For 13 years, Nick Patel has operated Allentown Pharmacy in the heart of the Old Fairgrounds neighborhood.
But like many independent pharmacies, he’s losing money all the time on the sale of prescription drugs. The reason for these losses, he says, is the unfair business practices of pharmacy benefit managers, companies that act as middlemen within the insurance and prescription drug industries.
As an example, Patel said, for the drug Trulicity, which is for Type 2 diabetes, PBMs pay him $40 less than what he pays wholesalers to stock the drug. It’s not tenable.
“Independent pharmacies have been through a really bumpy ride. Pharmacy benefit managers are taking big cuts and pharmacies are getting underpaid for all prescriptions including brand name products,” Patel said. “It’s not transparent, it should not happen to begin with but it just keeps happening.”
These business practices have taken a toll, said Rick Seipp, legislative chair of the Pennsylvania Pharmacists Association. Since the beginning of the year, 140 pharmacy locations in the state, both independent business and chain store locations excluding CVS Pharmacies, have closed since the beginning of the year.
“We’re having pharmacy deserts appear, where there’s a large geographic area without pharmacies able to service the public, and that’s happening both in cities and rurally,” Seipp said.
Lawmakers have taken notice of the plight of pharmacists like Patel. State Reps. Joshua Siegel, D-Lehigh, Steve Samuelson, D-Northampton, and Jessica Benham, D-Allegheny, held a news conference Thursday morning at Allentown Pharmacy to talk about a bill that would crack down on certain business practices used by pharmacy benefit managers and create more transparency.
Traditionally, pharmacy benefit managers are third-party companies that act as middlemen in health care industry, mediating prescription drug costs among drug manufacturers, wholesalers, pharmacies and health insurance providers. PBMs service insurers on both the public and private sides of the market.
PBMs have no actual hand in the distribution of drugs, instead negotiating prices with drug manufacturers, paying pharmacies directly, and creating and updating formularies, the lists of prescription drugs covered under insurance plans, according to the National Association of Insurance Commissioners.
However, many aspects of how PBMs operate and how they make their money is beyond any direct oversight.
HB1993, introduced by Benham and Allegheny Republican Rep. Valerie Gaydos, seeks to shed more light on PBMs by updating the Pharmacy Audit Integrity and Transparency Act, which was passed in 2016. The bill is sponsored by many state representatives on both sides of the aisle, including Siegel, and a similar bill with bipartisan sponsorship was introduced in the state Senate.
“Patients deserve a system that keeps costs low and allows them to stay with the pharmacy they trust while paying back pharmacies fairly,” Benham said.
One lucrative practice of PBMs the bill hones in on is “spread pricing,” where PBMs charge health plans and payers more than what they paid pharmacists for a drug and then pocket the difference. Seipp said this is one of the major practices hurting pharmacies and causing them to go out of business. He said this practice has been going on for years but as time has gone on, the spread has increased and many pharmacies have hit the breaking point.
There are more than 60 pharmacy benefit managers in the country but most of the market, 89%, is controlled by just three: Express Scripts owned by Cigna, CVS Caremark owned by CVS Health and OptumRx owned by UnitedHealth Group, according to NAIC. UnitedHealth is an insurance giant, Cigna another major insurance player and CVS owns the largest pharmacy chain in the U.S. and Aetna, the sixth-largest health insurer by market share.
PBMs say they keep costs low for consumers. ButBenham said the size and integration of these operations gives PBMs power to engage in practices like “patient steering” that further disadvantage independently owned pharmacies.
Under the bill, “patient steering” refers to practices that push patients toward patronizing pharmacies preferred by a PBM through mandatory mail-order requirements, creating restricted networks where patients can only use preferred pharmacies under their plan. Benham said another type of “patient steering” is where PBMs implement a co-pay differential for affiliated and nonaffiliated pharmacies.
PBMs also plump their profits by negotiating for rebates from drug manufacturers, critics say. Under these rebates, drug makers then pay PBMs whenever specific drugs they make are sold via drug plans that the PBMs set up.
“PBMs get together with pharmaceutical companies to negotiate which drugs are placed where on the formulary and they separate those drugs into tiers and the lower you are on the tier the lower an individual’s co-payment might be, but in exchange for a good place on the tiers, PBMs are offered rebates from those pharmaceutical companies,” Siegel said.
PBMs can choose to pass some or all of this rebate money on to insurers, who can pass savings on to patients by lowering premiums and deductibles, but PBMs have no obligation to do so, according to the Kaiser Family Foundation. Siegel said usually this is not the case and patients on average spend more at the counter while PBMs pocket the rebate money.
PBMs aren’t legally required to share details publicly or privately about extra charges, fees or how much money they pocket from rebates. Contracts also often prevent insurance companies from inquiring into matters such as how the PBM determines formulary placements, why some drugs in the formulary are more expensive than others and the amount of rebates and other negotiated payments PBMs keep.
Benham said her bill would be a critical first step toward getting more transparency from PBMs.
“We know by talking to independent pharmacies that spread pricing is happening but we don’t know by how much insurers are overpaying and how much money all our community pharmacists are being underpaid,” Benham said. “This legislation creates a window, allowing insurance departments to see those numbers, to be able to audit those books and have a real sense of what’s going on.”
