Big Insurance PBMs Will Shut Down Your Local Pharmacy

In his State of the Union address, President Biden doubled down on his commitment to decreasing drug prices by expanding the number of drugs subject to Medicare negotiations. However, Congress and his administration have yet to address the middlemen who control these prices.

Millions of Americans may soon be stripped of the most accessible healthcare professional in their communities. An all-out attack is being waged against community pharmacies. This battle, years in the making, has reached a tipping point, and Congress just shelved one of the only lifelines.

Often cited as one of the most trusted professionals, community pharmacists have continued to operate in an environment of decreasing payment for the life-sustaining medications they dispense. Sadly, the community pharmacy is likely filling prescriptions at a loss. Local access to medications and free healthcare advice will be lost if this continues.

Nearly all medications dispensed by pharmacies are paid by insurance companies through their intermediaries known as Pharmacy Benefit Managers (PBM). These intermediaries decide what medications patients receive and what they pay. Their business model evolved from a simple data conduit to the most influential player in the prescription drug marketplace.

Only three PBMs control more than 80 percent of covered lives. These vertically integrated healthcare behemoths are numbers 5, 6 and 15 on the Fortune 100 list.

PBMs pit manufacturers against one another for placement on their approved formularies. In return, manufacturers pay PBMs a part of their revenues through rebates. As PBMs demand larger rebates, manufacturers increase their list price to cover the cost. The result is higher drug prices.

PBMs dictate what pharmacies are paid to purchase and dispense each medication. They offer “take it or leave it” contracts detailing how the pharmacy will be paid. Pharmacies are also subject to additional charges from the PBM, including the risk of audits: PBMs retain the right to audit pharmacy payments and take back funds at will. These audits typically focus only on high-dollar brand drugs that result in a significant payout for PBMs, and payments are usually disqualified for technicalities.

Pharmacy closures are being publicized at a seemingly accelerated pace. According to a recent National Community Pharmacists Association report, this trend will continue. The report shared that a third of independent pharmacies will likely close in 2024 due to “plunging prescription reimbursements by big insurance plans and their pharmacy benefit managers.” Despite many of these pharmacies dispensing more medications than ever in the past year, business owners are still seeing a drastic decline in profitability.

Even the nation’s three largest chain pharmacy operators are not immune to the shifting economic pressure in the industry. Each chain has announced store closures this year, pointing to “underperforming” stores, often in rural areas with smaller populations. The closures of independent and chain pharmacies in these communities create pharmacy deserts, effectively stranding rural populations from their most accessible healthcare professional.

With the recently added scrutiny on PBM’s role in setting prescription drug prices, one would have expected the industry to adjust and pricing to stabilize. Instead, PBMs have doubled down. After all, corporate earnings, shareholder dividends, and exorbitant executive compensation are at risk. Just last month, a PBM-owned data company fell victim to a cyber-attack. This incident resulted in pharmacies being unable to process claims, leaving them without assurance of reimbursement for the life-saving medications they dispensed. Even more egregious, this same PBM continued to send audits to pharmacies while this payment-delaying crisis was unresolved.

While some state legislatures have successfully recognized this looming crisis, most have not. The Federal Trade Commission, which has sunk its teeth into technology and grocery chain mergers, allowed vertical integration in healthcare and is beginning to realize the negative impact that stifled competition creates. However, real action from this regulator has yet to occur as they stall their investigation into PBMs.

Congress has another chance to include PBM reform in the coming March 22 budget package. If action is not taken again, it may be too late to create wide-sweeping changes to this opaque and corrupt system where the patient ultimately suffers.

Todd Stephens is COO of Stephens Pharmacy and Northeast Med-Equip. He wrote this for InsideSources.com.

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.