WASHINGTON, D.C. — When a CVS opened across the street in 2000, Hart Pharmacy had already been a Cincinnati fixture for 40 years.
Third generation pharmacist Sarah Priestle worried the CVS would draw patients away from her family-owned business.
Over the years, though, most of the customers stayed, Priestle said, but her revenue has still steadily decreased. The hit to her business came not from the CVS, though, but from its affiliated pharmacy benefit manager, CVS Caremark.
We’ve definitely been affected by PBMs. No pharmacy is ever going to say that they’re not,” she said.
What You Need To Know
- Pharmacy benefit managers, or PBMs, play a large role in the American health care system
- A growing chorus of pharmacists claim PBMs use predatory practices that are pushing independent pharmacies out of business
- Independent pharmacies are looking for ways to survive and calling for regulatory reform
PBMs are companies that negotiate drug prices with drugmakers and decide how much insurers pay pharmacies for medicines and services.
PBMs were designed to bring down health care costs. Drugmakers want their drugs on PBMs’ formularies, which determine which drugs are covered by insurance and thus more often purchased. Pharmacies want to be listed in-network, which gives them access to more patients. In exchange, both agree to offer discounts on drug prices.
A growing chorus of pharmacists, patients and lawmakers claim instead of passing on those savings, PBMs have instead sought to maximize their own profits.
“There’s a lot of opportunity for those entities to take advantage of their market power, and they do so at the detriment of our members and the patients that they serve,” said Matt Seiler, general counsel for the National Community Pharmacist Association (NCPA).
Many pharmacists say they are in effect forced to sign contracts with the three largest PBMs, CVS Caremark, Express Scripts and Optum, which together control 79% of market share.
The contracts are non-negotiable and often reimburse pharmacies less than the cost of a drug. The practice is called spread pricing, in which PBMs charge insurers a higher amount for a drug than is reimbursed to the pharmacy. Then the PBM keeps the “spread,” or difference.
PBMs also charge a type of fee called “direct and indirect remuneration,” or DIR fee. Originally intended to ensure correct payments for Medicare Part D drugs, DIR fees have come to encompass several types of fees. At times, the fee is based on a pharmacy’s “performance.” Many pharmacists allege PBM performance standards are arbitrary and outside of a pharmacy’s control.
“We are reimbursed under our costs,” Priestle said. “We are audited by them for clerical things that don’t affect patient care.”
Hart Pharmacy paid more than $85,000 in DIR fees last year, Priestle said.
PBMs also directly compete with independent pharmacies, since each of the major three PBMs has its own affiliated retail or online pharmacy: Caremark’s CVS Pharmacy, Express Scripts’ online pharmacy and Optum’s Optum Rx.
“It’s definitely a conflict of interest,” Seiler said. “We see all the time patient steering to the PBMs’ own affiliated pharmacies.”
Steering tactics include pushing patients to switch pharmacies and pricing independent pharmacies out of patient care by making it too expensive to fill prescriptions.
These practices pose an existential threat to many pharmacies. A February NCPA survey found 32% of independent pharmacies are considering closing their doors in 2024 because of decreasing reimbursements and increasing DIR fees.
“I think what we’re going to see is what I would deem a starvation event,” Seiler said. “Depending on their patient makeup and mix, I could see a number of them going out of business.”
The NCPA recently launched TRUST LLC, a legal initiative to help independent pharmacies challenging specific cases of DIR fees.
Other pharmacies are adapting by cutting out insurance entirely. A “cost-plus” model allows pharmacies to charge the purchase price of a drug plus a markup, usually 10 to 15%.
Some, like Priestle, are speaking out against PBM practices. Priestle said she was aware her advocacy could risk losing Hart Pharmacy’s PBM contracts, but that she could no longer afford to stay silent.
“At this point, I think the truth needs to be out there,” she said.
Express Scripts and Optum did not respond to a request for comment on allegations made in this story. CVS Caremark referred the request for comment to PBM industry group Pharmaceutical Care Management Association (PCMA), which did not respond.