According to a letter sent to some Medicaid patients in mid-June, patients in the program will pay $1.30 for every doctor visit, up from the current $1 co-pay. They'll also pay up to $3.90 on every prescription they have filled, up from the $3 maximum they currently pay.
The increases are small, but state officials hope they'll lead to about $1.7 million in savings per year for Medicaid, the joint state-and-federal program that provides medical insurance to Alabamians in poverty.
"We're looking at every conceivable way to manage our costs better," said Robin Rawls, spokeswoman for the Alabama Medicaid Agency. Rawls said the coming increases, which will raise co-pays to the maximum amount allowable by federal law, are the first increases the agency has made since the mid-1980s.
State officials have become increasingly occupied with managing Medicaid costs in the past year, largely because of a multi-year surge in the cost of the program. The state now pays $615 million per year for the program, more than twice the cost before the 2008 recession and a growing share of the state's $1.7 billion General Fund budget. That rise was due largely to the increase in the number of people living in poverty as a result of the economic downturn, officials have said.
To stem the rise in costs, lawmakers earlier this year passed a sweeping reform of the Medicaid system. The reform will end the state's practice of paying Medicaid doctors under a fee-for-service system and give responsibility for the program to five regional management organizations around the state, each charged with managing individual patients' care to reduce payments and bring down costs.
Gov. Robert Bentley signed the Medicaid reform bill into law earlier this month, and on the same day, he signed an executive order appointing a Medicaid Pharmacy Study Commission to look into ways to cut the state's Medicaid pharmacy costs, one aspect of the program that wasn't touched in this year's bill.
There was no fanfare, at the time, about an increase to co-pays for Medicaid clients. The Anniston Star found out about the co-pay increases Friday from a Clay County pharmacist, while conducting interviews about the Pharmacy Study Commission.
Rawls, the Medicaid spokeswoman, said the agency informed health care providers in May and sent a letter on June 14 to Medicaid patients who pay the co-payments. (Pregnant women, Native Americans and some other groups are exempt from the charge.)
Rawls said the co-pay increase wasn't part of the Medicaid reform project. Instead, she said, it was the agency's way of adapting to the state's 2014 budget, which kept Medicaid level-funded at $615 million, the same amount spent on the program last year.
"This is less about reform and more about budget management," Rawls said.
While the co-pay increases are small, they could have a major effect on the program's low-income patients, particularly when those patients take multiple drugs on a long-term basis.
Madison resident Beth Newlin has seen those costs up close. Her adult son Kyle has intellectual disabilities, is on Medicaid and is on six different prescriptions at any given time.
"By the time you pay for gas and rent and doctors visits, plus prescriptions, there's not much left for things like clothes," she said. Newlin, who works for the patient advocacy group Family Voices, stressed that her comments were her own, not the positions of the organization.
The co-pay increases may represent low-hanging fruit for would-be Medicaid cost-cutters. Squeezing money out of the program through deeper structural changes has proven complex and difficult even for experts in the field.
Doctors, state health officials and others met for months to study their options before coming up with the Medicaid reform package lawmakers passed this year. Even with those changes, state health officer Don Williamson has said the reforms will only "bend the cost curve," slowing the program's growth rather than cutting the overall cost.
Williamson cautions that this year’s Medicaid Pharmacy Study Commission is likely to face similar challenges in trying to cut the program's pharmacy costs, which he said were about $115 million per year.
"This is something that's going to have to be done very carefully," Williamson, chairman of the commission, told The Star last week.
Medicaid's pharmacy costs come from two main sources, Williamson said. One source is the cost of the drugs themselves. Another is the dispensing fee the state pays pharmacists for each transaction, to offset their overhead costs. Alabama's dispensing fee is roughly $10, one of the highest in the nation. Georgia's dispensing fees are around $4, according to the Kaiser Family Foundation. Florida's fees range between roughly $4 and about $7.
Cutting those fees could meet with serious opposition from pharmacists, who say they've already helped the state through one reform of Medicaid prescription coverage.
For years, Alabama Medicaid paid drug companies based on "list prices" as reported by drug companies. The state later sued three drug companies, arguing those drug prices were inflated, and won hundreds of millions of dollars in a state court. The drug companies took the case to the Alabama Supreme Court, which in 2009 threw out the judgment.
In 2010, the state switched to a new system: hiring a private company to examine the average prices paid by Alabama pharmacies for various drugs and set Medicaid agency’s price for those drugs accordingly. That system brought the price of the drugs themselves down — but the dispensing fee for pharmacists nearly doubled, because the same private company determined that the $10 fee reflected the actual cost of pharmacists’ overhead.
Anniston pharmacist Donnie Calhoun said he's satisfied with the current system, though he made more money on Medicaid transactions under the pre-2010 approach, because he was usually able to buy drugs at a lower cost than the state was paying for them.
"The pharmacies have done a lot to help the state with this problem already," said Calhoun, owner of Golden Springs Pharmacy on Henry Road.
Calhoun said about one out of every 10 of his customers is on Medicaid. He worries that in rural areas with higher rates of Medicaid use, changes to the program could push small pharmacies out of business — or at least, out of the Medicaid pharmacy business.
"There are still counties where there's a mom-and-pop pharmacy but not a chain pharmacy," he said.
Williamson said the fate of small pharmacies is very much on his mind.
"If you drop the payment below a certain level, you cause the pharmacies to drop out, and that affects access to care," he said.
In the mix
Williamson said one option the state may consider is the introduction of a pharmacy benefit manager, or PBM — a private company that could negotiate with drug companies for lower prices on drugs. It's a move pharmacists have opposed, in part because PBMs would likely cut the dispensing fee as well.
Williamson said PBMs are in use in some other states, and some leaders in those states say they work well. But most major PBMs are for-profit organizations and most are out-of-state companies.
That's a formula that didn't go over well last year, when the state’s Medicaid reformers pondered the idea of giving responsibility for much of the program to out-of-state, for-profit managed care companies. Lawmakers opted for locally-grown managed care networks instead.
Williamson said he'd like to know more about how PBMs operate.
"Some of it is, if you will, behind the curtain because so much of their information is proprietary," he said.
The full Pharmacy Study Commission hasn't been appointed yet, but so far there's no seat on the nine-member board for a consumer advocate. There are seats for two state health officials, four lawmakers and three health care professionals.
Jim Carnes, spokesman for the anti-poverty group Alabama Arise, said there should be a consumer representative on the commission.
"The governor is calling on this board to accomplish two goals, reducing cost and improving the quality of care," said Carnes, who served as the consumer advocate on an earlier Medicaid reform board. "That can only happen if the concerns of consumers are represented in the mix."
Jeremy King, a spokesman for the governor, said appointees are still being reviewed and noted that Bentley has the power to add members to the board as needed.
The Pharmacy Study Commission is expected to report its findings to the governor in December.
Capitol & statewide reporter Tim Lockette: 256-294-4193. On Twitter @TLockette_Star.