David K. Buerger

That was Judge Scott McCown's unofficial verdict on Texas Medicaid officials' most recent attempt to slash pharmacy dispensing fees.

Judge McCown's official ruling in the case of Texas Pharmacy Association et al v. Texas Department of Health was a March 13 court order barring further implementation of a 50 percent fee reduction pending the outcome of a trial set for mid-October.

The judge's decision is still open to challenge by health department officials, but they may be hesitant to carry on the fight in the near future given Judge McCown's observation that "plaintiffs will probably prevail [at] trial . . . ." If the Texas Department of Health decides not to pursue the matter, the October trial date would be canceled and the temporary injunction rendered permanent, TPA says.

"The judge's decision clearly spoke to the devastating impact that the [fee cut] would have on pharmacists and the patients they serve," TPA Executive Director Paul Davis told TCP. "The Department of Health seemed to enter into this with the view that, 'If this reduced fee is too low, we'll go back and fix it.' The problem is, the damage would have already been done."

FIGURE 1. The Judge's Ruling

In his strongly worded March 13 decision, Texas State District Judge Scott McCown struck down a new TDH rule implementing a permanent dispensing fee cut, stating that:

• "the reimbursement system formulated in the new rule . . . ensures that pharmacies participating in the Vendor Drug Program must dispense medication to Medicaid recipients at a financial loss . . .
• "these financial losses will result in the withdrawal of pharmacies from the Vendor Drug Program [and] will also result in the closing of participating pharmacies across the State of Texas. . .
• "the access of Medicaid recipients to pharmacy services will be reduced [and] pharmacy care and services will not be available to Medicaid recipients to the extent that such care and services are available to the general population, in violation of federal law. . .
• "the quality of care to Medicaid recipients will be significantly reduced below the level of quality care that is available to the general population, in violation of federal law . . .
• "the plaintiffs and all pharmacies participating in the Vendor Drug Program will be irreparably harmed, and will be without any adequate remedy at law. . . .

"It is, therefore, ordered that the Texas Department of Health, Defendant herein, be and hereby is, commanded forthwith to cease, desist and refrain from the implementation of the new rule . . . and the repeal of the former rule . . . ."

ASCP Region IV Director and TPA past president Ron Edwards, of Brownwood, told TCP that the ruling represents "a significant victory, in that pharmacists, as an organization, were able to pull together and present evidence in court clearly showing-beyond a doubt-that the fee reduction would have driven many pharmacists out of business and seriously damaged patient care."

Edwards says he and other pharmacists were generally satisfied with the old (now reinstated) Medicaid reimbursement formula (AWP minus 10.49 percent plus $4.55 over .93), which allows for a 7 percent profit margin-just adequate to cover the costs of doing business. The revised reimbursement formula proposed by TDH, however, would have imposed a flat $3 dispensing fee ($4 for rural pharmacies). That fee structure would have cut the opportunity for profit in half, Edwards says.

The story behind the defeat of the fee cut-why Texas Medicaid officials proposed it, how pharmacists and pharmacy organizations marshaled their forces against it, and why Judge McCown ultimately moved to block it-is a story of effective grass-roots mobilization and persuasive argument that holds valuable lessons for pharmacists across the country facing similar Medicaid threats.

Erroneous Assumptions

Seeds of the confrontation that finally came before Judge McCown were sown in January 1995, with the end of a five-year federal moratorium on Medicaid pharmacy fee reductions. In many fiscally strapped states, lifting of the moratorium meant open season on Medicaid dispensing fees. Texas Department of Health officials, with the backing of the state legislature, were soon calling for a reduction of the Medicaid fee to $4. Warning of dire consequences for the state's pharmacists, TPA took the health department to court last September and won a temporary restraining order.

TDH fired back in November with results of a state-sponsored study showing that Medicaid dispensing fees were out of line with those paid by some third-party health plans. TDH again recommended reducing the average Medicaid dispensing fee-on a permanent basis-down to $3 for most Medicaid providers. TDH based that recommendation on results of a market analysis by an actuarial firm showing that Medicaid dispensing fees were, on average, 25 percent higher than dispensing fees under the state's Employee Retirement System.

Davis says TDH's move to cut the dispensing fee stemmed not from failure to take into account the special circumstances of long-term care pharmacy, but from a desire to achieve the sorts of savings being achieved by managed care plans. "I think the Department of Health has a pretty good understanding of long-term care pharmacy" and the special circumstances of serving nursing home residents, says Davis. But for a variety of reasons, "some pharmacists regularly accept fees below Medicaid levels. TDH sees this going on and wants to make sure it's getting its money's worth."

After an unsuccessful attempt to get a temporary restraining order to block the permanent fee cut, TPA and the other plaintiffs filed a lawsuit asking the courts to impose an injunction on further implementation.

Girding for an anticipated courtroom battle, the pharmacy community set about gathering ammunition. A key player in this effort was TPA Past President Tim Vordenbaumen, vice president of government and regulatory affairs for American Pharmaceutical Services, San Antonio.

Vordenbaumen, also past president of the American Pharmaceutical Association, worked closely with Davis and TPA's legal counsel to prepare an information paper pointing up fundamental flaws in the actuaries' market analysis.

In a letter to TDH officials in February, Vordenbaumen pointed out that Medicaid-covered nursing home residents are generally older and in worse health than the ERS recipients studied by TDH; that nursing home residents typically have a more complex drug regimen than ERS recipients; and that the ERS population is ambulatory and has discretionary income, while Medicaid-covered nursing home residents "are confined to the facility and lack any kind of discretionary funds."

Finally, Vordenbaumen noted, the TDH study completely disregarded private-pay patients, the largest sector of the Texas prescription drug market. While Medicaid patients make up 68 percent of the Texas prescription market, they account for only 52 percent of prescription revenues. At the same time, private-pay patients, who comprise 30 percent of the market, account for 46 percent of revenues. "Even [under the current system], it can be demonstrated that some cost shifting from Medicaid to private third parties is occurring," Vordenbaumen told TCP. "We don't want to be forced to charge private-pay customers more and shift costs" to other market sectors.

If implementation of the fee cut were to continue, TPA argued, it would shift costs from the Medicaid program to other market sectors, mainly as a consequence of extended bouts of illness and increased hospitalizations and psychiatric admissions.

A Refresher Course in Long-term Care Pharmacy

In addition to exposing gaping chinks in the armor of TDH officials' fee cut rationale, the plaintiffs set out to remind the health department that providing pharmacy services to nursing facility residents entails substantial added expenses.

Figure 2.

Long-Term Care Pharmacy-Specific Costs	Cost/Rx
Delivery Service	$2.01
After-Hours Service	.20
Medication Distribution Systems	.45
Clerical Support	.50
Total	$3.16

To accomplish this consciousness-raising task, Vordenbaumen queried a number of small and large long-term care pharmacy providers throughout the state, asking them to report on the unique expenses of doing business with Medicaid. (The providers were careful to discuss only costs-not prices-to avoid any collusive or anticompetitive activity.) He came up with a list of long-term care pharmacy-specific costs totaling $3.16 per prescription (Figure 2). That figure didn't even reflect the cost of providing various other services-things like ongoing facility staff education and in-service training, repacking of unit-dose medications, and thorough review of medication orders to detect errors, verify appropriateness of dosage form, and, if changes are necessary, communicate the change to the facility and obtain a revised medication order.

Then came the kicker. "It is interesting to note," Vordenbaumen wrote, "that when [the $3.16 figure is] added to the department's finding of a dispensing expense of $5.01 (from cost reports that excluded long-term care pharmacies), a dispensing expense in excess of $8.00 is apparent for long-term care pharmacies." The message was clear: The current fee of $6.44 doesn't even cover actual dispensing costs, and a further reduction would add insult to injury by imposing a "draconian" and ruinous pay cut on pharmacists.

Along with eye-opening numbers, Vordenbaumen spelled out the importance of long-term care pharmacy providers' value-added services in language that stands as a model of clarity, concision, and easy-to-understand terminology (see Figure 3).

FIGURE 3. Persuasive Arguments

• Delivery service - Residents of long-term care facilities are unable to go to a pharmacy to pick up their prescriptions. In addition, the standards applicable to nursing facilities require that pharmacies providing prescriptions to residents deliver those prescriptions to the facility. These same standards require that medications are started on a timely basis after being ordered by the physician. This means that a pharmacy very likely will make several trips to a facility on any given day.
• After-hours service - The frail and elderly who are confined to nursing facilities are prone to medical events that require the use of prescription medication. Many times these events occur during the night, on weekends, and holidays. The requirement for a timely start to drug therapy and obligation for the provision of good patient care means that a pharmacy serving these residents must arrange to provide services at all times. These services include the availability of a pharmacist, appropriate communication systems and equipment, after-hours security, and delivery service.
• Drug distribution systems - Long-term care pharmacies [typically] implement medication distribution systems within the nursing facilities they serve. Medications are provided in "modified unit-dose" format and administered from a cart that permits dose preparation at the resident's bedside. These systems are designed to speed the medication administration process and prevent errors. The result is that more time is available for providing nursing care and facility costs are reduced. The state is an indirect beneficiary of these reduced costs.
• Clerical support - The [Medicaid] program results in increased clerical requirements when nursing facility residents are the beneficiaries. Most often individuals have not been eligible for Medicaid prior to admission to the facility and when approved, eligibility is retroactive to date of admission. A number of factors influence how long an application may take, but 60 to 90 days is not uncommon. This process requires continued monitoring by the pharmacy and then submission of the claims that have accumulated over the period of application. [TDH's] program to control the use of H2 antagonists imposes another clerical burden on long-term care pharmacies. Prescriptions for residents of nursing facilities are not brought into the pharmacy; therefore, the pharmacy must obtain the required documentation when acute dose time periods are exceeded. These particular drugs are frequently used for nursing facility residents, and because of the acuity of these patients, the limits are often exceeded.

Summing up TPA's argument, Vordenbaumen wrote, "We believe that [TDH] will agree that these are valuable services and are essential to good patient care: As taxpayers we are concerned that the lack of these services will result in greater costs from unnecessary hospitalizations or more serious or prolonged spells of illness. As pharmacists we are concerned that patients will be denied the care and comfort they need and deserve."

Vordenbaumen and the others make no bones about their desire to protect their own interests as taxpaying business owners, and Judge McCown validated that aspect of their argument, noting in the March 13 decision that "all pharmacies participating in the Vendor Drug Program [would] be irreparably harmed."

But in the end, the court seemed to be most impressed by the enormous potential human costs of the fee cut. This is an important lesson for pharmacists fighting similar battles in their states, Vordenbaumen says. "It's wise to put your concerns in the context of patient care: What's going to happen to nursing home residents? What's going to happen to quality of care?"

Broader Implications

In addition to representing a significant victory for Texas pharmacists, the fee cut battle highlights the impact of deepening managed care inroads. As Vordenbaumen puts it, "Far too many pharmacists are accepting third-party fees that are intolerably low." They enter into these unfavorable arrangements for a variety of reasons, often simply out of a desire to continue serving long-time patients who move into managed care plans. Nonetheless, says Edwards, "We pharmacists have hurt ourselves by accepting these fees." He quickly added, "It's a shame that insurers can dictate to thousands of pharmacists what they will pay for our services." Pharmacists essentially have no bargaining power: It's either take it or leave it.

The case also points up a growing trend of Medicaid programs shifting from cost-based to market-based reimbursement systems. Says Vordenbaumen, "This is going to be a real challenge for pharmacy, long-term care pharmacy in particular: There needs to be a thorough economic analysis of the marketplace to give a better picture of what sorts of pressures third-party plans are exerting."

If recent events in Texas hold one overriding message for pharmacists, it's that they must be aggressive in fighting fee cut initiatives, Vordenbaumen emphasizes. "You need to be in your state Medicaid office explaining why long-term care pharmacy is different today," not after events reach a crisis point. "And you need data that will stand up to scrutiny."

Edwards echoes that advice: "Pharmacists have got to be involved. They have to continue to be politically savvy, to put their money where their mouth is, support their state and national associations, and make contributions to support lobbying activities and, if necessary, lawsuits" to protect their interests. Medicaid agencies and other policymakers need to understand that "we're not just going to roll over and play dead."

Rather than a decisive victory, the March 13 injunction is best viewed as a victorious skirmish in a running battle, Davis says. "Even though we've beat them in court twice now, the TDH board of directors seem to believe they're under a mandate to cut Medicaid dispensing fees. This sort of initiative definitely will be back," whether in the form of cost-cutting efforts by TDH, efforts by the state legislature to rewrite pharmacy regulations, or continued screw-tightening by managed care organizations.

Vordenbaumen concurs: "We fully expect this matter will come up again. At this point, I can't even see the fat lady on the stage."