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

The Biden administration’s first major step toward imposing limits on pharmacy benefit managers who act as drug industry price negotiators is backfiring, pharmacists say. Instead, it adds to the woes of the independent pharmacies it was partly designed to help.

So-called PBMs have long collected fees from pharmacies weeks or months after dispensing a drug. A new rule, which governs the Medicare drug program, is set to take effect Jan. 1 and requires PBMs to collect most of their “performance fees” at the time prescriptions are filled.

Recoveries increased 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 65 and older or disabled .

Performance fees have also increased Medicare patients’ prescription costs at the pharmacy counter by hundreds of millions of dollars, although insurers say the fees allow them to charge lower premiums.

Pharmacist groups supported the Medicare rule change, but they failed to anticipate the PBMs’ response, which was to demand that they accept new contracts with drastic reductions in their payments for dispensing drugs, said Ronna Hauser, vice president of the National Community Pharmacists Association. , which represents independent pharmacies. If pharmacies refuse contracts, they risk losing their Medicare customers – likely to the same giant PBM conglomerates, which have absorbed a growing share of the pharmaceutical sector 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 — as well as employers and their workers. But these organizations are hated by independent pharmacies, drugmakers and patients, who accuse them of siphoning money from what is already the most expensive health system in the world, without providing additional value.

PBM practices even put pressure on national chains like Rite Aid, Kroger and Walgreens, which are not part of the conglomerates. Even CVS Health, which has one of the three major PBMs, has closed stores or reduced staff to encourage consumers to use mail-order pharmacy services.

The pressure on pharmacists and store technicians has led to a series of walkouts this fall by CVS and Walgreens employees, who say understaffing has caused burnout and threatened patient safety.

Poverty for small pharmacies

In the current system, when a pharmacy fills a prescription, the PBM tells the pharmacy what the patient owes and what the PBM will pay the pharmacy. The PBM consolidates these payments and sends a check later. However, the PBM often deducts a performance fee from the pharmacy, said Doug Hoey, CEO of the National Community Pharmacists Association.

“When you fill the prescription, the PBM tells you the patient pays $20 for this drug, we will pay you $100,” Hoey said. “As a pharmacist, I say: OK, I get a total of $120 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 to object. »

One measure of performance is patient compliance. If patients do not take all their medications, pharmacists can be charged fees for poor performance, although they have no control over the patient’s actions. Sometimes pharmacists are criticized for the prescribing doctor’s mistakes, Hoey said.

Earlier this fall, PBM giant Express Scripts sent out confidential contracts announcing that in 2024 it would pay pharmacies about 10% less than they usually pay to buy brand-name drugs in bulk — which means they could lose money on every prescription they fill, according to two independent pharmacists who received the documents. They declined to share the contracts because they are subject to nondisclosure agreements with Express Scripts.

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

Kare Drugs, which operates two pharmacies in New Mexico, was among those to turn down the Express Scripts contract. As a result, the pharmacy is “preparing for the hardest part, which will potentially be patient transfers,” said owner Ashley Seyfarth.

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

A double whammy

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

The Jan. 1 rule change was intended in part to provide relief to Medicare patients, who often pay a fixed percentage of a drug’s price as a copay. This copay is based on the price the drug plan or PBM promises the pharmacy at the time of sale. But the clawbacks led to patients overpaying hundreds of millions of dollars, Hoey said. Indeed, their over-the-counter co-pays ended up representing a higher percentage of the drug’s final pharmacy price, once performance fees were deducted.

Seyfarth, who said he paid more than half a million dollars in PBM fees last year, said that to deal with the looming pinch, his pharmacy was inventing new ways to make money, including charging to patients delivery services and starting an all-cash service. concierge clinic.

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

The unintended consequences of the rule risk worsening problems for community pharmacists, who are finding it increasingly difficult to obtain the most popular and expensive new drugs, Hauser said.

Integrated PBM insurance companies – particularly UnitedHealth Group, CVS Health and Cigna, each comprised of a major insurer, PBM, and other companies – have derived an increasing share of their revenue from specialty pharmaceutical drugs, which account for more than half of American spending on drugs.

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

Express Scripts has said it wants to help independent pharmacies survive, Hoey said, but did not respond to a June letter in which he asked the company to provide breathing space by phasing out the 2023 clawbacks gradually over 12 months.

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

After a series of hearings — and an ad campaign by drugmakers — attacking PBMs, Senate and House committees advanced bipartisan bills aimed at tightening controls on the companies. The Senate Finance Committee’s bills would require the Department of Health and Human Services to issue rules ensuring that PBM payments to pharmacies and other contract terms are reasonable, and that PBMs no longer impose unfair requirements for pharmacy performance, said Julie Allen, a law firm lobbyist representing the National Specialty Pharmacy Association.

“These statutory changes are essential to fixing the problems in the Medicare Part D program and saving specialty 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 major operating programs of KFF — the independent source for health policy research, polling and journalism.