Bill provides an example of poor fiscal management
by The Oklahoman Editorial Board
May 12, 2016
AS the old saying goes, the first step to getting out of a hole is to stop digging. So what does it say about Oklahoma legislators that they recently voted for a bill that will increase state government's insurance costs by millions even as they face a $1.3 billion shortfall?
Worse yet, the bill will increase prices for all Oklahomans with insurance.
Among other things, Senate Bill 1150 amends state law to require an administration appeals procedure for pharmacists to protest the “reimbursement amounts” they're paid for drugs. State law previously allowed such protests regarding “maximum allowable cost rates.”
That simple word change could have multi-million-dollar consequences.
The wholesale cost of generic drugs can vary greatly from one manufacturer to another, so pharmacy benefit managers maintain a “maximum allowable cost” price list when negotiating the prices paid pharmacies for generics. Oklahoma law requires those lists to be updated weekly to ensure they reflect the latest and most accurate information, and pharmacists can appeal those prices.
By striking the reference to “maximum allowable cost rates” and replacing it with “reimbursement amounts,” critics argue that SB 1150 effectively opens the door for pharmacists to ignore numerous contractual agreements.
Devon M. Herrick, a senior fellow with the National Center for Policy Analysis, says “reimbursement amounts” is defined so broadly that pharmacists could unilaterally increase patient co-payments or the prices charged for brand-name drugs, not just generics.
“In theory, this could allow drugstores to raise prices by some arbitrary amount and balance bill consumers for the difference between the reimbursement they agreed to and the higher price they wish to charge,” Herrick writes. “This is unprecedented pricing power for a pharmacy to wield over drug plan enrollees.”
The Pharmaceutical Care Management Association says the bill changes contracting in a way “not permitted for any other type of business contract” that leaves “no point” to even signing a contract.
Reportedly, no other state has enacted a similar law.
It's estimated the legislation will increase the amount taxpayers pay for state employees' insurance benefits by up to $8 million annually. In the private sector, Devon Energy estimates its health care costs will increase by up to 10 percent. Blue Cross and Blue Shield estimates its costs will grow up to $10 million annually.
Pharmacists say the bill gives them more leverage in contract disputes with insurers, and no doubt they would welcome any resulting higher profits. But consumers will pay the price. Thus, the legislation drew opposition not just from insurance entities, but several large employers including Continental Resources, LG&E Energy Corp. and Tyson Foods, along with Devon. SB 1150 also was opposed by the Oklahoma Public Employees Association, the Oklahoma State Fraternal Order of Police, and the Tulsa Fire Fighters Health and Welfare Trust - groups concerned about higher drug costs that will be shifted to their members.
One author of the legislation, Sen. Ervin Yen, R-Oklahoma City, was asked on the Senate floor about SB 1150's financial impact. Yen acknowledged it would generate additional cost to the state, but said a subsequent bill would amend Oklahoma law again to negate that impact.
That SB 1150 requires immediate legislative action to repair the resulting damage of its enactment should have been reason enough to kill it. Instead, lawmakers passed it anyway (and Gov. Mary Fallin signed it this week), giving credence to routine complaints about the poor fiscal management practiced at NE 23 and Lincoln.