Litigation, legislation, collaboration
By Alexander Castro, Rhode Island Current
Rhode Island Attorney General Peter Neronha took a break Wednesday from his breathless legal pursuit of President Donald Trump’s administration to chase a different foe: pharmacy benefit managers, or PBMs.
Photo by Alexander Castro/Rhode Island Current
“The cost of drugs is astounding,” Neronha told reporters gathered at his South Main Street office in Providence. “Pharmacy benefit managers…operate in a very secretive and shrouded way…Because they have 80% of the market, they’re able to use that market power to drive drug prices sky high and keep that difference.”
A lawsuit filed Tuesday in Rhode Island Superior Court against three of the nation’s biggest PBMs — CVS Caremark, Express Scripts, and OptumRx — is perhaps the sharpest prong among many in a sweeping plan to restructure the way Rhode Island funds health care unveiled Wednesday morning. All of the initiatives in Neronha’s heavy slate of proposals are meant to remedy what Neronha called a “spectacular failure” that has been years in the making.
“It was looming then,” Neronha said Wednesday of the state’s health care crisis when he took office in 2019. “It’s here now.”
In about 34 minutes of opening remarks, Neronha detailed his office’s new list of efforts to effect major change, from boosting mediocre Medicaid reimbursement rates to filling absences in primary care practices. The entire plan is available on a new website, titled “A Way Forward,” which went live during the press conference.
The health care system in Rhode Island is so bad, Neronha offered, that even the state’s largest hospital corporation doesn’t want to buy hospitals here but instead shops for prospects in Massachusetts. Neronha cited Brown University Health’s 2024 purchase of Saint Anne’s Hospital in Fall River and Morton Hospital in Taunton.
“There are struggling hospitals right here in Rhode Island,” Neronha said. “Why are they buying them in Massachusetts? Because the reimbursement rates are higher. It’s always about the money. Don’t let anyone convince you that it’s not about the money.”
The rollout of initiatives came a week after Neronha announced he secured an $11 million settlement with Barletta Heavy Division Inc., the Massachusetts contractor accused of dumping contaminated soil during construction of the Route 6/10 Interchange in Providence. Neronha steered most of the money toward dental care for children in low-income neighborhoods near the construction site. Unlike with multistate lawsuits where proceeds go directly to the state’s general fund, the term-limited Neronha said his office had the authority to decide where the money goes.
“We really started rolling out what we’re doing last week with the Barletta settlement,” Neronha said. “The question was, ‘What do we do with that money and how do we solve a problem?’…It became very clear to me that if we had this pot of money and we could use it to drive it back into those neighborhoods, to at least address that community problem and hope to solve it, then that action would make a difference.”
After Neronha’s monologue, seven of his staff attorneys came up to the podium one by one to describe the details of the AG’s plan, including the PBM lawsuit, which targets the three companies who make up around 80% of the national market for managing insurers’ prescription drug benefits for patients.
The lengthy complaint alleges that PBMs extract billions in rebates while reimbursing pharmacies below cost. These shadowy maneuvers, the lawsuit claims, threaten the survival of independent pharmacies, deceive consumers, and inflate drug costs via intricate manipulation of pricing schemes.
Sarah Rice, deputy chief of the office’s civil division, told reporters that PBMs will demand manufacturers offer rebates on certain drugs if they wish to be distributed through PBMs’ networks. That leads manufacturers to increase prices, and PBMs then shave a little off the top by taking a portion of the rebate, according to Rice.
“The health plans pay more, and consumers pay more,” Rice said. “All of this is set out in much better detail in the complaint, if you are ready to read over 200 paragraphs of allegations.”
The complaint was filed under state laws on deceptive trade practices, Rice said, “Because this behavior is harmful to consumers. It has a direct pocketbook effect to any consumer that has a deductible or co-insurance when they go to the pharmacy, which is most of us.”
The suit also identifies three group purchasing organizations (GPOs) — Zinc Health Services, Ascent Health Services, and Emisar Pharma Services — as defendants. PBMs use these organizations to aggregate their purchasing power for pharmaceuticals — a more recent development as benefit managers usually had “enormous bargaining power on their own,” the lawsuit explains.
“It appears PBMs use GPOs to recategorize existing income streams and generate new income streams,” the lawsuit reads. “GPOs also serve as an additional, non-transparent layer in an already opaque system, making it even more difficult for health benefit plans to determine whether they received their fair share of rebates.”
Neronha’s office is seeking injunctive relief, civil penalties, and restitution for affected patients and pharmacies. The complaint aligns Rhode Island with a growing cohort of states, including Ohio, Arkansas, and Mississippi, that have started legal battles with PBMs for pricing tactics or rebate sleights-of-hand.
CVS spokesperson Amy Thibault defended the Woonsocket-based company against the lawsuit’s claims in a statement Wednesday.
“It’s surprising and unfortunate that Rhode Island’s attorney general would use biased and incorrect assertions about our industry to needlessly attack a hometown company,” Thibault wrote. “CVS Health contributes nearly $3 billion of positive economic activity in Rhode Island each year, and we employ more than 7,000 colleagues across the state.”
Thibault said CVS saved customers nationwide over $40 billion last year, with members paying under $8 on average for a 30-day prescription. She also cited an increase in independent pharmacies over the past six years, which the company says are reimbursed at higher rates than CVS stores, including its 62 Rhode Island locations.
Medicaid, Medicaid, Medicaid
Neronha’s plans include support in three major areas of legislation, including some bills he hopes will pass before the legislative session ends next month. Most prominent in the AG’s machinations is a reevaluation of Medicaid rates, illustrated by a presentation slide at the press conference.
A hypothetical Medicare reimbursement may pay a provider $100, the slide showed. A commercial insurer might reimburse the provider at $200 for the same service, but Medicaid might only pay $37 — a problem in a state where Medicaid factors heavily into the payer mix, or makeup of different insurance types among the population. About 70% of Rhode Islanders are on public insurance, either Medicare or Medicaid, according to a report accompanying Neronha’s action plan.
That’s why Neronha is supporting H6373, sponsored by Exeter Democratic Rep. Megan Cotter, which would immediately increase Medicaid payment rates to be on par with Medicare payments. The bill was introduced and referred to the House Committee on Finance on Wednesday. Retooling the reimbursement rates would conservatively cost $50 million, Neronha said.
“We can find it in our state government, a $14.2 billion budget,” Neronha said.
A year to the day ago, Neronha argued passionately to save the state’s safety net hospitals to a who’s who of lawmakers and health care leaders at a Rhode Island State House health care summit. On Wednesday, Neronha reiterated several of the same points, and said that the lamentable case of Rhode Island’s two safety net hospitals — Our Lady of Fatima and Roger Williams Medical Center — taught him valuable lessons in how reimbursement rates work.
“That’s where I learned that there’s a problem in health care, a structural problem that’s going on here,” Neronha said. “And what is it? Our reimbursements are too low. They’re too low in Medicare, they’re too low in Medicaid, they’re too low in commercial.”
The hospitals remain in a purgatory of ownership, with the finalization of the two properties’ transfer from Prospect Medical Holdings to new owner Centurion Foundation still incomplete as of Wednesday. Also on Wednesday, Gov. Dan McKee submitted a budget amendment that would infuse $4.3 million in state money for a 21-bed long-term behavioral health care inpatient unit at Fatima.
Hoping to preempt similar situations, one of Neronha’s more assertive proposals would let his office petition Superior Court to place financially distressed or poorly run hospitals, especially those under private ownership, into receivership. The corresponding bill is H6369, sponsored by Rep. Susan Donovan, a Bristol Democrat. On Wednesday, it was introduced and referred to the House Committee on Judiciary.
“This is something, frankly, that we talked about with Prospect before we got to where we are today,” Neronha said.
To complement that legislation, Neronha is proposing a regulation that would require Rhode Island-based medical groups to notify the AG’s office of any acquisition or restructuring involving private equity or the consolidation of large practices. A public hearing on the proposed rule is scheduled for July 8.
“One thing that we know we don’t know is the level of private equity intrusion into the health care market outside of hospital systems,” Neronha said. “We have great insight into hospital systems because of our regulatory authority over hospital systems, but not into health care practices, and we believe that we need to know so we can head off any problems.”
Neronha wants to almost universally eliminate prior authorization processes for primary care providers, except for certain controlled substances or in documented cases of physician fraud, via bill H6317 sponsored by Rep. Mia Ackerman, a Cumberland Democrat. The bill was introduced and referred to the House Committee on Health and Human Services on May 9, and is still waiting for a hearing date.
Prior authorization acts as a lever on insurance claims and is meant to help insurers contain unnecessary costs, but it has also been criticized as an example of payer overreach and a seriously demanding time constraint on already overworked physicians. Jordan Broadbent, the office’s insurance advocate, told reporters the move to abolish prior authorization is “bold legislation” and would make Rhode Island a national leader should it pass.
Primary care in critical condition
Backing Neronha’s claims are two reports — one focused on the past, the other on the future. The Statewide Health Care Capacity Assessment features the retrospective data and was compiled by the consulting firm Health Management Associates, who found deep gaps in primary care access and coverage, wobbly long-term financing across different kinds of providers, and understaffed and overworked emergency departments.
According to the report, there are roughly 100,000 Rhode Island adults without a primary care provider, an ongoing issue recently exacerbated by the impending closure of Anchor Medical Associates’ remaining offices.
The report also found poor outcomes for nursing homes, which boast a closure rate twice the national average. An additional nursing home closed shortly after the report was being prepared last summer, said Dorothea Lindquist, health care senior litigation attorney at the AG’s office. Lindquist also noted that four providers of Medicare Advantage plans in Rhode Island — which account for over 56% of Medicare enrollees statewide — have not raised their post-acute care reimbursement rates in a decade.
“This finding should be terrifying to everyone in Rhode Island who plans to find themselves aging here,” said Lindquist.
Another policy brief included in the AG’s package comes from the Collaborative for Health Policy and Reform Analysis (CAHPR) at the Brown University School of Public Health. The dossier reinforces load-bearing planks in Neronha’s plans, including enhanced regulatory authority over health care transactions and expansion of primary care access.
“The proposals vary in scope, legal complexity, and political feasibility, but each offers a potential pathway for meaningful reform,” according to the brief, which discusses a state-based, single-payer plan, a comprehensive public option, pricing parity for Medicaid reimbursements and widening the state’s drug purchasing pool beyond state employee coverage.
The Brown collaborative’s recommendations and Neronha’s stratagems differ from those outlined in a primary care stabilization strategy recently announced by Gov. Dan McKee, which emphasized more gradual reform via existing regulatory mechanisms and a future review of Medicaid rates. Neronha called McKee’s April 29 announcement of a long-term primary care strategy “slapdash,” and the attorney general’s plan is contrastingly nimble, in his own evaluation.
“Everything we’re gonna roll out today is action we believe will make a difference,” Neronha said.
Neronha’s complete set of health care reforms
The complete set of initiatives included in Neronha’s wishlist, as listed in a press release from his office:
- File suit against the three largest Pharmacy Benefit Managers (PBMs) in the country to protect Rhode Island consumers from unfair and deceptive conduct that has caused drug prices to skyrocket;
- Introduce legislation to immediately raise Medicaid reimbursement rates to 100% of Medicare rates for primary care providers;
- Introduce legislation to immediately eliminate nearly 100% of prior authorization requirements for primary care providers;
- Introduce legislation authorizing the Attorney General to petition the Superior Court to place a hospital into receivership if the facility becomes financially unstable;
- Issue proposed regulations to require pre-merger notification of certain material corporate transactions involving medical practice groups, including transactions involving private equity firms;
- Issue an advanced notice of proposed rulemaking regarding market oversight of artificial intelligence (AI);
- Collaborate with the Brown University School of Public Health Center for Advancing Health Policy Through Research (CAHPR) to examine potential policy options for state-based health system reform; and
- Plan for a new state health care agency to obtain and analyze health care data, and inform innovative and effective governmental health care decision-making.
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