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Minutes

Committee Hearing, May 21, 1998

Philadelphia City Council Committee HearingsMay 21, 1998

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Councilman Nutter

Thank you. Lastly, Miss Seyda, how do we communicate to public employees about the non-Rite Aid pharmacies that participate in the City program? Is there an updated list that gets distributed to all the public employees so they know not only where the Rite Aid stores are but also the independent pharmacies that participate in the program?

Ms. Seyda

We recently received and have available an updated copy of all of the pharmacies, both Rite Aid pharmacies and 172 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 independent pharmacies, that are participating in the City's program. We have a new list available as of April of this year, and we will certainly ensure that that information is communicated to the City workforce.

Councilman Nutter

And do you have a sense of -- I mean, if we have 96 or so Rite Aid stores operating in the City, do you have a ballpark figure on how many independents are participating in the program?

Ms. Seyda

Yes. On the current list that I have from the April listing, I believe that there are over 200 independent pharmacies that participate in the City's program in addition to about 150 Rite Aid stores in Philadelphia and in the adjacent suburbs.

Councilman Nutter

Mr. Gurson, you seem like you enthusiastically wanted to report something.

Mr. Gurson

No, I was -- just had the same numbers, and I was going to provide them to you.

Councilman Nutter

All right, great. I think at this point what I'd like to 173 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 do is have Mr. Brog, from the independent pharmacists, come up to the witness table. I would like to ask Miss Seyda, Mr. Gurson, and Mr. Hushen, if you could, to at least remain here in the chamber. Other issues may arise, and I would prefer to be able to have your response rather than speculate on what you might say. I appreciate your testimony and your responses to the questions. Miss Seyda, you don't have to respond right now, but the issue was raised earlier about this consultancy relationship and who pays. I believe this was in the capital enterprises matter. Rite Aid seemed to not be clear or absolutely sure who's paying for what, and if you could provide that information, I would great greatly appreciate it.

Ms. Seyda

Yes, we will provide that information for you.

Councilman Nutter

Thank you. Mr. Sam Brog. (Sam Brog comes forward.)

Councilman Nutter

Mr. Brog. Please identify yourself for the record and you can 174 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 proceed.

Mr. Brog

Sure. I just wanted to get my notes together. Excuse me for a moment.

Councilman Nutter

Whenever you're ready.

Mr. Brog

I guess I'll say good afternoon, Councilman Nutter. And I'll read my statement, and then I would like to bring up some of the questions that were asked back and forth here to see if we can get some of the answers you requested but never really got. I might be of some help in that respect. I am Sam Brog, pharmacist and past co-owner of Brog Pharmacy, in Philadelphia, Pennsylvania, from 1952 to 1996. I served as Chairman of the Drug Utilization Review Committee for the Department of Public Welfare. " 175 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. " I represent 291 independent pharmacies. I was asked to testify in regards to the City of Philadelphia and the Rite Aid Corporation prescription drug program for all City employees. The impact of this program has been a contributing factor in the closing of approximately 140 independent pharmacies in the past two years. In 1993, the Rite Aid/Eagle Managed Care prescription plan originally was closed to the independent pharmacies except for a few to fill in the voids in the network. Then, I believe, in 1996, the City and Rite Aid agreed to accept the independents. The current reimbursement rates for PARD members is what they call the average wholesale price minus 15 percent -- it's a discounted price. 25 for brand and generics per prescription. The fee is to pay for the pharmacists technicians, and other overhead expenses such as heat, light, prescription 176 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 containers, computer transmission charges, and a profit. In 1988, Rite Aid did a study on the cost of filling a prescription. 25. 65. What is it today? We will know very shortly. The Department of Public Welfare and the PACE, a prescription program for the elderly, will release figures on their recent study. 25 must be increased for pharmacies to continue in the program. Let's get back to the 140 independents closing and more to follow. S. Healthcare and Independent Blue Cross. The chains have negotiated better deals. The independents, due to antitrust violations, cannot as a group negotiate fees. The Department of Public Welfare initiated February 1, 1997 a Health Choices 177 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 managed care program for all Medicaid recipients in the five-county region: Philadelphia, Montgomery County, Chester, Delaware, and Bucks County. There are four HMOs involved. Two out of the four have contracted with Eagle Managed Care, a wholly-owned subsidiary of Rite Aid Incorporated. As I said earlier, Eagle is a PBM owned by Rite Aid. Keystone Mercy contracted with Eagle as their PBM, setting many prices below our acquisition cost -- in some cases, up to $10 or more below our cost. Eckerd and CVS will not participate due to the low reimbursements. Who is left? Rite Aid versus the independents. Who will survive? A pharmacy cannot dispense a prescription if he is losing money on the cost of the drug. The Department of Public Welfare has been notified. I have sent documentation to them, also to the attorney general and the auditor general. Nothing has been done as of today. Councilman Nutter is the only one I know of that is attempting to help the independents that are left to stay in business. 178 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 The independents pay City taxes of all types, employ people from their communities, are active in their community, and care for the patients as if they were family. Rite Aid will soon have no competition if this is not stopped and will dictate, as they are in the City plan, what reimbursements should be. The solution to the Department of Public Welfare dilemma Health Choices, which, by the way, will soon be initiated in the southwest region of Pennsylvania. The program is eventually to take over the entire state. If our government, City, State, and federal does not step in to curb this action, there will be no independent pharmacies left in the state of Pennsylvania and the loss of quality care provided by them.

Mr. Brog

A solution to this problem sits in the Pennsylvania Senate, Senate Bill 100, which passed in the house with amendments, 193 to 5. This occurred just about two or three weeks ago. Senate Bill 100 is a bill to protect the consumer from HMOs using tactics to cut down on health care. You all know what I am talking about. We need your support in asking your 179 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 senator to support Senate Bill 100 with carve-out amendments, yes, to carve pharmacy services out of Medicaid managed care and place it back on fee for service administered by the Department of Public Welfare. If you want to keep what we have left of the independents, please help us. We all make mistakes and we should learn by them. You and your families deserve the best health care available. The Philadelphia economy prescription plan should be open for bid with a new RFP, not an at-risk basis but on a per-claim basis. And we have some pharmacy excellent pharmacy benefit managers that can administer your program. All pharmacies, chain and independent, should be able to participate. Bring back the freedom of choice. In choosing a PBM, choose one not owned or connected in any way with a drugstore chain or drug manufacturer. There is a definite conflict of interest, and they do not look out for your best interests. You deserve the best. Thank you.

Councilman Nutter

Thank you very 180 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 much, Mr. Brog. I want to take you back to a part of your testimony in an area that I'd like to explore with you, and then I'm sure we have to get some response from Rite Aid. On of your testimony, you talked about the dispensing fee. First you started telling us about the reimbursement rate for the PARD members at AWP minus 15, which, I may have heard, may also be possibly changing to AWP minus 16, but we'll talk about that later. Then you say that the dispensing fee is currently $1.25 for brand and generics per prescription. Can you explain exactly what that means? The copay is $5 presently. Are you saying that the independent pharmacists dispensing the medicine gets to keep $1.25 of that copay as a dispensing fee?

Mr. Brog

No. The printout that is sent to the pharmacies from Eagle Managed Care shows, you know, the prescription number, the patient, so forth, the drug, or the indice code of the drug and the quantity dispensed and so on and so forth. And what they will pay you -- what Eagle will pay, okay, less the $5 copay that you 181 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 took from the patient, okay, plus a $1.25 fee. So the $5 is actually deducted from the cost of the drug. We don't keep the $5.

Councilman Nutter

Well, that was going to be my next question.

Mr. Brog

Right. I don't know, I don't really know.

Councilman Nutter

So you just get $1.25 for filling a prescription.

Councilman Nutter

Whether it's brand or generic.

Councilman Nutter

Well, where does the $5 go? I mean, you take the $5 in, what happens to it?

Mr. Brog

Well, Eagle Managed Care, the subsidiary wholly-owned company of Rite Aid, they keep it. I thought the City got it back to defray your costs. But at this point, I'm a little confused and I have other questions. I don't really know where the $5 goes, do you? Do you know? Does the City get it?

Councilman Nutter

It goes to the 182 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 person's whose hand I put it in. I don't know what they do with it after that, other than put in the cash register. I have no idea where the $5 goes.

Mr. Brog

Well, the then the $5 must remain with the Eagle Managed Care or Rite Aid.

Councilman Nutter

Well, based on their earlier discussion, though, part of the reason for the copay increase, if I'm remembering from a couple hours ago, was to help offset some of the per-member per-month cost that the City was paying. So there's obviously some connection between the copay amount and the per-month per-employee that the City pays. I don't know where the $5 ultimately ends up, but you just get $1 -- 18

Councilman Nutter

-- whether it's 20 brand or generic. 21

Mr. Brog

Correct. 22

Councilman Nutter

But now, I thought 23 I also understood -- or maybe that's only for the 24 retirees -- that after the four years that there 25 was a difference in the copay amount based on 183 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 whether it was a brand or there was -- this is that formula: the greater of percent of the 4 cost or $5 for brand -- I'm sorry -- $5 for 5 generic, $10 for brand. 6 And so why is the $1.25 dispensing fee 7 a problem? 8

Mr. Brog

It's inadequate. A pharmacy 9 can't survive with a $1.25 fee to cover the costs 10 of the overhead costs, the salaries, the taxes, 11 and so forth and so on. It's inadequate. 12 And based upon, you know, a couple 13 studies that goes back a few years, which I so 14 stated, even a Rite Aid study of their own stores, 15 in 1988, which is, you know, ten years ago, their 16 studies showed that it cost them $5.25 to fill a 17 prescription in 1988. So how can it -- how can we 18 fill a prescription and receive the $1.25 when -- 19

Councilman Nutter

Well, let me ask 20 you this question: Do you know, of the prescriptions that get filled, there was a discussion earlier about what the City employees' utilization was, and I think we figured out that if it is average that two prescriptions per month, and there are approximately 9,000 employees times 184 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 $5 times 12, that comes to a $1,080,000. Do you have any information on the breakdown between the number the prescriptions filled by Rite Aid versus the number of prescriptions filled by independent pharmacists?

Mr. Brog

No, I wouldn't have that. I know that there is a listing of pharmacies that signed up to participate, okay. I never signed up to participate in that plan at that amount.

Councilman Nutter

Okay.

Mr. Brog

Even though they signed up, it doesn't mean that they're filling the prescriptions, that's another thing. You ought to find out what percentage of that list are actually filled by the independents not just because they signed up.

Councilman Nutter

Exactly. Well, that's kind of where that whole question is going for me.

Mr. Brog

It's a paper network is what I call it.

Councilman Nutter

Right. You had some other issues I think you either raised in your testimony or you indicated you had some 185 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 answers on.

Mr. Brog

Yes, I had a few here. Let's see, I made some notes. Mr. Volpe, who was sitting here before, mentioned something about modifying a plan which you couldn't understand yourself. I think you questioned him about it.

Councilman Nutter

That was the people who have retired and after four years, have to pay a per-person.

Mr. Brog

Well, as far as Mr. Volpe is concerned, I feel that you need a new plan. I don't think modifying this plan will -- I think you'll spend three more years trying to modify it. I think you ought to start from scratch and do what should have been done in 1992 or whenever.

Councilman Nutter

'93.

Mr. Brog

'93, whenever this situation came up. And that is to put it out on bid and do it properly and get a reputable PBM to bid on it and so forth and so on. The other thing is the questions and the problems that you have with getting your medication. Each and every HMO has a grievance 186 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 committee where they can go before and, you know, present your case. I mean, if the City contacted with Rite Aid and the City has grievances, you don't know where to go. So from what I hear here, they don't have -- they didn't set up a grievance situation or a department or wherever someone can go and complain.

Councilman Nutter

Right. In the HMO example that you laid out, I mean --

Mr. Brog

They all have a grievance --

Councilman Nutter

There's a place that you can go.

Mr. Brog

Yes, there's a methodology in the Medicaid arena, for instance. If the HMO has to do it within so many days, has to -- if you have a complaint, has to answer you within so many days. It's all spelled out. And if you don't get satisfaction from them, you go to the Department of Public Welfare. I mean there's a step-by-step methodology of how you can get your complaint or grievance, you know, understood and perhaps maybe get some help.

Councilman Nutter

Okay. 187 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Mr. Brog

The RFPs, am I correct in stating that they are from 1995, the RFPs that --

Councilman Nutter

I believe that there was a --

Mr. Brog

Was there a change?

Councilman Nutter

There was a subsequent RFP that went out in 1995.

Mr. Brog

Okay. 'Cause I don't want to quote anything if it's out of date or anything of that nature.

Councilman Nutter

As I recall, that's when the network opened up to a larger group of independents.

Mr. Brog

From what I read or read in the RFPs, and I didn't understand here in this questioning prior to me coming up here, the way I understand it or understood in reading the RFPs, you have a capitated program plan with the City and Rite Aid. The only time the fee for service came into being is when they opened it up to the independents. And that is the only fee for service that I know of. You're still paying a capitation each month to Rite Aid. Well, then it's not fee for 188 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 service. But then later on I hear, Oh, this is a fee-for-service plan. So what are you doing, paying them the capitation and also they bill you for each prescription. And how much are they billing you? So to me, I don't believe that Rite Aid is on a fee for service with the City. I think they're still capitated, and the only portion that isn't are the independent pharmacies. That's fee for service, the $1.25 is fee for service.

Councilman Nutter

Okay.

Mr. Brog

Someone also made a statement here that the copay of $5 -- somebody did say $4.30 went to the City to reduce the City's costs. Well I don't know if that's true. I mean, if the City's getting $4.30, then there's 70 cents left. Where does that go?

Councilman Nutter

Yeah, we can ask that question. My understanding of that response was that the increase from 2.50 to $5 would allow our per-month per-employee amount to be reduced from the original request of 69.30, which was a 10 percent increase over the $63 that we paid in 1997, that they would recalculate the PM/PM back 189 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 to $65 because they were going to cut it by the $4.30.

Mr. Brog

Well, that is if -- okay, if you keep the $5, if you get it, then it's fine, then it makes sense, if you receive it to help defray your costs, but I don't know whether you're getting it.

Councilman Nutter

Right. For the moment, we don't know if that's the actual answer to the question of this financial transaction.

Mr. Brog

And also in reading over your information that you sent out in the mailing, you never told when they're going to increase the copayments. I mean, there's never a meeting with the City or a discussion back and forth and why are their costs going up and so forth. If they're at risk, they came in and low-balled with a low-ball figure and now they're losing money so they increase the copay to $5 so that they can keep their head above the water. I mean, this is the way it sounds to me.

Councilman Nutter

Well, the testimony earlier, I think, just for accuracy sake and, I think, by way of numerous discussions and the 190 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 letters going back and forth, the chain of events is that the City asked Rite Aid or Eagle what would happen if you increased our copay from 2.50 to $5. So I think the first part of the chain or the events was that we, the City, asked for the potential of $5. They responded, If you increase it to $5, it will cut your per-month per-employee amount by x-amount. And there was this balancing act between those two financial amounts. They then agreed, based on the direction that the City wanted to go, to increase it to $5. I think your earlier point, though, is very well taken. Other than possibly our personnel director and a couple other people, there's virtually no one involved in this process. And what happens in reality is you get a package of information at open enrollment, and they just tell you that's it's being increased. There is no explanation as to why, there is no 23 opportunity for real input, there is no 24 discussion, there is no negotiation. It just is the way it. 191 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And even upon asking for that justification and whether or not it was authorized or not at that time at least, there was no 5 providing of the letters that subsequently have been referred to as "a contract." At that time, the Law Department was under the impression that there was no 9 authorization for an increase in the copayment amount. Now we subsequently find out in last day or so that because of a letter from the City asking for it, a letter by Rite Aid agreeing to it, that that now constitutes a contract. And, therefore, they were authorized on January 1, 1998 to increase the copay to $5.

Councilman Cohen

Mr. Chairman, that assumes that the dates on the letters are accurate. We have no way of knowing that at the present time.

Mr. Brog

Yeah, well, this hearing brought up a lot of unanswered questions here --

Councilman Cohen

But the law courts are full of cases --

Mr. Brog

There are a lot of unanswered questions here that have to be ironed 192 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 out.

Councilman Cohen

Let me ask you one question. Excuse me, Mr. Chairman.

Councilman Nutter

Sure. Please.

Councilman Cohen

I was having homemade lunch in the back of the room and was kind of listening pretty much to your talking. Let me ask you a frank question. There's a lot of sympathy among people out in the community about independent pharmacists and the kind of service we used to get because we could go in and discuss, Hey, I got a bad cold, you know, and the doctor never helps me, what's your suggestion, Mr. Pharmacist, of what I ought to be taking? All of that is gone. There is no such thing of that happening and then we lose a lot, and my wife and I used to go --.

Mr. Brog

It's still there with the independents.

Councilman Cohen

Well, that's the reason I'm asking.

Mr. Brog

They're still there, yeah. You don't want to lose them.

Councilman Cohen

Realistically, 193 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 realistically, what is the chance of independents really sticking. We understood and I thought that the gentleman from Rite Aid's testimony was pretty accurate in this response, that there are a lot of pharmacists that are growing old, expect to retire, if they have children who are not pharmacists or are not interested in the business, and we're going to lose them anyway. . . And we did make an effort in 1993. I mated a very strong effort back in 1993 to work together with the pharmacists, but they are as tough entrepreneurs individual businessmen as any I've dealt with, and if I get two in one room -- to get two to agree on anything was almost impossible. I'm just asking, are we beating a dead horse when we talk about independent pharmacies or are we going to have to live with this other brand of these mega stores, whether it's Rite Aid, Walgreen's or CVS, and I don't know that any of them are basically different from any other ones, and I'm sure each one tries to carve out, you know, special feeling in the public. But in the Philadelphia region, would 194 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 there be any possibility of the independent pharmacies getting together and saying that we're prepared to -- if the City puts out an RFP, we're prepared to bid. We'll overcome our individual entrepreneurial to some degree to be able to work together. 'Cause if we're not, then we have to be make do, then it's our choice -- it will be Rite Aid or CVS or Walgreen.

Mr. Brog

Councilman Cohen, my suggestion was that you open up the bidding process to other PBMs.

Councilman Cohen

Other what?

Mr. Brog

PBMs, prescription benefit managers.

Councilman Cohen

Okay, that's the language they use. I didn't think --

Mr. Brog

Eagle is a -- Eagle is a PBM owned by Rite Aid. Okay, but I'm saying to open it up to all of them but to be weary (sic) of those that want a bid that are owned by a chain or owned by a drug manufacturer.

Councilman Cohen

Is this a PBM, to use your language, that deals with individual pharmacists? 195 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Mr. Brog

There are PBMs out there that could bid on your City contract and open up the network to all pharmacies -- chains and independents alike.

Councilman Cohen

Well, I'm not sure I know what that means.

Councilman Cohen

Is there a PBM out there that specializes in managing plans for groups of individual drugstores.

Mr. Brog

Yes, there are PBMs out there that do that. Eagle's one --

Councilman Cohen

Well, does Eagle do that, does Eagle represent groups of individual pharmacists?

Mr. Brog

Not individual pharmacists. They try to -- you take SEPTA, okay. They manage SEPTA, Eagle does. And if you're an employee of SEPTA, you can only go to Rite Aid; you can't come to me. Okay, that's the kind of management they do. They try to manage closed networks.

Councilman Cohen

So you're saying that the only thing -- apparently, your answer is no to me that, in fact, there's no way of 196 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 organizing the individual-owned pharmacists. The only thing you're seeking is a further inclusion of more independent pharmacies in any plan that may exist.

Mr. Brog

We need it opened up for anyone. I wouldn't be any better than the folks behind me if I were to say let's -- that we should open up a closed network only for independents, okay. I would be no better. I'm saying freedom of choice, okay, have a PBM bid. You know, have a few if you can get 'em and open it up to any pharmacy.

Councilman Cohen

Well, would you be willing to deal on the -- excuse me, Mr. Chairman.

Councilman Nutter

Yeah, you're fine.

Councilman Nutter

I'm just trying to find out some information. Take the existing contract, without regard to its merits, forget about all the complaints we talked about with Rite Aid. Let's just talk about, as Miss Seyda likes to talk and the Mayor and David L. Cohen before her, who really probably made all the decisions we're 197 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 complaining about. Now, would you be willing -- would the individual pharmacists in the area be willing to accept the terms of that agreement if they're opened to accept the copays that Rite Aid accepts so that to the City, there'd be no other costs beyond what it is in dealing with Rite Aid?

Mr. Brog

Well, not at these rates, not at the $1.25 fee. That's what driving us out of business, not competition. Competition -- we can compete. The only thing is we're being forced because of antitrust laws, we cannot get together, and the pharmacies that I represent, we cannot have a meeting and say we will not participate in that City contract, or we will not participate in this contract. We cannot do that. But not too long ago, when Blue Cross reduced the rates, three major chains pulled out -- Rite Aid, CVS, and Eckerd, okay? But they, as individual chains, can negotiate with Blue Cross. And after they negotiated, they cut better deals. Independents are still getting that low, low amount because we cannot do that. I don't know if you understand that. 198 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Cohen

Well, I understand and I have some disagreements with you as an attorney on antitrust. I don't quite see the antitrust problems that you see.

Mr. Brog

You mean as a group?

Councilman Cohen

Independent pharmacists getting together.

Mr. Brog

We cannot do it.

Councilman Cohen

But my question's simpler.

Mr. Brog

I know, I know all about it because I was involved in this kind of situation.

Councilman Cohen

Okay, well, I don't want to get into that because that's not relevant to the --

Mr. Brog

Two pharmacies cannot talk to one another in the community.

Councilman Cohen

Well, I say that's not relevant to the answer I'm trying to get. Say the City puts out an RFP open to everybody, would you then -- would the individual pharmacies be prepared to accept the terms of any agreement the City could reach with the PBM? That's what happened here. There was 199 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 -- originally wasn't there an RFP for the original 1993 contract?

Councilman Nutter

Yes.

Councilman Cohen

And then there was an agreement reached with Rite Aid.

Councilman Cohen

You said something about "We can't at $1.25," and I don't know what that means.

Mr. Brog

If I received a telephone call from CVS and they said, "Hey, Sam, what are the independents going to be doing about the Blue Cross scenario, are you going to participate or not?" That guy's in trouble for asking me the question, okay? We need a decent, sensible reimbursement -- not where you lose money on dispensing medication. And if you can give us that, we will be happy to participate.

Councilman Cohen

Well, tell me, because you're not helping me. Does that mean that the current Rite Aid contract, that's the one thing that we know about that exists.

Mr. Brog

It is below a liveable fee. 200 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Cohen

Below a liveable fee?

Mr. Brog

A pharmacy cannot exist on that kind of a fee structure.

Councilman Cohen

What would the pharmacy need to have changed, these individual pharmacies?

Mr. Brog

I gave you a couple examples. Let me tell you what the fee for service is in the Medicaid program today in Harrisburg that pay for welfare prescriptions.

Councilman Cohen

We have no power over what's going on there.

Mr. Brog

It's a fee there that everyone can live with. The fee is AWP minus 10 percent with a $4 bill, the cost of the drug, okay. That's AWP minus 10 percent and a $4 fee. This is what the Commonwealth of Pennsylvania Medicaid program pays for fee for service. That will give you a benchmark to start somewhere. A guy can live with that; you can't live with $1.25.

Councilman Cohen

That's what it is now? 201 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Councilman Cohen

Could you go through that whole formula and put in where the $1.25 fits in. You started with the cost of the prescription. Discuss that, start with the $1.25 less percent. 8

Mr. Brog

There are two portions to 9 the reimbursement cost -- drug and the fee, okay? 10

Councilman Cohen

Right.

Mr. Brog

And the cost of the drug in the State is AWP minus 10 percent, making a 10 percent discount. The cost of the drug here is AWP minus percent, okay? The fee for the 15 State is $4, while the fee with Eagle or Rite Aid is $1.25. Do you get it, do you see the difference?

Councilman Cohen

Mm-hmm. So you're saying that from a financial end alone, from the cost analysis, as Miss Seyda likes to refer to the deal the City has with Rite Aid, it is a good financial deal for the City. The price we pay for it, however, is that we drive out individual pharmacists who can't do business at that rate. 202 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Is that fair conclusion?

Mr. Brog

Yes, absolutely, mm-hmm.

Councilman Cohen

You know, we don't exist to make things more expensive to the City but we try to put a human being face on what the City is doing in its dealings. We also do have an interest in that.

Mr. Brog

If you want good care and a lot less complaints, you have to be willing to pay a little more to get it, and I don't think it's much more.

Councilman Cohen

How could you translate it for us?

Mr. Brog

Get a PBM, you know, a company that will bid when you open up for bid. Then you will get --

Councilman Cohen

Let me ask you, could you do this for us? We understood in this contract, it's roughly 8,000 --

Councilman Nutter

9,000.

Councilman Cohen

Okay, 9,000 people are covered. Could you get somebody to estimate what the costs would be if we did what you wanted as compared to the costs of the current Rite Aid 203 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 contract.

Mr. Brog

Yes, I would try to do that. You have 9,000?

Councilman Cohen

9,000.

Mr. Brog

Okay, 9,000 lives. And you want me to come up with some idea as to what it would cost the City to run a program where the fee would be better than what we're getting now and where it could be open to all.

Councilman Cohen

To everybody to permit independent pharmacies to --

Mr. Brog

I can get that for you, I can get that information for you.

Councilman Cohen

Give us that information because we have to be concerned about both things. We are, even though are questions may not sound like it, we are very concerned about the costs the City has to pay, but we also want to see AN improvement in the service level.

Councilman Cohen

But have to know how much that's going to cost. Maybe that's the reason why the service isn't what we're up to, maybe we've cut them so tight that --. 204 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Mr. Brog

Well, I didn't make the statements about the service. I mean that came from City Council.

Councilman Cohen

Yeah, I know that.

Mr. Brog

Okay, so I have nothing to do with that, but I realize what I heard here, okay? And perhaps maybe that's one of the reasons why you're not getting the service. I would like to bring to your attention one other --

Councilman Cohen

Thank you, Mr. Chairman.

Mr. Brog

-- one other point, okay? And that is, I don't it think was ever answered where the City of Philadelphia retained as Capital Management Enterprises that you brought up before, Councilman Nutter.

Councilman Nutter

Yes.

Mr. Brog

Capital Management Enterprises.

Councilman Nutter

Yes.

Mr. Brog

Okay. And it's very unclear, you know, and I think -- I don't think you got the answer, either. 205 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 As its exclusive broker of record and consultant --

Councilman Nutter

Mr. Brog --

Mr. Brog

I'm reading from the RFPs.

Councilman Nutter

Let me tell that you this is not the first hearing and it won't be the last that I ask a question and don't get a completely straight answer to it.

Mr. Brog

Okay. Well, I want to refer you to then --

Councilman Nutter

I've resolved myself to that.

Mr. Brog

The RFPs, , if you have a copy that you can look at, okay?

Councilman Cohen

Don't ever get used to not getting answers.

Councilman Nutter

Okay.

Councilman Nutter

We've got to find ways to get answers.

Mr. Brog

Okay, well, let me see if I can set the record straight. And you may wonder where this money's going, some of money of your money, okay?

Councilman Nutter

Okay. 206 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Mr. Brog

Well, they hired -- or retained this Capital Management Enterprises as its exclusive broker of record and consult for purposes of coordinating and assisting the City of Philadelphia in its review and evaluation of proposals submitted. Okay, that makes sense. I mean, you went out and you hired a firm because you got into this thing for the first time and you needed some advice. No problem with that. In addition, Capital Management Enterprises will have ongoing responsibilities, okay, ongoing responsibilities after award of the contract to assist in supervising contract compliance. Well, you're asking, How come you don't know anything? You're not being made aware of this. Where is this consultant that's being paid by someone here that's supposed to be doing this? To assist in evaluating policy performance and plan services and, if requested by the City, to construct annual reviews of the provider for the City of Philadelphia. Okay. Now, what's happened? Okay, so the 207 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 City paid him originally, the City paid him originally, right?

Councilman Cohen

We don't know, we don't know whether they paid him or how much they paid him or --

Mr. Brog

Well, according to the RFPs, they should have paid him and --

Councilman Cohen

Or whether there's been an amendment by an exchange of letters with him as well as with Rite Aid, we don't know any of that.

Mr. Brog

If the City selects the fixed price option, which you did, you selected the fixed price option, they were at risk, am I right?

Councilman Nutter

Right.

Mr. Brog

Okay. The selected contractor will be required to pay -- the selected contractor, meaning Rite Aid, okay, will be required to pay CME, this outfit that was hired, a fee equal to percent of all the billings by the contractor to the City, okay? All the billings, okay, the total number of prescriptions, the amounts of the prescriptions, percent goes to 208 1 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 this contractor.

Councilman Cohen

It sounds like $90,000 to me based upon fee --

Mr. Brog

Well, this fee shall be paid monthly to CME within ten days of receipt of payment for billings by the City for the entire term of the contractor's contract, including any renewal thereof. If the City selects the fee-for-service option, which the independents are on, the selected contractor will be required to pay CME a fee of cents per prescription. That was done 14 originally. There was a 25-cent -- 15

Councilman Cohen

Well, what's the 16 point that you're making? We understand that. 17

Mr. Brog

The point is why is -- when 18 you hired a consultant at the beginning, you don't 19 need him after you hire the PBM. That PBM is 20 supposed to take care of all of these problems and 21 all of these things that you're speaking of, to 22 give you reports and utilization and what drugs 23 are being used most, and if there's higher 24 generics in -- 25

Councilman Cohen

Well, we really 209 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 wouldn't want a PBM that's a subsidiary of Rite Aid to be reporting to us on a Rite Aid contract; we'd want an independent group.

Mr. Brog

Well then why choose the PBM you did to begin with?

Councilman Cohen

Well, are you referring to Capital Management now?

Mr. Brog

No, no. You said you can't -- you don't expect to --

Councilman Cohen

On an ongoing basis.

Mr. Brog

You don't expect the PBM to answer all these questions.

Councilman Cohen

Well, they would answer them, but we wouldn't have confidence in them.

Mr. Brog

Well, then why -- okay. What I'm trying to say is that there's a payment being made to this organization, okay, 1 percent of all the billings and --

Councilman Cohen

Mr. Gurson, it sounds like, if he's reading from the Rite Aid contract, that you are paying them.

Mr. Gurson

(Inaudible, off mike.)

Councilman Nutter

You'll have an 210 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 opportunity to come back up.

Councilman Cohen

Yeah.

Mr. Brog

I just wanted to bring that up.

Councilman Cohen

Yeah, okay.

Mr. Brog

Whether you ever get an answer, I don't know, but there's a lot of money involved here. If 1 percent of the total billings has to be paid by Rite Aid, you're not paying it, the City isn't. Rite Aid must be paying the broker -- I don't know what for, okay? Well, therefore, no wonder you need higher copayments, no wonder the pharmacies are getting low reimbursements, somebody else is making a lot of money.

Councilman Cohen

Well, from your testimony, what I gather is that the City's terms with Rite Aid are not costing the City more money, that what they're getting is an amount that you say would not be enough for the pharmacist.

Mr. Brog

It's not enough for them.

Councilman Cohen

I'm talking about the individual pharmacists.

Mr. Brog

Yeah, it's not enough for 211 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 them either.

Councilman Cohen

All right, thank you, Mr. Chairman. I've got a picture now. We're interested, we would be very much interested in a workable plan that would --

Mr. Brog

I'll get you a figure on that 9,000 lives, yeah.

Councilman Cohen

A workable plan that would maintain individual pharmacies to the greatest extent possible. But we can't ourselves, you know, fight the whole trend. If pharmacists are going to get older -- and I don't see any new discoveries yet that are going to make them younger -- they're going to have the right to retire when they want and they're --

Mr. Brog

There are a lot of pharmacies that closed because -- not because of their age; in fact, they're too young to retire. And they did a heck of a business filling 5, 600 prescriptions a day, more so than any Rite Aid that I know of, okay? It doesn't matter. But if the reimbursement rates to the pharmacy is too and they lose money, then they 212 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 can't stay in business.

Councilman Cohen

We understand. That's the reason -- what we'd like to see come out of all of this is that Rite Aid, if Rite Aid remains the recipient of the main contract or any other -- I don't want to call them pension benefit managers because I get lost in that language, but whatever runs the main, we'd like to see provision made for inclusion of these independent pharmacies. And if it's going to cost more money, I can even understand that but we got to know how much more money so we can make an intelligent decision as to whether it's worth it to the City to maintain the existence of some independent pharmacies. Now, if it's too expensive, we have problems with that, you know, on the City treasury.

Mr. Brog

Well, I don't want to belabor this and get involved and so forth and so on, but in the Medicaid program, you have the same situation with Eagle Managed Care involved and owned by a chain, okay? And the -- how would you 213 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 like to, as a pharmacist, pay $5 for an item and they want to pay you 3; could you exist?

Councilman Cohen

That doesn't make sense, yeah.

Mr. Brog

You cannot exist. Well, it's in black and white, documented all over the place, okay? And we're not getting anywhere because this is a way that they don't have to buy out any more independents; they'll squeeze you out. Thank you.

Councilman Cohen

Thank you.

Councilman Nutter

Thank you very much, Mr. Brog. Miss Frances Gallagher. And after Miss Gallagher, I would like to have Miss Seyda and the Rite Aid representatives back up at the witness table. (Frances Gallagher comes forward.)

Councilman Nutter

Good afternoon, Miss Gallagher. I'm sorry for the delay and I appreciate your staying with us. Please identify yourself for the record and proceed. 214 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586

Ms. Gallagher

Frances Gallagher. I'm a clerk-typist with the City of Philadelphia Police Department. I was diagnosed with multiple sclerosis in April.