Medicine Information

By Karen Kerrigan

Across the country, local pharmacies are boarding up.

A major new study from McKinsey found that the number of independent U.S. pharmacies has declined by half since 1980 -- leaving just 20,000 in business nationwide. Those that remain are reporting their slimmest profit margins in a decade.

These closures are bad for local communities and patients' health. When small, independent shops close, patients lose access to the pharmacist who personally knows many local residents. They have personal knowledge of their health conditions, prescribed medications, and the potential interactions those medicines might have with new ones. Local communities may also lose a convenient place to get a flu shot, other immunizations, or blood pressure screening.

Fortunately, lawmakers across both parties are aware of the plight of local pharmacies and the consequences of their diminishing numbers. That is why bipartisanship has rallied behind nearly three dozen bills during this session of Congress. These bills aim to curb the power of pharmacy benefit managers (PBMs) -- the giant, secretive middlemen that have played a role in driving drug prices higher and independent pharmacies out of business.

PBMs negotiate discounts from drug makers on behalf of insurers. In exchange, pharmaceutical companies receive favorable inclusion of their products on a plan's formulary. PBMs also administer reimbursements from the system's payers -- insurers, federal and state governments, and corporations -- to providers, including pharmacies and clinics.

Their ostensible role in the health system is to lower drug costs and save consumers money. Instead, PBMs have made the system increasingly complex, enabling them to extract outsized revenue from it while crowding out the small mom-and-pop drugstores that have long supplied a variety of community needs.

There are three big PBMs -- CVS Caremark, Express Scripts, and OptumRx -- that control around 80% of the market for prescription drugs.

Today's biggest PBMs are vertically integrated with drugstore chains and their mail-delivery services, as well as the biggest insurance companies. That creates additional opportunities for advantageous self-dealing.

Drugstores buy medicines wholesale, but PBMs decide how much pharmacies get reimbursed for dispensing medications to patients with insurance. There's no legal requirement for PBMs to provide equal reimbursement, so they can favor affiliated pharmacies while leaving independents out. PBMs also coordinate with their affiliated insurance companies to steer plan enrollees to their own pharmacy groups.

They do so by restricting where patients can access specific medicines or requiring patients to refill their prescriptions at an affiliated pharmacy, no matter which drugstore supplied the original dose. PBMs can also encourage insurers to push unaffiliated pharmacies out-of-network so patients face higher prices if they stick with their neighborhood drugstore.

As one would expect, the operations of these middlemen lack transparency. Rules for the disclosure of contractual and other arrangements are practically nonexistent.

PBMs have also taken on the role of quality-control enforcer in prescription dispensing. Purportedly, this is to incentivize high-quality service. In reality, PBMs use their audits to justify "clawing back" fees, including from small, independent pharmacies.

During the Covid-19 pandemic, some PBMs even revoked reimbursements for failing to obtain patient signatures. These clawbacks, called "direct or indirect remuneration fees" (DIR fees), wreak havoc on the small-business finances of independent drugstores.

It's time PBMs were required to make their negotiations public and allow patients fair access to the local pharmacy of their choosing.

Karen Kerrigan is the president and CEO of the Small Business & Entrepreneurship Council. This article originally appeared on dcjournal.com.

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