The demise of American pharmacies: How middlemen put ‘kerosene on the fire’

You've heard us mention House Bill 1150, a law that bans pharmacy benefit managers from owning both a pharmacy and a pharmacy license

75% of the time, the PBM is paying the pharmacy less than the cost

The Iowa Senate debated legislation today that pharmacies say will save them from losing money

I was the one who watched a senior citizen try to make a decision between buying groceries and buying drugs

An effort that could bring down the cost of your prescriptions, a bill passed in the Senate regulating pharmacy benefit managers or PDMs

These pharmacy benefit managers make more money at the end of the day on many of these drugs than either the drug manufacturer or the pharmacist

More than 300 drug stores have shut their doors since bipartisan pharmacy benefit manager reform was stripped from the latest government funding bill, forcing some state legislatures to take up the cause

Arkansas's governor recently signed a law banning PBMs from owning a pharmacy in the state

Meanwhile, at least six other states have laws in the works. In part one of our series on the plight of America's pharmacies

we touched on how consolidation in the industry has taken a toll. In part two of three, we'll dig deep into how pharmacy benefit managers affect the industry

I'm sorry, this medicine isn't covered by your insurance. Yeah, I decide which medicines you can get

A pharmacy benefit manager is a middleman between a drug manufacturer and the pharmacy

and ultimately to the patient who needs the medication. They basically are the ones who negotiate prices for drugs from the drug companies

They're actually there to do the administrative task of paying for prescriptions

Insurance companies determine how much pharmacies can charge for prescription drugs. The pharmacy does not make that decision by themselves You can really operate effectively without a PBM because of how drug companies like to do negotiations with a PBM versus just with the pharmacy company

PBMs have been part of the supply chain for years, but recently they've become more powerful

Just a few companies decide what happens with prescription drugs for almost the entire country

Douglas Hoey is the CEO of the National Community Pharmacists Association. He's a pharmacist by trade

They are the ones who decide, who have an enormous influence over which drugs patients can take

I started practicing pharmacy way back in 1980, and you know, PBMs really started out as being nothing but processing

They just process claims. Representative Buddy Carter is a Republican from Georgia who owned independent pharmacies before running for Congress

All of a sudden, formularies became very prevalent and insurance companies began to understand that they could influence the price of a medication by including them on their formulary

We're often the canary in the coal mine for different changes in the industry

We felt it first because 92% of our business is prescription drugs only

A formulary is essentially a list of prescription drugs covered by an insurance plan

And critics say consolidation in the industry has concentrated the power of PBMs

CVS owns or has owned about 10,000 stores. And they own Aetna, which is one of the very biggest health insurance companies

But the PBM, which is called Caremark, actually generates more revenue and more profit than those 10,000 stores or the Aetna health plans

Cigna where I used to work bought Express Scripts in 2018 and it is now much bigger than the health insurance part of Cigna So Cigna now is more apt to be described as a PBM or pharmacy benefit manager that also happens to own health insurance plans At United Health Group Optum is the division that

houses its PBM, which is called Optum RX. And it now, just this year, is generating more revenue

and profits for the parent company, United Health, than the health plan side. A January FTC report

found the big three PBMs raised prices on drugs at their affiliated pharmacies

generating $7.3 billion in added revenue from 2017 to 2022. The Pharmaceutical Care Management

Association, a trade group representing PBMs, told Straight Arrow News at the time

quote, it's clear this report again fails to consider the entirety of the prescription drug

supply chain and makes sweeping assertions about the role of PBMs disconnected from a full

appreciation of their critical cost-saving role for employers, unions, taxpayers, and patients

We requested an interview with PCMA for this piece, but haven't been able to secure one at

the time of publication. A separate FTC report found the three biggest PBMs accounted for 80

of all prescriptions filled. That number jumps to 90% when you lump in the top six

Hoey explained to SAN how PBMs drive up their own profits, giving an example of how they cover

insulin made by both Novo Nordisk and Eli Lilly, which are in most cases interchangeable

Express Scripts, as an example, could go to Lilly and say, if you want your insulin to be

covered by my company, by my insurance company, then you're going to have to pay me 50

of the list price of the drug. So Lilly agrees to that. And then Express Scripts in this example

then goes to Novo and says, Lily's going to pay me 50%. How much are you going to pay me to make your drug

be put on the formulary and bump theirs off Well we pay 60 So it like this auction process Early on the PBMs would keep those rebates The PBMs then began to share some of that rebate back with the employer

So the employer would say, hey, this is a good deal for me because even though I'm paying a lot more for insulin than I normally would

I'm getting some of those dollars back. And I can use that to pay for my employees' premiums

So as time has gone on, the big employers, they get a lot of those rebates back

The patient, though, is still paying the list price. All these PBMs own their own mail order or brick-and-mortar pharmacies

You have patient steering where the PBMs, the insurance companies, are steering their patients toward their pharmacy

and they reimburse their pharmacies more than they reimburse independent retail pharmacies

Secondly, you know, there are often times when the independent retail pharmacy can't even participate

can't even service the patient. And that, of course, is wrong. And independent pharmacies are facing issues which go beyond fighting for market share

They're squeezing the independent pharmacies in particular, are making them pay fees and are shortchanging them in many cases

They're paying them far less than they had been paid before. When your competitor is deciding how much you get paid and also steering the patient into the pharmacy that your competitor wants

those are competitive disadvantages that are almost impossible to overcome. especially, again, your competitor is deciding how much they're going to pay you

In part three of our series on the state of American pharmacies, we look at the risk of putting independent pharmacies out of business

and how creating pharmacy deserts takes a toll on one of the first lines of healthcare