"We have two things to look at," said Rep. Jim McClendon, R-Springville. "We want to save money, but we also want to look at the impact on the community."
McClendon is a member of the Alabama Medicaid Pharmacy Study Commission, a panel appointed by Gov. Robert Bentley to look for ways to save money on drugs dispensed through Medicaid, the state and federal medical insurance program for people in poverty.
The state budgeted $615 million for Medicaid for this year — the biggest single item in the General Fund budget. Costs for the program have gone up largely because of growth in enrollment since the 2008 recession, and Medicaid officials say the $615 million is barely enough to cover the more than 900,000 Alabamians on Medicaid.
Lawmakers passed a raft of changes to Medicaid earlier this year, placing the program's physician services under a set of "regional care organizations" similar to managed care. The change is expected to slow the growth in the program's cost, but not expected to bring costs down. The Pharmacy Study Commission is looking for options for reforming Medicaid's pharmacy program as well.
One proposal would have Medicaid turning the drug program over to a private company known as a pharmacy benefit manager, or PBM, which would manage drug benefits with an eye toward cost-cutting. Representatives from three major PBMs — CVS Caremark, Express Scripts and MedImpact Healthcare — presented a proposal for just such a system Thursday.
MedImpact president Greg Watanabe said PBMs could save the system money by managing the use of drugs by patients and by securing better rates on the drugs they buy.
According to documents accompanying Watanabe's proposal, PBMs could save the state $30 million to $50 million.
Wal-Mart representative Kevin McCarter presented a different offer: Make Wal-Mart the main dispenser of Medicaid drugs, and the department store chain would offer a cut in prices for the drugs Medicaid buys.
"We want to increase the volume of our pharmacy prescriptions, and in exchange we'd offer a deep discount." McCarter said.
Seventy-eight percent of Alabama's Medicaid patients live within 10 miles of a Walmart store, McCarter said. The company proposed making Wal-Mart and affiliated companies such as Sam's Club the sole provider of Medicaid prescriptions in areas with a store nearby. Community pharmacies would fill "coverage gaps," according to the Wal-Mart proposal.
McCarter said the store could also offer special prices for Medicaid customers on other items, such as fitness equipment, that would benefit their health.
"Wal-Mart's a big box," he said. "We offer a lot of items in our box."
McCarter's proposal showed a switch to Wal-Mart saving the state $120 million in the first year, with savings growing to $205 million per year in the eighth year. Asked after the presentation if Wal-Mart could guarantee those savings, McCarter said they were only a projection.
"How many Wal-Mart employees have children on Medicaid?" asked Jim Carnes, a spokesman for the group Alabama Arise who was appointed to the commission to represent Medicaid consumers.
McCarter said he didn't have enough information to answer Carnes' question.
The question has been researched before, however. In April 2005, The Mobile Press-Register published an article, citing Alabama Medicaid data, that showed 4,700 children of Wal-Mart employees were on Medicaid in the spring of that year. The data were similar to information obtained from the same agency by the Montgomery Advertiser two months earlier.
McClendon, the lawmaker, said he was concerned that the Wal-Mart proposal would hurt the state's "provider infrastructure" — the state's existing network of pharmacists.
The commission also heard from a group called Alabama Prescription Services, an offshoot of the Bessemer-based American Pharmacy Cooperative, Inc., or APCI. Spokesman George Hiller said APCI negotiates drug prices for 500 independent pharmacies who are members of the organization.
Hiller made a softer sale, complimenting the Medicaid program on its past efforts to save money and offering to provide services if the state chooses to outsource the drug benefit.
Hiller outlined a number of ways APCI intended to save the state money, including a tweak to its formula for determining the price of drugs and a push to buy drugs that offer the highest rebates from manufacturers.
Those proposals would save the state $48 million to $60 million, he said.
The state has already made a number of changes to try to save money on Medicaid's drug purchases. Earlier this year, the agency raised drug co-pays for Medicaid patients and stopped covering over-the-counter medications.
At the end of the meeting, the commission's chairman, State Health Officer Don Williamson, floated another proposal. The state charges a 10-cent "provider tax" on every prescription, he noted. Every 10-cent increase in that tax can generate $9 million, he said. That's an option that should be on the table, Williamson said, when the state is considering a cut of up to $40 million to an already-stressed program.
"Rather than talking about how to cut it, ought we to be looking at the revenue side?" he said.
Despite anti-tax rhetoric in Montgomery, the Legislature has approved tax increases in recent years to shore up Medicaid. In 2009, Alabama collected $1,900 in "bed tax" on each and every resident in a nursing home. By 2012, legislators had increased that tax to $4,028 per patient — but they'd scratched the word "tax" out of the law, referring to charges as "privilege assessments" and "surcharges." Roughly half of those taxes were increased when Democrats controlled the Legislature, the other half under the Republican supermajority.
Williamson said the bed tax was relatively easy to sell because the nursing homes themselves supported it. A majority of the state's nursing home patients are on Medicaid, and most nursing homes serve Medicaid patients.
Even a small increase in the pharmacy tax would be harder to pass, Williamson said, because some pharmacies are in affluent areas that rarely see a Medicaid customer.
Williamson said the idea is still worth discussing.
"I want to put the idea on the table and let folks think about it," he said.
Capitol & statewide reporter Tim Lockette: 256-294-4193. On Twitter @TLockette_Star.