws to protect consumers and other businesses.”

Rosemary Smith, a co-owner of Jordan Drug pharmacies in Eastern Kentucky and founding member of the Kentucky Independent Pharmacist Alliance, said the department's order was a "vindication of what we've been saying all along," and that she was pleased that state agencies are "now seeing what we've been seeing for a number of years." But she also said the issue hasn't been resolved because independent pharmacists are still being under-payed for their drugs.

"We still are having the same issues now, so we are going to be sending more of those [complaints] to the Department of Insurance," she said.

A spokeswoman for CVS Caremark, the parent firm of the pharmacy benefit manager, said it disagrees with the order and is "exploring our options."

"We are currently reviewing the terms of the Kentucky Department of Insurance’s order," Christine Cramer said in an e-mail. "However, we respectfully disagree that we have not complied with applicable requirements. . . . It should also be noted that states such as Kentucky currently have the necessary tools to ensure that there is appropriate oversight of pharmacy benefit managers’ compliance with applicable laws and regulations."

Cramer added, "CVS Caremark is committed to fairly reimbursing the pharmacies in our network while providing a cost-effective benefit for our PBM clients. For example, we reimburse independent pharmacies at a higher rate on average than we reimburse chain pharmacies, including CVS Pharmacy," a sister company that is a major drugstore chain. Cramer is senior director of corporate communications for CVS Health, the overall company.

Kentucky passed a law in 2016 that allows the Insurance Department to regulate PBMs much like insurance companies are regulated, and to provide an appeal mechanism to resolve pricing disputes between pharmacies and PBMs. The news release says this law allowed the state to investigate the many complaints filed by pharmacists and issue the order.

Sen. Max Wise, R-Campbellsville, who sponsored the bill, called the order a "huge win" for the more than 500 independent pharmacists who have been "telling and pleading their story for years now" that PBMs weren't paying them fairly for their prescriptions. He said he thought the probation period would prompt the managed-care companies to "start looking at other PBMs to work with."

This year, Wise won passage of Senate Bill 5, which put the state Department of Medicaid Services in charge of setting pharmacists' reimbursement rates, rather than the managed-care companies. It also allows the department to regulate contracts between the companies, PBMs and pharmacists; requires more transparency in how the PBMs spend the $1.7 billion a year they get for processing prescriptions; and gives the state authority to penalize the companies and PBMs for noncompliance.

"Senate Bill 5 is what will be the whammy that will end up doing even more damage to the PBMs," Wise said. "I think this is just the scratch of the surface. I think we're going to find more and when it comes to that, I think that truly the taxpayers are going to see the amount of profits that were reaped off of this that should have been going out to those independent pharmacists for a number of years."