Local pharmacies feeling the pinch

Local pharmacists are questioning how long their pharmacies can remain viable due to what they allege are unfair business practices by the companies that set reimbursement rates for prescription drugs.

The pharmacists say their issues focus on Pharmacy Benefits Managers, who bridge the gaps between insurance companies, wholesalers, and pharmacists, and set repayment schedules for prescriptions.

Pharmacists said they are also struggling with clawbacks that occur on the Medicare side of prescription fulfillment that can be taken from their checks months after a drug has been sold, leaving pharmacists with no real idea of what the actual reimbursement will be when dispensing a medication. These clawbacks are known as direct and indirect remuneration, or DIR, fees, and are set by the PBMs with what the pharmacists say are little to no transparency.

This three-part series looks at how pharmacy reimbursements have changed over the past two decades, and the effect those changes could have on the local landscape.

Today's article focuses on the history of PBMs, and how reimbursements for brand name drugs have changed for commercial insurance plans.

Pharmacy Benefits Managers

PBMs contract with insurance companies to set their formularies, or lists of medications, that can be prescribed. The PBMs decide which medications are included on the lists, the co-pay that will be paid by the patient, and the reimbursement rate given to the distributing pharmacy.

As a result, PBMs can influence which drugs are available to patients, and can steer individuals in the direction of specific drugs by adding them to preferred dispensing lists and setting lower copays for that drug.

Three main PBMs — Express Scripts, CVS Caremark, and Optum Rx — together comprise about 80 percent of the PBM market.

These businesses also own their own mail-in, and in some cases, brick and mortar pharmacies. This raises questions of whether the companies are playing by their own rules for reimbursement and drug dispensing, as well as potential conflict of interest issues, according to pharmacists.

PBMs are billed as cost-saving entities who negotiate for lower prices, including rebates, on medications, with the savings to be passed along to consumers. However, allegations abound that PBMs are actually profiting from business tactics that cost patients more money in the long run.

However, according to contract information provided to this paper, reimbursements have steadily declined over the past 10 years to the point that, on some prescriptions, pharmacists pay more to fill the script than they receive in reimbursements.

"The insurance companies are giving us unfair pricing. We're not getting reimbursed even our cost on drugs, so it's costing us money for people to take their medications," Jennifer Leibfreid, owner of Fisher's Pharmacy in Bedford, explained.

Leibfreid said the reimbursement crisis is "not about getting rich, it's about keeping the doors open."

Express Scripts disputes such claims against PBMs on its website, "Express Scripts, and other PBMs, are essential partners across the drug supply chain — helping clients drive down drug spend, lower consumer out-of-pocket costs, and improve medication access."

The higher costs are attributed to outside factors, such as manufacturers increasing list prices and blocking competition, according to the "Myths and Facts" section of their site.

Brand Name Reimbursements

Reimbursements are set using a formula that dictates what percentage a pharmacy will be reimbursed for specific types of drugs.

A dispensing fee is also supposed to calculated into reimbursement. Pat Lavella, Strategic Pharmacy Initiatives Manager with Value Drug Company, said the average cost for a pharmacy to dispense a drug, including hidden costs such as wages, utilities, pill bottles, etc., is $11-$13 per prescription.

To illustrate how the reimbursements have changed over recent years, Lavella provided historical reimbursement rates with Express Scripts, Inc., on brand name drugs from 2015, through 2023.

Based on the acquisition cost of a $100 prescription, in 2015, pharmacies would have received a reimbursement of around $3 over what they paid, and received a $0.30 dispensing fee.

By 2018, according to the reimbursement rates from Express Scripts, the reimbursement rate was hovering just above the break even point and the dispensing fee had dropped to $0.10.

Based on the papers Lavella provided, the reimbursement rates dipped below profitability in 2019 and have steadily declined. The dispensing fee disappeared in 2020.

For 2023, according to Lavella's information, reimbursements were about $3 less than the pharmacy paid for the $100 drug, Lavella said.

The rates drop even more for a 90-day prescription reimbursement, according to the documents he provided. The same drug would leave a pharmacist repaid $8 under cost, Lavella said.

"Brand name drugs are very expensive," Lavella said.

For 30-day supply of a popular drug thinner, the pharmacy loses $10.84 based on 2022 reimbursement rates. On a 90-day supply of the same drug, the pharmacy will be out $123.68, according to Lavella's calculations.

The patient's copay is subtracted from the cost of reimbursement paid by the PBM, Lavella said.

"It's taken seven years to go from making a little bit of profit, to losing money," Lavella said.

Leibfreid agreed.

"It's getting to the point where we're losing money by providing patient care," Liebfried said.

Lavella said the reimbursement rates for generic medications are so low, they won't offset the hit the pharmacies take on the brand name reimbursements.

"Because of the inexpense of the generic medications, it's very hard to fill enough of those medications to offset the losses from the brand name drugs," Lavella explained.

Many generic drugs are reimbursed in the $2 to $5 range, he said. It takes multiple generic orders to cover the loss on a single brand name drug.

"The math does not work," Lavella said.

Contracts

Opting out of the contract is not a simple solution, Lavella said.

"Both UPMC and Highmark process claims through Express Scripts," Lavella explained. If he refuses to sign the contract, given the prevalence of those insurance providers in this local market, he said he would stand to lose 75-80% of his patients.

"I've basically signed my death certificate," Lavella said.

If a large number of pharmacies do opt out of a particular contract, Lavella explained, the PBMs will argue that more business is being driven to remaining pharmacies, and as a result, PBMs will lower reimbursement rates even more because the pharmacy is "benefitting" from the increased business.

But, Lavella said, when repayments are less than costs, that higher volume empties the coffers even faster, putting the pharmacies at greater risk of insolvency.

"That makes independents lose money faster by filling more prescriptions," Lavella said.

He also questioned the way the PBMs go about making changes and additions to contracts.

According to Lavella, contracts are faxed to pharmacies, and it takes nothing more than receipt of the fax for the PBM to opt the business into the new parameters.

A fax for a Jan. 1, 2023 amendment to the pharmacy provider agreement from Express Scripts notes in its recitals section, "WHEREAS, if Provider does not object to this amendment… then this Amendment will be deemed approved and accepted by Provider as if Provider had given its express written consent thereto, and this Amendment shall automatically become a part of the Agreement."

Also, Lavella asked, "Why do I have to sign a contract with my competitors?

———

Tomorrow's Gazette will examine issues on the Medicare side of drug reimbursements, including an opaque system that results in money being clawed back from pharmacists with little explanation, and how the pricing model can mean higher costs for consumers at the register.