Why CVS Loves Obamacare

Health Policy
Why CVS Loves Obamacare Photo

Written By The Editorial Board at The Wall Street Journal

Big business feasts on big government, and ObamaCare has been a bonanza for companies that have figured out how to exploit it. Witness how CVS Health is dining out on Ohio’s Medicaid expansion.

In addition to retail pharmacies, CVS operates a pharmaceutical benefit 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.

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. The state uses drug claims data to set its annual drug budget. So if claims increase, the state will allocate more Medicaid funds for drugs the following year.

Yet CVS appears to be billing the state for far more than what it is paying pharmacies, driving up taxpayer costs. CVS’s actual drug payments aren’t transparent to the state or MCOs.

CVS is also attempting to drive independent pharmacists out of business and expand its retail market share. We spoke with eight current or former independent pharmacists in Ohio who complained that CVS has slashed payment rates below the pharmacists’ wholesale drug costs. They say CVS is pocketing the increased “spread pricing”—that is, the difference between what the PBM pays pharmacies and charges the state.

The precondition for this Medicaid machination is ObamaCare. In the last decade Ohio’s Medicaid enrollment has swelled by more than half to 21.4% of the state population, driven in large part by ObamaCare’s expansion to people earning up to 133% of the poverty line. Medicaid is now the biggest insurer in many rural areas where independent pharmacies predominate.

Independent pharmacists say they first noticed a decline in Medicaid payment rates three years ago. CVS slashed them further last fall. For 35 years Larry Hildebrand ran a pharmacy in Marengo, a town with a few hundred people. When he started to lose money from declining Medicaid payments, he sold his pharmacy to CVS, which bought his drug inventory and prescription files. After he closed, his customers had to travel 25 more miles to get prescription filled at CVS.

Dominic Bartone has been a pharmacist for 41 years and operated three retail pharmacies in Dayton and two in Lebanon. After CVS cut payment rates last fall, his Lebanon pharmacies were losing money on between 40 to 50 prescriptions a day. When Mr. Bartone complained to the MCOs about below-cost reimbursements, he didn’t get a response. Eventually he had to stop delivering prescriptions to patients in institutions. In February he and his business partners sold the stores to CVS.

For the complete WSJ article, click here.