Insurance “intermediaries” drive up drug costs, local pharmacists say. A federal agency is looking into corporate practices.
When Scott Newman opened the Newman Family Pharmacy in Chesapeake in 2013, it was a new chapter in his career as a pharmacist as he left Rite Aid.
But over the years, he says, changes in the industry began to weigh on his business until he knew he had reached the end of the road.
“There was nowhere to go but downstairs,” Newman said.
According to Newman, president of Pharmacists United for Truth and Transparency, the driving force that put him out of business was what he called “take it or leave it” contracts with entities called Pharmacy Benefit Managers.
“They cut my refunds again every year – lower and lower,” he said.
The entities are “intermediaries” between drugmakers and pharmacies that were created by drug companies to help with billing, Newman said.
“Traditionally, the idea of a PBM is a good idea,” he said.
But they increase costs for pharmacies and patients by reducing competition as they push business to pharmacies under their own corporate umbrella in addition to increasing rebate fees to drugmakers, according to Newman.
The Federal Trade Commission announced an investigation into PBMs and how they affect pharmaceutical prices on June 7 after years of outcry from independent pharmacists and customers.
“Although many people have never heard of pharmacy benefit managers, these powerful intermediaries have enormous influence over the American prescription drug system,” FTC Chair Lina Khan said in the announcement. . “This study will shed light on the practices of these companies and their impact on pharmacies, payers, physicians and patients.
The commission will seek information and records from the six largest drug benefit managers and assess their relationships with insurance companies, such as Caremark and Aetna, both of which are owned by CVS Health, which also owns CVS Pharmacy.
The three largest benefit managers – Caremark, Express Scripts and Ascent Health Services, which are owned by Cigna; and OptumRx, which is owned by UnitedHealth, had more than 75% market share in 2020, according to data released in April 2021 by the Drug Channels Institute, a pharmacy and distribution industry group.
PBM representatives said they would comply with the investigation and referred requests for additional information to the Pharmaceutical Care Management Association, an industry and lobby group for PBM.
JC Scott, the association’s president and chief executive, said in an emailed statement that he was “confident” the survey will show benefits managers are a force that lowers drug costs on prescription because they are the “only member of the prescription drug supply” that tries to reduce costs for patients.
“Price fixing by drug manufacturers is the root cause of high drug costs,” Scott said. “The most effective study of drug cost issues for consumers would look at the entire supply chain. PBMs hold pharmaceutical companies accountable by negotiating the lowest possible cost on behalf of consumers, and by stimulating and providing the local competition that consumers demand.
Of the. Keith Hodges, R-Urbanna, gave up his last independent pharmacy last year in Gloucester. He said he sees drug benefit managers as part of the problem of rising prices.
Hodges bought his first pharmacy in West Point in 1991 when he was 25 years old. He was a pharmacist for over 30 years.
“When you try to talk to lawmakers about it, they pass out and often say, ‘Let the free market deal with it,'” he said. “Well, it’s not a free market because the patients have no control. It’s a free market where patients have control over their premiums, co-payments and so on and there’s no bargaining power on their end and no bargaining power with pharmacies because it’s deals with blind contracts.
According to Hodges, a complication of managing PBMs in Virginia is federal employee retirement income security law. However, a Supreme Court decision from December 2020, Rutledge v. Pharmaceutical Care Management Assn.authorized an Arkansas law to regulate PBM reimbursements to pharmacies and that it did not conflict with ERISA.
Hodges said he’s convening a task force to see how the move could open the door for Virginia to regulate PBMs and other third-party administrators in health care.
“The problem is that states are limited in what they can do until we can really try to find a way to fix this under ERISA,” Hodges said.
Another problem with PBMs is the price breakdown, which he discovered while reviewing one of his Gloucester pharmacy’s patient benefits explanation.
“It showed me that the plan was charging the plan sponsors $30 so the patient was paying $10 but the plan was charging the plan sponsor $30 but they were only paying me $10 so there was a discrepancy of $20 on that prescription,” Hodges said.
And when he ran the numbers for that kind of spread in his pharmacy, it was $38,000 a year for his Gloucester pharmacy alone.
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A Virginia Department of Medical Assistance Services Report presented to the General Assembly in 2019 noted that the spread prices for 18 months ending June 30, 2018, totaled $29 million. In Ohio, the spread brought in $223.7 million for PBMs, according to a 2018 report from the Ohio Department of Medicaid.
“The FTC really needs to look into this and peel back the layers to see what’s going on,” Hodges said.
Newman said the FTC investigation took “a long time to come.”
“Most of us get screwed over by the person who doesn’t produce anything, doesn’t really have any oversight or legal regulation and doesn’t distribute anything and hosts nothing but their own competing pharmacies, so you have just one entity that works both sides of the supply chain to their advantage,” he said.
Ian Munro, email@example.com, 757-861-3369, @iamIanMunro