Iowa is losing pharmacies; lawmakers, pharmacists and policy experts blame benefit managers

Pharmacies across Iowa have closed at an alarming rate over the past decade-plus, partly because insurance payouts don't cover drug costs.

Nearly 100 pharmacies across the state have shut their doors since 2008, according to research from a Drake University professor in a recent study.

Independent pharmacies saw the largest hit with 87 stores closed from 2008 to 2022, a 38% decrease. Rural pharmacies saw a 19% decrease, with 72 shutting their doors, according to the study.

A survey last month by the Iowa Pharmacy Association of members found 40% of responding pharmacies expect to close within the next 12 months.

"That represents more than 133,000 patients in the state losing access to medications," said Seth Brown, director of public affairs with the Iowa Pharmacy Association.

Pharmacists, lawmakers, policy experts and patient advocates say pharmacy benefit managers are largely to blame.

Pharmacy benefit managers, or PBMs, are third-party companies that function as intermediaries between insurance providers and drug manufacturers. The multibillion-dollar companies play a major role in negotiating drug prices and reimbursements for pharmacies but operate with little transparency and oversight, lawmakers, pharmacists and patient advocates argue.

PBMs determine which pharmacies will be included in a prescription drug plan's network and how much those pharmacies will be paid for their services. PBMs also regulate which drugs are covered under a specific plan and set copays, negotiate rebates with drug manufacturers and process prescription medication claims, for a fee, for insurance companies, among other roles.

Three of the companies — CVS Caremark, Express Scripts and Optum Rx — collectively control about 80% of the market.

"A lot of these issues are coming from PBM practices … that really need to be reined in," Brown said.

What's Congress doing to address the issue?

Iowa Republican U.S. Rep. Mariannette Miller-Meeks and colleagues this week introduced a bipartisan proposal that would tackle practices used by pharmacy benefit managers that drive up costs for prescription medications.

The bill would use a flat flee to compensate PBMs instead of pegging payments to a percentage of the cost of a drug.

It's the latest in a series of PBM-related proposals this year that have worked their way through the House and Senate as Congress looks to lower costs and increase pricing transparency for patients.

Members of Congress on both sides of the aisle are examining how the industry middlemen have manipulated the complex and opaque drug pricing system to drive up health care costs at the expense of patients and pharmacies.

"Pharmacy benefit managers (PBMs) have excessive influence over the prices patients pay at the pharmacy counter," Miller-Meeks said in a statement. "The DRUG Act puts downward pressure on prescription drug prices and insurance premiums by removing the incentive for PBMs to drive up the list price of a medication. Additionally, this legislation protects independent pharmacies and a patient's right to choose the pharmacy of his or her choice without pressure from the PBM."

The bipartisan bill introduced by Miller-Meeks implements delinking policies, which allow PBMs to only charge a flat fee for drug placement versus letting them continue to charge a percentage of the drug.

That will prevent PBMs from using complicated and confusing contracts that jack up prices, said Brown of the Iowa Pharmacy Association.

Drug rebate payments frequently serve as a tool of negotiation to promote the use of expensive brand drugs. Manufacturers get a prominent placement on payers' drug lists to increase market share, and in turn, PBMs and health plans receive a lower cost for the brand drug, even if a lower cost generic equivalent is often available.

Miller-Meeks' bill also bans "risk-mitigation pricing" (also referred to as spread-pricing), which occurs when a PBM charges an insurer more for a drug than the amount a PBM pays a pharmacy.

Retail pharmacies in a PBM's network fill prescriptions of health plan participants with drugs the pharmacies purchase from wholesalers or manufacturers. When a plan participant fills a prescription at a pharmacy, the pharmacy checks with the PBM to determine coverage. After the pharmacy fills the prescription, the PBM reimburses the pharmacy at a contractually-agreed rate, minus the copay collected by the pharmacy. The PBM then separately bills the health plan at the rate negotiated between the PBM and the health plan.

PBMs say the pricing model provides predictability for plan sponsors and lowers drug cost by giving them fixed pricing and guaranteed discounts for drugs dispensed by pharmacies.

When the negotiated price paid to network pharmacies is less than the price paid by health plans for prescription drugs, PBMs retain the difference, or the "spread" as profit. When the net price is more than the price paid by the client, PBMs must assume the risk and pay the difference.

The companies contend the pricing model protects insurers from risk. Whether negotiations with pharmacies deliver a higher or lower prescription drug discount than originally agreed upon, clients' costs stay the same.

However, the Centers for Medicare and Medicaid Services has said it is concerned that PBMs' use of "spread pricing is inflating prescription drug costs that are borne by beneficiaries and by taxpayers." A 2020 analysis by the Congressional Budget Office estimates that prohibiting the use of spread pricing contracts just in Medicaid alone would save $929 million over 10 years.

The proposed legislation also prohibits PBMs from paying affiliated pharmacies more than independent community pharmacies for the same services. And it bans patient steering, which occurs when a PBM encourages or requires patients to use its affiliated pharmacies instead of a pharmacy that is most convenient for the patient.

PBMs argue they are effectively reducing drug prices and negotiating the best prices they can for clients.

Grassley pushes measure protecting access to rural pharmacies

Iowa GOP U.S. Sen. Chuck Grassley has been a driving force in Congress passing and pushing forward legislation to increase drug-pricing transparency and hold pharmacy benefit managers accountable for practices that drive up prescription drug costs.

The Senate Finance Committee this week adopted an amendment by Grassley to attempt to preserve rural pharmacies in advance of direct and indirect Medicare clawbacks starting Jan. 1. The amendment requires the Department of Health and Human Services to report to Congress the effects of the changes in Medicare Part D.

Grassley has long advocated for ending the clawbacks — fees derived from prescription drug prices that pharmacy benefit managers retroactively recoup from pharmacies. The practice poses uncertainty for pharmacies, which are forced to pay the fees to PBMs well after medication transactions are completed. It also forces seniors to pay more than they need to for their prescriptions.

For months, Grassley has urged CMS to address cash-flow challenges and financial strains hitting rural pharmacies by encouraging interim payment plans between PBMs and pharmacies.

The Grassley amendment calls for actionable plans in place to preserve patients' access to local pharmacies — particularly those in rural areas.

Brown said pharmacies played a critical piece in the health care infrastructure.

"If a pharmacy closes in a rural community, other providers often leave because they no longer have access to the medications they need to do their jobs," Brown said, contributing to health care deserts.

Pharmacy deserts in Iowa

Mike Deninger is a co-owner and pharmacist at Towncrest Pharmacy. The group collectively owns eight community pharmacies in Iowa City, Solon, Van Horne, Marengo, Belle Plaine and New Hampton.

"The biggest issue that people don't understand is that we don't decide what we're paid in pharmacy," Deninger said.

Independent pharmacies like his rely on pharmacy benefit managers so that they can take various insurance plans, but those companies also decide how much money the pharmacists receive when reimbursing them.

"They will pay us whatever they feel like paying us, and it can change at any given time," he said.

The payouts often are not enough to cover the cost of the drugs, so the pharmacy loses money when filling many common, brand-name prescriptions — forcing them to rely on other services like health screenings, immunizations, consultations and long-term care to keep business operating.

Deninger said his business partner recently met with Grassley's office and CMS to work on these issues.

"We have to talk about rural deserts of pharmacy access," he said. "I've got a pharmacy in New Hampton. They're the only pharmacy in the county," and in others the nearest is 10 to 15 miles away in many cases.

And it's not just in rural areas where pharmacies are closings.

Rite Aid, one of the country's largest pharmacy chains, filed for bankruptcy last month. CVS and Walgreens have also been closing stores nationally, and pharmacists and pharmacy technicians have walked off the job in protest over what they call inadequate staffing and increasing work requirements.

"Access to pharmacies is in jeopardy nationally, and we're coming to a breaking point in pharmacy where you're going to see some significant problems and hard decisions being made," Deninger said.

That includes deciding whether to close more stores and/or drop costly brand-name drugs, creating "a desert to access to certain drugs."

Deninger said the proposed restrictions on PBMs included in the bill sponsored by Miller-Meeks was "a good start."

"I can't say it will fix all of the problems, but it would fix some of the bigger problems — assuming it can get passed and implemented" before more pharmacies are forced to close.