On February 17, the Federal Trade Commission voted against the commission of a study on Pharmacy Benefit Mangers’ (PBMs) relationships with affiliated and independent pharmacies. The study would have examined the competitive impact of PBM-pharmacy contractual provisions, reimbursements, and fees affecting drug prices that adversely impact independent pharmacies. With its ruling to maintain the status quo, the FTC has decided to take a back-seat and force independent pharmacies to fend for themselves in their on-going fight to secure access to fair prices that allow them to stay in business and continue to serve their local communities and the well-being of their patients.
While the FTC remains on the sidelines, now is the time for plan sponsors and their members to take a hard look at PBMs and their oppressive practices that threaten to drive independent pharmacies out of business and, in doing so, reduce patient access to trusted and talented healthcare providers. We can all sit back and criticize the FTC for not acting, or we, as healthcare consumers, can step up to the plate and do what we can to show our local pharmacies that we value them and that we are here to help them secure access to fair prices.
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David McKay David A. McKay is general counsel at Prescryptive Health, Inc., a health care technology company delivering solutions that empower consumers. Prior to joining Prescryptive in 2020, Mr. McKay spent over 20 years representing self-funded plans and their members in audits and litigation against the country’s largest PBMs.
Why independent pharmacies are important
Independent pharmacies are a lifeline to their communities’ health, and in most rural areas an independent pharmacist is the only provider within a short drive. A Gallup Poll found pharmacists are the second most trusted of all professions in the United States (right behind nurses), and many people spend more time with their pharmacists than with their primary care physicians. Putting independent pharmacies at risk does more than just close a local small business; the practice could reduce patient access to a trusted healthcare provider and the critical information that empowers patients to make informed decisions about their healthcare.
The on-going Covid pandemic has revealed how important pharmacists are to national health. Thanks to a series of emergency laws, executive orders, and authorizations, independent pharmacists were able to administer millions of Covid point of care tests, vaccines, and Covid treatments (monoclonal therapy) that were indispensable in saving lives and keeping people healthy. Indeed, according to the 2021 NCPA Digest, pharmacists have administered more than 100 million Covid vaccines, with independent pharmacists playing a significant role in this front-line battle against Covid-19.
Looking past Covid, independent pharmacies are well positioned to deliver enhanced services to their local communities, including long-term care services, therapy adherence services, point of care testing (e.g., flu), and other clinical services. At present, there are more than 23,000 independent pharmacies serving their local communities, but that number may soon fall to levels that could threaten the delivery of quality care for rural patients and those who live in medically underserved communities.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The PBM assault on independent pharmacies
When you look at the original purpose of the PBM – to process prescription claims and save employers the hassle of handling paper claims and receipts — the value of PBMs seems clearcut and essential. Since being introduced in the 1960s, PBMs have moved from claims processing to more complex functions such as retail, mail order and specialty pricing and access, formulary management, rebates, and drug utilization reviews. Add years of mergers and acquisitions, and we now have a system in which three PBMs control 80 percent of the prescription drug market. Those same three PBMs now have their own pharmacies and are tied at the hip to major insurance carriers, leading many critics to claim that the PBMs are acting in a monopoly capacity and using that power to drive independent pharmacies out of the prescription drug market.
In advance of its decision to not investigate PBMs, the FTC invited independent pharmacies to submit examples of abusive PBM practices. The response was overwhelming, and at one point the crush of submissions crashed the FTC’s web site. I would encourage you to visit the FTC’s site to review these stories of PBM abuses to gain a full appreciation of what the independent pharmacist must deal with every day. Here are just a few examples from the testimony:
- In my pharmacy, after working with a beloved patient for 10 years, I discovered to dismay that due to these [GER] fees, the apparent profit of filling her 393 prescriptions per year was not $2,000 as the claim transmission suggested. But in fact was a loss of $2,000 a year. This was due to a so-called generic effective rate, a PBM financial engineering tactic that I now know far more about than I ever cared to know. In my attempts to continue to serve this patient while making the pharmacy financially sustainable, she became frustrated and left our pharmacy never to return. GER, despite its shield of boringness, has a cost in the destruction of therapeutic pharmacists and patient relationships.
- I’m an owner of two pharmacies in rural New Mexico, where we’ve served our community for the last 50 years. Negotiating contracts when I purchased the pharmacies just two years ago was astronomical. There’s no telephone calls, it’s email only. After an entire year of back and forth I got three cease and desist letters. Two threats of lawsuits. My patients received multiple letters. Three letters went out to my patients telling them that they needed to transfer their prescriptions immediately because I was not contracted. That was not true. After a whole year of this, they finally gave me good faith of 25 cents instead of the zero, because that’s part of what I was fighting in that contract. Only part of it. I ended up having to sign a gag order that had 20 bullet points long, making sure that I was not going to tarnish their reputation any further, just to provide care to my patients
Given these stories, one would think the FTC would step in and investigate PBMs. In response to criticism that the FTC chose not to do so, FTC Commissioner Noah J. Phillips stated that the proposed investigation was not clearly defined and that he would support a more well-defined and “rigorous” look at PBM practices. Such a “rigorous” investigation is most welcome, and hopefully it will take place at some point this year.
The solution: Start asking some hard questions
As we await government action, perhaps now is the time for plan sponsors and their members to spring to action. Most Americans receive healthcare through their employers as an employee benefit. Employers as plan sponsors and employees as plan members supply the money that pay for prescriptions. PBMs do not pay for prescriptions, yet they have created a complex system where they can obscure the flow of money and impede the payors’ ability to track and understand how PBM practices often fail to deliver fair compensation to the independent pharmacist. Asking PBMs some hard questions could help shine the light and drive much needed change.
Plan sponsors, for example, might want to consider sitting down with their brokers and consultants and asking them what can be done to ensure the survival of the independent pharmacy. Make it clear that you want to rein in costs, but to do so without driving independent pharmacies out of your employees’ local communities. Direct your RFP consultant to: (1) invite not just the Big 3 PBMs but to also invite PBMs that will commit to transparency and fair pricing for independent pharmacies; and (2) to update the standard RFP to ask a series of questions that require the PBM to disclose its pricing practices. Be direct and ask whether the PBM values independent pharmacies and require the PBM to detail the steps that it takes to ensure the prices it pays pharmacies with your money are fair prices that do result in underwater payments after any spread pricing or clawbacks. For those PBMs that own pharmacies, ask them if they pay independent pharmacies the same prices that they pay their pharmacies and what steps an independent pharmacy must complete to dispense specialty drugs to your plan members (assuming they are even permitted to do so).
Plan members, on the other hand, can visit their local independent pharmacy and consider transferring their prescriptions to that pharmacy. By shopping local, plan members can gain access to a trusted and talented healthcare provider and at the same time help preserve the uniqueness of their local community.
Source: illustration, Getty Images
David A. McKay is general counsel at Prescryptive Health, Inc., a health care technology company delivering solutions that empower consumers. Prior to joining Prescryptive in 2020, Mr. McKay spent over 20 years representing self-funded plans and their members in audits and litigation against the country’s largest PBMs.
