Managed care health plans serving low-income patients in California don’t have to consider pharmacies’ costs for obtaining prescription drugs when establishing Medi-Cal reimbursement rates, according to a state appeals court ruling issued last month.


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State court deals blow to Rx in Medi-Cal battle

April 7th, 2014

SAN FRANCISCO – Managed care health plans serving low-income patients in California don’t have to consider pharmacies’ costs for obtaining prescription drugs when establishing Medi-Cal reimbursement rates, according to a state appeals court ruling issued last month.

Federal law requires rates to be high enough to provide “quality care” and “adequate access” to drugs for patients, but doesn’t require states to take pharmacies’ costs into account when determining how much to reimburse those businesses for the drugs they provide, the court said.

The 3-0 ruling rejected a challenge by pharmacies in several Northern California counties regarding Medi-Cal rates set by their managed care network, Partnership HealthPlan of California, under authority granted by the state and federal governments. The pharmacies said they were losing money because the plan’s rates were less than their costs of obtaining the drugs.

A lawyer for the pharmacies said the rate system that the court upheld has already driven two of his clients out of business and would discourage others from serving Medi-Cal patients.

“When pharmacies can’t dispense medicine because they’re not paid enough, patients can’t get their medicine,” said attorney Lynn Carman of the Medicaid Defense Fund, adding that he will ask the state Supreme Court to take up the case.

But Douglas Cumming, a lawyer for Partnership HealthPlan, said the pharmacies failed to show that the plan’s rates interfered with Medi-Cal patients’ access to medicine and that “there are plenty of other pharmacies that seem to be happy to do business with ­partnerships.”

The lawsuit relied on a 1997 ruling made by a federal appeals court that required states to consider health care providers’ costs and conduct cost studies before approving reimbursement rates for Medicaid (which is known as Medi-Cal in California).

But the federal appeals court overturned that ruling in a new case last May, agreeing with federal courts elsewhere in the country that regulators can ensure access and quality of care in various ways and do not have to consider the costs to providers.

In last month’s state court decision, Justice Kathleen Banke said the court was impeded by a lack of input from federal and state health officials, who declined to participate in the case. But she said last year’s federal court ruling eliminated the grounds for California pharmacies to challenge the health plans’ rates.

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