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Kansas Hid Parts of a $100,000 Audit of Drug Spending. Experts Say State Went Too Far

(Photo by Carlos Moreno, KCUR)

By Celia Llopis-Jepsen, Kansas News Service

Editor’s note: This article is about Kansas’ decision to redact a recent report on drug spending related to its state employee health plan. You can read more detail about the content of the redacted report here.

TOPEKA, Kansas — Kansas blacked out large swaths of an audit on prescription drug spending in response to a public records request.

But because the state botched its redactions, leaving much of the concealed text accessible, the Kansas News Service was able to show several lawyers what the state intended to obscure.

Those experts consider it highly likely that many of the redactions weren’t allowed under state law. That’s particularly the case because so many of the details appear in other public documents, including on the state’s own website.

That undermines the Kansas Department of Administration’s argument that it needed to redact the $100,000 watchdog report on how one of the wealthiest companies in the nation — CVS — handles prescription drug coverage for Kansas employees, their families and retirees.

The agency said it needed to protect trade secrets.

But the redacted details go to the heart of the state health plan, such as how many prescriptions it covered in 2018 and 2019.

“There is no strong argument in my mind for why those specific pieces of data are trade secrets,” said Amy Kristin Sanders, a University of Texas-Austin professor of journalism and law.

She studies government transparency in situations where private corporations are involved in public work.

Sanders and other lawyers reviewed the document and the legal justification for redaction provided by the Department of Administration. They found the state’s logic weak.

“Across almost all 50 states,” she said, “‘Let’s just cite something and hope it scares the requester off’ … is a universal approach to dealing with public records requests.”

The Kansas Department of Administration declined the Kansas News Service’s request to interview the agency’s attorney about the redactions.

An image shows portions of the redacted document, and the content that the Kansas News Service found beneath the black box.
 

‘Orwellian’ implications

The Kansas Department of Administration struck whole paragraphs, charts and even entire pages from the report, which includes a 16-page audit and four-page response from CVS.

“Given what I saw,” said Mike Kautsch, professor emeritus of the University of Kansas School of Law, “it would really be hard to justify (the redactions) under the Kansas trade secret law.”

“My guess is that the audit in question here probably could have been disclosed without any redactions,” he said, “or with very few.”

The Department of Administration redacted the number of prescriptions covered over a two-year period — just over 2 million.

And it hid fee details, such as the 45 cents Kansas agreed to pay pharmacies each time an employee picked up a prescription in 2019.

“This is so Orwellian,” said John Francis, an antitrust attorney and professor of health law at the University of Colorado.

If states could shield their spending from public scrutiny simply by running it through a third-party auditor that considers its work confidential, Francis said, that would give them an easy cloak for all government business.

“This would allow every state agency to create a trade secret out of all information,” he said. “It gives them an opportunity to make otherwise non-confidential information, confidential.”

Francis isn’t licensed to practice law in Kansas. Rather, he based his analysis on Colorado trade secret law and says the Kansas trade secret law is almost word-for-word identical.

The auditor, PillarRx, labeled its report “proprietary and confidential” and for the state’s “internal” use only.

Pharmaceutical industry in focus

The audit offers a mixed picture of CVS’ work for Kansas. It concludes CVS largely handled the Kansas state employee plan’s money appropriately, but didn’t always deliver on contracted discounts and fees. Auditors say it overcharged the health plan by about $1.2 million in 2018 and 2019 combined. CVS repaid almost all of that before the audit was completed, and was anticipated to pay back the rest after the audit.

The state health plan is funded by taxpayers and the people it covers. It spends about $80 million a year on prescription drugs. And that doesn’t include the more than $20 million that the employees and retirees shell out directly in coinsurance.

Legal experts say that by deciding to cloak much of the audit, Kansas put industry secrecy ahead of the public’s right to know about government business and how their tax dollars are spent, and employees’ right to know whether they pay too much.

CVS functions as the state health plan’s pharmacy benefit manager — a kind of pharmacy middleman that has come under scrutiny in recent years by Congress, state attorneys general and state lawmakers probing the nation’s high drug costs.

An image shows redacted portions of the audit.
 

Americans pay more than twice as much as people in other developed countries for their medications, with little understanding of where the money goes.

Government agencies should give particular weight to the clear public interest involved in shedding light on the industry, Francis said.

“And that means the less redactions and the more information out there, the better for everyone,” he said.

“This is bipartisan — both the Trump administration and the Biden administration have tried hard to improve health care transparency,” he said. “Almost anyone who looks seriously at health care reform would consider transparency of this kind of information to be critically important.”

Parts of the redacted audit remain inaccessible to the Kansas News Service, and conceal from public view details of PillarRx’s assessment of how CVS spends tax dollars.

What’s a trade secret?

Many of the pricing and other details in the 2018-2019 audit that Kansas argues are trade secrets appear in an audit summary that it provided to the Kansas News Service in August. It handed over the summary without redactions, and the summary also appears on the state’s website unredacted.

The same pricing specifics are also revealed in CVS contract documents obtained through an open records request.

And the same details appear in PillarRx’s previous work — its 2017 audit — which the state also posted unredacted to its website.

Under state law, though, the definition of “trade secret” hinges on secrecy. If there hasn’t been a substantial effort to keep information secret, it doesn’t fit the legal definition of a trade secret.

Trade secrets also need to be something valuable — think, the recipe for Coca Cola — that a company cashes in on by keeping it hidden from competitors.

But the lawyers who reviewed Kansas’ redactions struggled to see why many of the details should be treated like a heavily branded and protected soda formula.

For instance, Kansas blacked out the names of seven major drugmakers (Abbvie, AstraZeneca, Novo Nordisk, GlaxoSmithKline, Johnson & Johnson, Eli Lilly and Merck & Co.) whose interactions with CVS were scrutinized to ensure CVS hadn’t profited inappropriately from them.

And it blacked out the identities of 10 pharmacies included in the audit.

“I don’t think that’s a trade secret,” Sanders said. “We deserve to know whose contracts you reviewed.”

The redactions also concealed sample sizes related to various portions of the audit, including the number of claims PillarRx used to check CVS’ payments to pharmacies.

The audit concludes CVS stuck to the letter of its contract with Kansas when dealing with the manufacturers. And that its payments to pharmacies were appropriate.

However, pharmacy benefit experts question the quality of the audit.

redactions_3-.jpg
 

Here are a few more examples of redactions:

  • Kansas concealed the number of pharmacies that auditors included in their probe.
  • Kansas concealed discounts promised by CVS, such as 17% off of retail brands.
  • And it redacted method details that shed light on how auditors checked whether CVS had handled claims and charges appropriately.

The negotiated discount rates, the dispensing fees and the identities of manufacturers are among the details that appear in the unredacted audit summary provided back in August. And the same level of detail appears unredacted in the 2017 audit.
In one instance, the state blacked out a paragraph reflecting concern from pharmacists about payments from CVS. The redacted note reads:

“It is to be noted that a couple pharmacies made comments that the reimbursement amount that they received, while it was accurate based on the adjudication of the claim, was less that (sic) what they expected it to be based on their own independent pharmacy research based on the tools they had available to them.”

The Department of Administration also withheld the audit’s supplementary exhibits, even though the Kansas News Service submitted an open records request for all attachments and addendums.

1980s AG opinion

Asked to justify its redactions, the Kansas Department of Administration first cited two entire state laws — “the Kansas Uniform Trade Secret Act (K.S.A. 60-3320 et seq) and the Kansas Open Records Act (K.S.A. 45-215 et seq)” — but would not explain which particular portions applied.

But legal experts say the state can’t deny records without specific reasons any more than a court can declare an action unconstitutional without pointing to a specific part of the Constitution.

Pressed for its legal reasoning, Kansas responded with citations that included an entire page of statutory definitions — without clarifying which it believed were relevant.

That raised eyebrows among law professors interviewed by the Kansas News Service.

“An agency that decides not to fully disclose a record really has a burden” to get specific, Kautsch said.

The agency also cited a provision of the Kansas law that governs court proceedings, but he struggled to see why the provision would apply.

The Kansas trade secret law dates to 1981, and it didn’t take long before questions arose about what the government could hide from public view under the new law.

In 1988, Kansas Attorney General Robert Stephan tackled that question in the context of public meetings. He issued an opinion clarifying that public bodies couldn’t simply retreat behind closed doors each time they wanted to discuss matters involving private companies.

At the time, an economic development commission in Geary County wanted to talk privately about businesses considering relocating to the area, and about possible financial incentives and local wages.

“We believe these items do not qualify” as trade secrets that justify shutting out the public, the attorney general wrote. He made clear the commission must think carefully whenever it’s tempted to retreat from public scrutiny.

“When in doubt,” the attorney general’s opinion says, “members of the Commission should remember that exceptions to the open meetings law are interpreted narrowly.”

Gov. Laura Kelly’s office didn’t respond to a request for comment on the redactions.

The Kansas Department of Administration’s decision to redact so much of PillarRx’s audit makes it hard for journalists and the public to scrutinize the work of the auditors and CVS, Sanders said.

“It’s not enough for a state to hire the auditor of its choice to sign off and say everything is OK,” she said. “There needs to be some ability to replicate this audit or to be able to look at the steps taken in this audit and make sure that all of the i's are dotted and all the t's are crossed.”

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Celia Llopis-Jepsen reports on consumer health for the Kansas News Service. Follow her on Twitter @celia_LJ. The Kansas News Service is a collaboration of Kansas Public Radio, KCUR, KMUW and High Plains Public Radio -focused on health, the social determinants of health and their connection to public policy. Kansas News Service stories and photos may be republished by news media at no cost with proper attribution and a link to ksnewsservice.org

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