Relief from drug industry middlemen stalled in Kentucky as independent pharmacies struggle
Republished from Kentucky Lantern
Kentucky’s independent pharmacies, facing ongoing financial pressure, had hoped for relief from a new law meant to give them more clout against prescription drug industry middlemen known as pharmacy benefit managers, or PBMs.
“Most pharmacies were just hanging on for Senate Bill 188,” said independent pharmacist Rosemary Smith, referring to the 2024 legislation sponsored by Sen. Max Wise, R-Campbellsville, meant to strengthen state regulation of PBMs.
The new law — passed with overwhelming support by the legislature and signed into law by Gov. Andy Beshear last year — takes aim at the role of PBMs in commercial health plans, such as those purchased by individuals or provided by employers.
But a year later, it has stalled, with Beshear’s Department of Insurance claiming it can’t enforce parts of it because of a conflict with federal law that regulates commercial insurance plans.
As a result, the PBMs — national companies, some owned by pharmacy chains including CVS, the nation’s largest — continue to control a significant portion of the prescription drug market, said Smith, co-founder of the Kentucky Independent Pharmacists Alliance.
“It’s a system totally controlled by the PBMs,” Smith said.
On its website, the Pharmaceutical Care Management Association, which represents PBMs, defends the industry. It argues that PBMs improve efficiency and save consumers money through processing prescription claims, negotiating drug prices and reimbursing pharmacies.
“Pharmacy Benefit Companies (PBMs) are your advocates in the health care system, working to lower prescription drug costs for patients and payers,” it said.
But the PBM industry has come under fire from consumer advocates at the state and federal level. Last year, the Federal Trade Commission released a scathing report suggesting that PBMs are “profiting by inflating drug costs and squeezing Main Street pharmacies.”
And critics, including Wise, the Kentucky Senate majority leader, argue PBMs continue to squeeze small pharmacies by slashing payments and steering business away from community drugstores to their own chain stores or mail order houses.
SB 188 follows a 2020 law, also sponsored by Wise, that cut PBMs out of the state’s substantial Medicaid prescription drug business, which the state said has saved it millions of dollars.
“We had great success with Medicaid, but with the commercial side, we’ve hit a roadblock,” Wise said.
Kentucky ‘an outlier’
Frustrated by what he said is the state’s failure to enforce portions of his 2024 bill, Wise has asked Kentucky Attorney General Russell Coleman for an opinion on whether the Beshear administration is correct in claiming it is restricted by federal law.
“Other states, including neighboring states, have passed legislation similar to Senate Bill 188 and are enforcing all provisions of the law,” said Wise’s June 19 letter seeking an attorney general’s opinion. “It appears Kentucky’s (Insurance Department) is an outlier in its interpretation of the laws.”
States that have enacted similar laws include West Virginia and Tennessee, his letter said.
In an interview, Wise said he doesn’t understand Kentucky’s reluctance to fully enforce the law.
“It looks like other states, they’re proceeding just fine,” he said.
In a recent bulletin, Kentucky Insurance Commissioner Sharon Clark cites federal court decisions from several jurisdictions. But, Smith said, none apply to Kentucky.
Coleman’s office has received the request and is researching an opinion, spokesman Kevin Grout said.
The Kentucky Department of Insurance is the agency authorized to enforce SB 188.
Asked for comment, a department spokesperson referred a reporter to the bulletin from Commissioner Clark posted on its website Monday outlining the department’s position.
In it, Clark agrees the department can enforce a provision that sets a baseline for reimbursement paid by PBMs to pharmacists per prescription, which already is in effect and which pharmacists say has provided some relief.
But Kentucky insurance officials insist that the federal Employee Retirement Income Security Act (ERISA) prevents it from enforcing some other provisions of the law affecting commercial health insurance plans including limiting the ability of PBMs to “steer” prescriptions to their own entities.
The “anti-steering provisions” of SB 188 “are pre-empted by federal law,” the bulletin said.
Wise and others — including a Washington D.C. lawyer hired by the independent pharmacists and the Kentucky Pharmacists Association — disagree.
“We respectfully believe this interpretation is incorrect and urge your administration to reconsider,” said the letter to Beshear from Washington lawyer Robert T. Smith.
Rosemary Smith, the independent pharmacist, said the department’s bulletin leaves too many questions unanswered.
“It’s still not clear what this does for the pharmacy community,” she said
Meanwhile in Kentucky, delay in enforcement has added to financial stress on the about 500 independent pharmacies across the state, likely costing them “hundreds of thousands of dollars,” Rosemary Smith said.
In the past two years, 98 independent drugstores have closed, mostly from financial pressures.
“It’s a crazy business,” said Smith, who with her husband, Luther, owns six community drugstores in Eastern Kentucky.
Medicaid ‘a saving grace’
In 2020, amid growing complaints from Kentucky pharmacists, the General Assembly enacted Wise’s Senate Bill 50, which eliminated the role of PBMs as subcontractors to the multiple national health insurance companies that manage most of Kentucky’s $18 billion a year Medicaid program.
Reprieve for Kentucky’s independent pharmacies is saving Medicaid millions
Medicaid, which in Kentucky gets about 80% of its funds from the federal government, provides health coverage for about 1.4 million individuals, most low-income or with disabilities.
Under Wise’s bill, the state Medicaid Department hired its own single entity to manage prescription drug claims and set minimum reimbursement levels for pharmacists.
The bill helped pharmacists financially and saved the state about $283 million in its first two years, state officials told lawmakers in 2023, largely in proceeds previously collected by PBMs.
Because Medicaid is so huge — it covers nearly one-third of Kentucky’s population and spends about $3 billion a year on prescription drugs — it has been a lifeline for pharmacists, Rosemary Smith said.
“Medicaid, that’s been a saving grace for us,” she said.
But she and Wise, the sponsor of the new law, said PBM reforms also are needed for the commercial health insurance market in Kentucky.
Wise said he’s hoping a favorable opinion from the attorney general will remove any roadblocks from full enforcement of the new law.
While the complexities of the prescription drug industry might seem “wonky” to most Kentuckians, they do understand when the cost of their prescriptions increase and local pharmacies close. “That’s when you have a large number of Kentuckians upset,” he said.
Kentucky Lantern is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kentucky Lantern maintains editorial independence. Contact Editor Jamie Lucke for questions: [email protected]. Follow Kentucky Lantern on Facebook and Twitter. Kentucky Lantern stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0.
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