When Commissioner of Administration Jay Dardenne gave Louisiana's Joint Legislative Committee on the Budget a Boy Scout salute, but with his index and ring fingers curled down, it launched a series of events still unresolved that has thrown health care of many state employees and retirees into turmoil starting earlier this week, as well as potentially wasting state tax dollars.
Last fall, the JLCB considered awarding a pharmacy benefits manager contract to Caremark PCSHealth, continuing a tortuous journey now extending almost three years. In spring, 2020 the state solicited bids for this service provision, the largest by dollars in the state, for its Office of Group Benefits that oversees employment benefits for most state employees and retirees and their families, as well as many public school teachers and retirees and families or nearly 200,000 affected plan members. Five PBMs contested it, with Caremark, whose parent also owns the CVS Pharmacy chain and mail order businesses, winning out.
Legal challenges ensued, and the matter was put on hold. In the meantime, the state issued some short-term contracts that spent just under $500 million a shot although the maximum allowed was just over $600 million. Litigation wasn’t initially resolved until last summer, two years after, that confirmed Caremark had won the contract within the confines of the law.
Of course, much had changed since then, yet Dardenne, whose Division of Administration oversees OGB, rather than rebid the deal pressed on with the now stale contract. Yet one more legal step remained, which Dardenne acknowledged was the case: the JLCB had to approve of it. Over the course of three meetings, it refused to do so and unanimously, which prompted Dardenne to tell the committee he was going to hand over the business to Caremark regardless.
That triggered a suit by affected individuals and the Louisiana Independent Pharmacy Association against the state. Caremark understandably intervened for the defense, and since the gist of the suit presented a separation of powers question, as his office has had to do multiple times when Democrat Gov. John Bel Edwards attempted executive overreach, Republican Atty. Gen. Jeff Landry intervened for the plaintiffs.
At the end of the year just days before the contract’s scheduled start, Democrat 19th District Judge Tarvald Smith denied an injunction despite statute clearly indicating all of DOA, its Office of State Procurement, and the JLCB (in statute referred to by its constituent parts, the House Appropriations Committee and Senate Finance Committee) must approve of OGB contracts. The turnover took place and now many affected members have found themselves scrambling to find a new pharmacy. The plaintiffs are appealing the ruling.
Although Caremark throws around loaded language about how shadowy sinister political motives behind the suit are spreading misinformation, in reality JLCB legislators were made aware of some serious drawbacks to the deal. In light of these, the staleness, and a question of statute in which he admitted his actions contravened, why Dardenne pugnaciously continued his quest to bring the contract into force remains puzzling, beyond that he publicly mentioned the Edwards Administration was running out of time (with the end of his term in a year) and wanted to get the whole thing over with.
Most glaringly, pharmacy access remains an issue. The contract allows benefits drawn only at CVS locations, a network of other independent pharmacies, and through mail order. But it rigs the game by not allowing non-CVS sources to cover all drugs at least at cost, which creates an incentive for those sources to decline participation.
That ends up steering clients to CVS locations or, where a CVS branch isn’t nearby, its mail order business (the contract has language preventing explicit steering, but nothing prevents this more implicit kind). The latter option particularly is problematic as the main or even sole choice, given not only its reduced reliability in providing timely and accurate delivery, but in that mail order can dodge state sales tax and a 10 cent fee to fund Medicaid. Additionally, the state can regulate more strictly brick-and-mortar operation for safety than it can police mail order.
(Including, courtesy of the Democrat Pres. Joe Biden Administration, home abortion pills, whose Food and Drug Administration earlier this week ignored data deserving of scrutiny and will allow pharmacies to sell these in states that allow unrestricted abortion. CVS intends to do this, but as state health plans don’t pay for abortions under normal circumstances for no reason should that end up as part of its mail order strategy to cover OGB plan beneficiaries.)
Also questionable are assertions the deal will save the state money. Information distributed by OGB claimed for the three-year contract that it would cost $402 million in 2023, $425 million in 2024, and $454 million in 2025. (It has optional renewal available for two more years.)
But it set the ceiling at just over $2 billion for the three years, or well above averaged out the maximum of the just-expired emergency on-year contract. And given that a half-dozen PBMs control around 95 percent of the market, unless the state vigorously pursues price transparency there is little downward pricing pressure to begin with. Disturbingly, the contract allows for a per beneficiary payment 3.7 times what the state spends on Medicaid clients, whose characteristics don’t suggest per person they would consume that much fewer pharmaceuticals.
Plus, it’s not just the finances of clients, who pay out of their salaries or retirement distributions a portion of their health insurance expenses, that may end up enduring more costs than necessary under this deal. Taxpayers foot the rest of the bill at a rate three times what the covered families pay.
This isn’t politics, these are data and fuel real concerns, so JLCB members had every right to reject the deal. Fortunately, the contract allows for termination at convenience with 30 days’ notice, and as Edwards seems unmoved by any of this, as a practical matter the state could get out from under it by mid-2024. Even court action now reversing the recent ruling would leave Caremark in place for perhaps as long, as litigation plays out to its conclusion and/or the mechanics of replacing it take time.
Regardless of whether the contract runs its full
length, it’s a win for Caremark because that gives it at least 18 months to
entice people into its pharmacies, but especially to the higher-margin mail
order arena. And it very well might turn out to be a loss for taxpayers and
state employees and teachers past and present as they may end up paying more for
less service, courtesy of Edwards and Dardenne.
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