Pharmacy giant CVS has for months ignored questions in Ohio about a controversial pricing practice, but an Iowa legislative committee on Wednesday got the executive in charge to describe it.
He came after a lawmaker threatened a subpoena.
Rich Ponesse, senior director of trade finance for CVS Caremark, appeared before the Iowa House Government Oversight Committee to explain the difference between what his company pays retail pharmacies and what it charges health plans, a practice known as “spread pricing.”
Most people know CVS as a retail pharmacy, but its CVS Caremark subsidiary manages pharmacy benefits for health plans, including those that contract with Medicare, Medicaid and private employers. CVS Caremark and two other “pharmacy benefit managers” dominate a business in the United States that is worth more than $300 billion a year.
In Ohio, a group of lawmakers and the Department of Medicaid have asked for — and received — confidential data to determine whether the state is getting gouged through spread pricing. Medicaid officials said Thursday they are beginning a promised review.
“We are just starting to go through a very manual process to analyze that information,” Medicaid Director Barbara Sears said. The analysis should be completed by June, she said.
CVS Caremark has not answered questions from The Dispatch about the spread pricing. But Ponesse told the Iowa legislative committee that his company uses it and that it’s fair to customers.
“As far as spread pricing is concerned, we are very transparent with our clients,” Ponesse said, according to a video of the hearing that state Rep. John Forbes, D-Urbandale, posted on Facebook. “They have multiple options. One is a pass-through option and the other is spread pricing.”
Ponesse said some managed-care companies opt for spread pricing because the risk of pharmacy costs suddenly jumping is mitigated by using that option, Ponesse said.
However, the spread pricing option appeared pretty risky for one Iowa county. Ottumwa pharmacist Mark Frahm told the committee that he determined that CVS Caremark in January reimbursed him $1,000 for drugs he supplied to inmates at the Wapellow County Jail, and then billed the county $5,000 for the same drugs. Worse, Frahm said, the drugs cost him $1,500, so he lost $500 on the deal.
He, Forbes and county officials checked 160 claims from the jail and determined that on average, CVS Caremark was paid $26 more for a filling a prescription than it paid a pharmacy.
The spread on some drug prices was extreme. One cost the county $123.91, but CVS Caremark only paid the pharmacy $2.69. Another cost the county $162, but the pharmacy only got $16.
Ponesse, the CVS executive, said his company’s pricing is “not an exact science,” but overall it treats retail pharmacies fairly.
Ponesse said his company regularly adjusts reimbursements for pharmacists who use a CVS portal to complain that reimbursements were forcing them to lose money. Forbes, who also is a pharmacist, was incensed.
“You never adjust. Bullshit,” he said. “I’ve been in this business for 38 years. You can’t fool me.”
Forbes said CVS Caremark’s reimbursement-appeals system is rigged. When Iowa pharmacists intentionally put made-up drugs in the portal, they got the same canned brushoff as when they complained about reimbursements for real drugs, he said.
“They’re just not even reviewing them,” Forbes said. “That’s what I think.”
Ponesse denied the accusation, promising the panel data on adjustments CVS Caremark has made.
In a phone interview Thursday, Forbes said, “Normally I don’t get upset too much,” but Ponesse’s praise of CVS’s mail-order business and his assertions of fair reimbursements were too much for him.
So how did he get the guy who sets pharmacy reimbursements to the hearing?
“I said I want somebody who’s not going to get in here and say, ‘I need to check that,’ or, ‘I’ll have to get back to you.’ I want somebody who knows,” Forbes said. “I also said that if we have to use subpoena power, we will.”
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