How PBMs Hurt Local Pharmacies

DC Journal | Inside Sources

Local pharmacies are boarding up nationwide. Nearly 2,200 American pharmacies shut their doors between 2017 and 2020, leaving 20,000 in business nationwide — about half the number in 1980.

Rural areas are particularly hard hit. About 630 rural communities that had access to at least one pharmacy in March 2003 had none by 2018.

These closures are bad for local communities and patients’ health. When small, independent shops close, patients lose access to the pharmacist who personally knows local residents. They have personal knowledge of their health conditions, prescribed medications, and the potential interactions those medicines might have with new ones. Local communities may also lose a convenient place to get a flu shot, other immunizations or blood-pressure screening.

Small pharmacies often operate as town hubs, and many sponsor local events. Although their numbers are falling, they still employ more than 300,000 people. Fortunately, lawmakers across both parties are aware of the plight of local pharmacies and the consequences of their diminishing numbers. That is why bipartisanship has rallied behind three dozen bills during this session of Congress. These bills aim to curb the power of pharmacy benefit managers (PBMs) — the giant, secretive corporations that have played a significant role in driving drug prices higher and independent pharmacies out of business.

PBMs negotiate discounts from drugmakers on behalf of insurers. In exchange, pharmaceutical companies receive favorable inclusion of their products on a plan’s formulary. PBMs also administer reimbursements from the system’s payers — insurers, federal and state governments, and corporations — to providers, including pharmacies and clinics.

Their apparent role in the health system is to lower drug costs and save consumers money. Instead, PBMs have made the system increasingly complex, enabling them to extract outsized revenue from it while crowding out the small mom-and-pop drugstores that have long supplied various community needs.

Three big PBMs — CVS Caremark, Express Scripts and OptumRx — control 80 percent of the market for prescription drugs.

Today’s biggest PBMs are vertically integrated with drugstore chains and their mail-delivery services, and the biggest insurance companies. That creates additional opportunities for advantageous self-dealing.

Drugstores buy medicines wholesale, but PBMs decide how much pharmacies get reimbursed for dispensing medications to patients with insurance. There’s no legal requirement for PBMs to provide equal reimbursement, so they can favor affiliated pharmacies while leaving independents out. PBMs also coordinate with their insurance companies to steer plan enrollees to their pharmacy groups.

They do so by restricting where patients can access specific medicines or requiring patients to refill prescriptions at an affiliated pharmacy, no matter which drugstore supplied the original dose. PBMs can also encourage insurers to push unaffiliated pharmacies out-of-network. Hence, patients face higher prices if they stick with their neighborhood drugstore.

As one would expect, the operations of these middlemen take place out of sight. Rules for the disclosure of contractual and other arrangements are practically nonexistent.

PBMs have also taken on the role of quality-control enforcer in prescription dispensing. Purportedly, this is to incentivize high-quality service. In reality, PBMs use their audits to justify “clawing back” fees from, you guessed it, small, independent pharmacies.

During the COVID-19 pandemic, some PBMs even revoked reimbursements for failing to obtain patient signatures. These clawbacks, called “direct or indirect remuneration fees,” wreak havoc on the small-business finances of independent drugstores.

It’s time to put an end to secret and unsavory practices. It’s time PBMs were required to make their negotiations public, forbidding the practice of clawing back reimbursements and allowing patients to access the local pharmacy of their choosing.

Author: Karen Kerrigan, President and CEO, Small Business & Entrepreneurship Council