Delivered by Joseph R. Sabino, MS, RPh
Executive Director, NCS Healthcare of Columbus, Ohio
March 11, 2002

Good afternoon. My name is Joe Sabino, and I appreciate the opportunity to speak to you today on the proposal issued by the Ohio Department of Job and Family Services to reduce Medicaid reimbursement to the state's pharmacies.

We believe the rule is bad public policy and contrary to the legislature's intent - it will deprive Medicaid beneficiaries of equal access to critical healthcare services and will likely cost the state money in the long run. We also believe that in proposing these reimbursement cuts, the department has not prepared a complete and accurate rule summary and fiscal analysis of the proposed rule. We therefore urge the committee to recommend the invalidation of the proposed rule.

By way of background, I am the executive director of the Columbus operations of NCS Healthcare, a long-term care pharmacy, and was formerly president of the Ohio Board of Pharmacy. I am a pharmacist and have worked in the long-term care setting as well as retail over the past 34 years.

I am here today representing the Long Term Care Pharmacy Alliance (LTPCA), of which NCS is a founding member. Formed late last year, LTCPA is a new national association of pharmacies that serve patients in nursing homes, assisted living facilities, and other long-term care sites. Together, we serve over one million nursing-home patients throughout the nation.

My company, NCS Healthcare, is headquartered in Cleveland and focuses solely on caring for the frail elderly in nursing homes. We've operated with Ohio as our base since 1986 and have three locations and 402 employees in Ohio. We care for nearly 21,000 elderly in Ohio and over 200,000 across the country.

As you may know, long-term care pharmacies provide special services to patients with special needs. These services go beyond those typically provided by retail pharmacies.

Long-term care pharmacies care for Ohio's most vulnerable elderly - mainly Medicaid residents in nursing homes who are too old or too infirm to go out and get their medicines. As a result, as distinct from retail, we deliver every day. We are open 24 hours per day and are on-call for the emergencies that inevitably occur. We package medicines in unit-of-use packaging so that nurses can administer drugs more accurately and reduce medication errors. In addition, we provide up-to-date medication administration records for the facilities and monthly reviews of patient charts to ferret out problems such as adverse drug interactions, duplicative therapies and overmedication. Each of these services is critically necessary for quality care, and many of them are required by law.

Why should JCARR invalidate this proposed rule?

The department's rule summary and fiscal analysis is flawed for two reasons:

(1) the department's rule summary and fiscal analysis is incomplete and inaccurate because the department
a) did not estimate fully or accurately the cost of compliance with the rule to all directly affected persons; and
b) the department overlooked the fiscal effect that this rule would have on counties, townships and municipal corporations.
(2) the department's proposed rule conflicts with the intent of the legislature in enacting the statute under which the rule is proposed.

The department's rule summary and fiscal analysis is incomplete and inaccurate

With respect to this first point, I note that the department's rule summary and fiscal analysis suggested that there is no "administrative cost of compliance" with the proposed rule. However, the department did not assess the total costs of compliance with the proposed rule, other than noting the total amount by which Medicaid pharmacy reimbursement would be cut under the proposal.

The "costs of compliance" with the proposed rule for our three pharmacies in Ohio will be $675,000 or approximately $0.55 per prescription. To put this in perspective, it would effectively lower the current dispensing fee of $3.70 below the 1988 level of $3.23! If our dispensing fee had kept pace with the Medical Care Services Price Index increase of 200% during that period, it would be $6.51 today!

Our true costs of compliance will go beyond just this loss, however. For the last 36 months, NCS has posted financial losses, despite a revenue base of $625 million nationwide and despite substantial staffing reductions (125 to 75 FTE at the Columbus site alone). In addition, Medicaid is the largest portion of our business, as it is for all long-term care pharmacies. Generally, Medicaid comprises more than 50% of our business in Ohio and is rising. As a result, we have no place else to which we can shift costs when the state cuts our Medicaid reimbursement.

Therefore, our true costs of compliance will include cutting jobs and cutting services to Medicaid beneficiaries. Other pharmacies will do the same or will close, thereby depriving the state of additional jobs and tax revenues, not to mention depriving the state's Medicaid beneficiaries of equal access to healthcare services.

The department's rule summary and fiscal analysis failed to estimate these effects, and therefore the department did not provide this committee with a full or accurate assessment of the true cost of compliance with the rule to all directly affected persons.

Furthermore, I believe the department failed to consider the effect that cutting pharmacy reimbursement will have on the costs borne by hospitals in Ohio, especially the state's safety-net public hospitals.

As I explained earlier, the department's proposed reimbursement cuts will force most pharmacies, particularly those that serve a high volume of Medicaid beneficiaries, to cut services to Medicaid beneficiaries. Those pharmacies that continue dispensing drugs to Medicaid recipients will probably reduce the professional services they provide to this population, since helping to manage patients' disease states and drug therapies is time-consuming work.

Unfortunately, this reduction in pharmacists' professional services will increase hospitalization costs to the state Medicaid program. There is a solid body of peer-reviewed literature that describes how these services can and do reduce hospital stays and hospitalization costs. I'd like to submit for the record a document produced by the Alliance for Pharmaceutical Care that cites and summarizes some of this literature.

For instance, researchers at the University of Arizona conducted the first pharmacoeconomic study to quantify the cost of medication-related problems in nursing facilities and the value of consultant pharmacist services in long-term care settings. The study found that drug regimen review conducted by consultant pharmacists improves optimal therapeutic outcomes by 43% and saves $3.6 billion annually in costs from avoided medication-related problems, many of which would require patients to be admitted or re-admitted to hospitals.

There are some 20 non-federal publicly owned hospitals in Ohio. If the state cuts reimbursement to long-term care pharmacies and community pharmacists, and we cut back on the services we provide to Medicaid beneficiaries, there will be an increase in Medicaid hospitalization costs.

I cannot tell you exactly how much these pharmacy reimbursement cuts will cost the state's public hospitals in terms of increased hospital spending. However, neither can the department, which did not conduct the necessary analysis despite the existence of studies that demonstrate a relationship between pharmacists' professional services and hospital spending.

The department's proposed rule conflicts with the intent of the legislature

As you know, federal law requires state Medicaid programs to ensure that Medicaid beneficiaries have equal access to healthcare services:

A State plan for medical assistance must ... provide such methods and procedures relating to the utilization of and the payment for, care and services available under the plan ... to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area. [42 U.S.C. § 1396a(a)(30)(A)]

In adopting the biennial budget, under which this proposed rule is being promulgated, the legislature could not have intended for the department to change the state's Medicaid plan in a way that would violate federal Medicaid equal-access requirements. We believe the proposed rule, however, would do just that. If enacted, these rate reductions would force cuts in services that would reduce Medicaid beneficiaries' access to pharmacy services below that available to the general population.

In ensuring that payments for services are consistent with efficiency, economy, and quality of care, and are also sufficient to ensure access, the Department should consider the costs of providing pharmacy services to Medicaid beneficiaries. The pharmacy reimbursement rate also should bear a reasonable relationship to an efficient and economical pharmacy's costs of providing quality care. However, we don't believe the department adequately studied or otherwise considered our costs in developing its proposed rule.

We believe the department should undertake responsible cost studies that will provide reliable data as to our costs of providing services to Medicaid beneficiaries, and should then set rates that have some reasonable relation to our costs. Short of doing so, we fail to see how the department can assure the legislature that its actions would not violate Medicaid's equal-access requirements.

The Ohio Supreme Court in 1991 struck down a rate-setting regulation on the basis that it was "adopted solely for budgetary reasons without due consideration of its effect on the quality of care." Ohio Hosp. Ass'n v. Ohio Dep't of Human Serv., 62 Ohio St.3d 97, 102, 579 N.E.2d 695, 698-99 (Ohio S.Ct. 1991). The court also noted that "Medicaid statutes impose a duty on state programs to adequately reimburse their Medicaid providers." Ohio Hosp. Ass'n, 62 Ohio St.3d at 100-101. Unless the department can show that it considered the effect that its proposed rate cuts would have on quality and access, it would seem that the department's rule flies in the face of the opinion of the highest court in the state.

Summary

As you may know, I testified last month against this rule before the department. I reminded the department that the proposed rule will do little to control prescription drug spending, since cutting pharmacy reimbursement will not change the prices set by pharmaceutical companies or the prescriptions written by physicians. I noted that NCS Healthcare depends on the ability to eke out a profit by buying drugs at less than the state's ingredient-cost reimbursement rate, since the state's dispensing fee of $3.70 per prescription does not cover any pharmacy's costs of dispensing, much less the costs of the additional services provided by long-term care pharmacies such as ours. I also noted that the department's proposal fails to recognize that long-term care pharmacies provide critical services that actually reduce costs to the state, which suggests that cutting our reimbursement is the most short-sighted move the department could make.

I believe these points provide an important context to the other arguments I've made today. Pharmacists want to work with the department to help control prescription drug spending, but we cannot do so unless we are reimbursed at rates that allow us to do more than simply dispense drugs, if that.

I urge you to recommend that the General Assembly invalidate this rule. Not only are there flaws with the department's rule summary and fiscal analysis, but the rule itself would contradict federal requirements and the legislature's own intent in assuring equal access for the state's Medicaid beneficiaries. I also hope you will encourage the department to work with pharmacies and pharmacists, not against us, in caring for the most vulnerable Ohioans.