Biden’s limit on drug industry middlemen backfires, pharmacists say

The Biden administration’s first major move toward imposing limits on the pharmacy benefits that act as the drug industry’s price negotiators is backfiring, pharmacists say. Instead, it adds to the problems in the independent pharmacies it is in part designed to help.

The so-called PBMs have long recovered a fee from pharmacies weeks or months after they have dispensed a drug. A new rule governing Medicare’s drug program is set to take effect January 1 and requires PBMs to take most of their “performance fees” at the time the prescriptions are filled.

Clawbacks has ballooned from about $9 million in 2010 to $12.6 billion in 2021, according to the Medicare Payment Advisory Commission, an agency created to advise Congress on the program for people who are 65 and older or have disabilities.

Benefit fees have also increased Medicare patients’ prescription costs at the pharmacy counter by hundreds of millions of dollars, even though insurers argue that the fees enable them to charge lower premiums.

Pharmacy groups supported the Medicare rule change, but they did not anticipate the PBMs’ response, which has been to require them to accept new contracts with draconian cuts in their payments for dispensing drugs, said Ronna Hauser, vice president of the National Community Pharmacists Association, which represents independent pharmacies. If the pharmacies refuse the contracts, they risk losing Medicare customers — likely to the same giant PBM conglomerates that have absorbed a growing share of the pharmacy business in recent years.

PBMs sit at the center of the U.S. drug supply chain, where they say they negotiate lower prices for insurers — including Medicare — and for employers and their workers. But the organizations are loathed by independent pharmacies, drugmakers and patients alike, who accuse them of siphoning money from what is already the world’s most expensive health system without providing additional value.

PBM practices are even putting pressure on national chains like Rite Aid, Kroger and Walgreens, which are not part of the conglomerates. Even CVS Health, which owns one of the top three PBMs, has closed stores or trimmed staff as it pushes consumers to mail-order pharmacies.

The pressure on pharmacists and technicians in the store has led to a series of absences in the fall by CVS and Walgreens employees who say tight staffing has caused burnout and threatened patient safety.

Misery for small pharmacies

Under the current system, when a pharmacy fills a prescription, the PBM tells it what the patient owes and what the PBM will pay the pharmacy. The PBM collects these payments and sends a check later. Often, however, the PBM will deduct a performance fee from the pharmacy, said Doug Hoey, executive director of the National Community Pharmacists Association.

“When you fill the prescription, the PBM tells you the patient pays $20 for this drug, we pay you $100,” Hoey said. “As a pharmacist, I say, okay, I’ll get $120 total for a drug that cost me $110 from the wholesaler. Then three months later, the PBM says, ‘Actually, I’m only going to pay you $83.'” So I lost $17 on the sale , and I have no way of protesting.”

A performance measure is patient compliance. If patients do not take all of their medications, pharmacists may receive a performance fee, even though they have no control over the patient’s actions. Sometimes pharmacists are aggrieved by the prescriber’s mistake, Hoey said.

In early fall, PBM giant Express Scripts released confidential contracts announcing that by 2024 it will pay pharmacies about 10% below what they typically pay to buy wholesale brand-name drugs — meaning they could lose money on each prescription , they fill out, according to two independent pharmacists who received the documents. They declined to share the contracts because they are subject to confidentiality agreements with Express Scripts.

In a statement, Express Scripts said that “our pharmacy reimbursement rates for brand-name drugs vary based on a number of factors.” The company said nearly 90% of the country’s roughly 20,000 independent pharmacies had accepted its terms.

Kare Drugs, which operates two New Mexico pharmacies, was among those that refused the Express Scripts contract. As a result, the pharmacy is “preparing for the hardest part, which will potentially be moving patients away,” said owner Ashley Seyfarth.

Seniors currently signing up for Medicare plans for next year may be confused when they discover their insurance will no longer allow them to pick up medications at their usual pharmacy, said Ben Jolley, a Salt Lake City pharmacist and consultant for other independent pharmacists. Jolley said his pharmacy expects to lose at least 100 customers after refusing a contract with a major PBM.

A double whammy

In the first months of 2024, pharmacies will face a double blow. PBMs will pay them less for the drugs they dispense, while pharmacies also face clawbacks on drugs dispensed in the last quarter of 2023.

The Jan. 1 rule change was designed in part to relieve Medicare patients, who often pay a fixed percentage of a drug’s price as a copayment. This copay is based on the price the drug plan or PBM promises the pharmacy at the time of sale. But the chargebacks have resulted in patients being overpaid by hundreds of millions of dollars, Hoey said. That’s because their copay at the counter ended up being a higher percentage of the drug’s final pharmacy price after performance fees were subtracted.

Seyfarth, who said she paid more than half a million dollars in PBM fees last year, said that to cope with the pending squeeze, her pharmacy came up with new ways to make money, including charging patients for delivery services and starting a cash concierge clinic.

Some pharmacies set aside savings or take out short-term loans to cover losses in the first months of next year. “I hope we’ve done the right calculations and will get through this,” said Marc Ost, co-owner of Eric’s Rx Shoppe in Horsham, Pennsylvania.

The unintended consequences of the rule will likely exacerbate problems for community pharmacists, who find it increasingly difficult to carry the most popular, expensive new drugs, Hauser said.

Integrated PBM insurers—notably UnitedHealth Group, CVS Health, and Cigna, each composed of a major insurer, PBM, and other companies—have achieved an increasing share of their revenues from specialty drugs, which account for more than half of US drug spending.

These giant companies have bargaining power with drug manufacturers that enables them to sell a diabetes drug like Ozempic (sold under the name Wegovy for weight loss), for example, for about $900 a month. “An independent pharmacy can’t even buy it at that price,” Hauser said. “If they give out Ozempic, they lose money.”

Express Scripts has said it wants to help independent pharmacies survive, Hoey said, but has not responded to a June letter asking the company to provide breathing space by phasing in the 2023 clawbacks over 12 months.

In its statement, Express Scripts said it was “committed to reimbursing pharmacies fairly, ensuring Medicare beneficiaries have safe, quality pharmacies in their network, and providing beneficiaries with all available discounts at the pharmacy counter.”

After a parade of hearings – and an advertising campaign by pharmaceutical manufacturers — Attacks on the PBMs, Senate and House committees have advanced bipartisan bills to tighten controls on the companies. Senate Finance Committee Bill would require the Department of Health and Human Services to issue rules ensuring that PBM payments to pharmacies and other contract terms are fair and that PBMs no longer impose unreasonable demands on pharmacy services, said Julie Allen, a lobbyist with the law firm, representing the National Association of Specialty Pharmacy.

“These legislative changes are critical to solving problems with the Medicare Part D program and to saving specialty pharmacies and other pharmacies,” she said in an email.

KFF Health Newsformerly known as Kaiser Health News (KHN), is a national newsroom that produces in-depth journalism on health issues and is one of the core operating programs of KFF — the independent source of health policy research, polling and journalism.

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