NC independent pharmacies are folding as prescription prices soar. So where’s the money?

Like most independent pharmacists across North Carolina, Kevin Layne has struggled to keep his business afloat.

Layne has owned and operated Layne’s Family Pharmacy in Rockingham County with his twin brother, Keith, since 2001. At their peak, they had 70 workers. That number has dropped to 25.

But the pharmacy is bustling. There are hundreds of bins with prescriptions that need to be filled, and the Laynes file through them like a well-oiled machine.

“We have business, but what we don’t have is profitable business,” Layne said.

If business continues to decline, he worries he will join the ranks of independent pharmacies that have been forced to furlough their workers and eventually close their doors. Two pharmacies in his county closed in August.

Since January 2022, 100 community pharmacies in North Carolina have closed. Nationally, 300 independent pharmacies closed last year alone, according to the National Community Pharmacy Association (NCPA), which represents independent community pharmacies.

“Nearly a third of independent pharmacy owners may close their stores this year,” Douglas Hoey, CEO of the NCPA, said in a news release in February.

Why are independent pharmacists struggling across the country?

“Plunging prescription reimbursements by big insurance plans and their pharmacy benefit managers,” said Hoey. “This is an emergency.”

He warns that if these closures continue, “millions of patients could be stranded without a pharmacy.”

The so-called pharmacy deserts these closures create disproportionately affect rural areas and people of marginalized groups, meaning it is not just an access problem, but also an equity one.

What is a pharmacy benefit manager?

Many people have never heard of pharmacy benefit managers, known as PBMs. But nearly everyone is affected by them.

Rep. Wayne Sasser, R-Montgomery, is a retired pharmacist and one of the sponsors of a bill in the NC General Assembly to regulate pharmacy benefit managers. According to Sasser, PBMs “hide way in the weeds of what’s actually going on. … They’re manipulating everybody.”

PBMs were created and contracted by insurance companies in the late 1960s, to help insurance companies process claims for medications.

Sasser said PBMs soon expanded their role to make additional money. They started negotiating directly with drug manufacturers. Now PBMs determine which medications your insurance covers and how much you and your insurance plan pay for that medication.

A PBM might tell a drug manufacturer, for example, that if the manufacturer pays the PBM $300 each time a particular drug is prescribed, the PBM will place the drug on its list of drugs the insurance company will cover — its formulary. That $300 comes as a rebate — some portion of the manufacturer’s list price for the drug.

What do PBMs do with the $300?

PBMs argue that their negotiations with manufacturers keep drug prices and insurance premiums down because a portion of these rebates are passed on to health plans paying for the drug.

This is why the Pharmaceutical Care Management Association (PCMA), the national association representing PBMs, believes that legislation limiting their ability to negotiate lower drug costs for Medicare Part D patients through rebates would “increase premiums 25% and cost taxpayers $170 billion.”

Connor Rose, senior director of state affairs at PCMA, responded to a request for comment by saying that “pharmacists are trying to increase the price of prescriptions” through Sasser’s bill, which would make rebates more transparent and reimburse pharmacies more fairly.

Since PBMs report these rebates to the health insurance company in aggregate for all drugs they cover, it is unclear what rebate the PBM is negotiating for each drug. The health plan can also be in the dark about whether the money it receives from a PBM is actually less than the amount the PBM received from the manufacturer.

Recent lawsuits show that this may be the case. In July, CVS Caremark agreed to pay the state of Illinois $45 million to settle allegations that the PBM did not pass rebates along to the state.

That’s why Sasser sees the $300 the drug manufacturer pays to the PBM as a “bribe” and not a rebate.

Regulators are beginning to look at PBMs

PBM practices have caught the attention of the Federal Trade Commission and the House Committee on Oversight and Accountability. The committee has been investigating PBMs and their role in rising health care costs for over a year. And an FTC report found that the three largest PBMs — OptumRx, CVS Caremark and Express Scripts — manage 80% of all prescriptions filled in the U.S.

These companies are also vertically integrated, meaning the PBM is owned by or closely associated with an insurance company and a network of its pharmacies. CVS Health, for example, owns both CVS Caremark, which is a PBM, and the insurance company Aetna.

Why did large insurance companies start integrating with PBMs? They “found out how they could make more money in the PBM business than they could make in the health insurance business,” said Sasser.

CVS Health’s Health Services division, which includes CVS Caremark, had a total revenue of $186.8 billion in 2023. UnitedHealth Group’s Optum, which includes OptumRx, had a total revenue of $226.6 billion. Cigna Group’s Evernorth, which includes Express Scripts, had a total revenue of $153.5 billion. All three companies are in the top 25 of the Fortune 500 list of largest U.S. companies. CVS Health and United Health Group are in the top 10.

“Pharmacists who care for patients every day versus $100-plus billion PBM corporations who never touch a medication — which has patients’ interests in mind?” asked Penny Shelton, executive director of the NC Association of Pharmacists, which represents pharmacies.

Sasser agrees. PBMs are “just a cash cow, and they have no liability,” he said. “They can’t lose.”

CVS Caremark, CVS Health and Evernorth did not respond to requests for comment. Optum referred a reporter to the PCMA.

Independent pharmacies driven into the red

Shelton said pharmacist complaints about PBM practices can be boiled down to two categories — insufficient reimbursement and steering customers toward the PBM’s own pharmacies.

“Most people do not realize that pharmacies have no say in what they are paid for the prescription medications they dispense,” said Shelton.

Wesley Hickman, owner of Hickman’s Pharmacy in Leland in Brunswick County, said, “Our dispensing fees have gone down to zero in some cases, and that is untenable because you’re just being paid based off the cost of the drug, not the service you provide.”

The dispensing fee helps keep the lights on, cover pharmacist salaries, and pay for bottles used to dispense prescriptions.

Layne said that for some medications, PBMs pay his pharmacy up to $200 less than the cost of the drug.

When this happens, Layne said, some pharmacists will just tell customers, “‘Oh, we’re out of that.’ And that’s not always true.” He said what pharmacists often can’t tell people is “your insurance will not pay me enough to reorder the drug to have it on my shelf.”

Pharmacists the N&O spoke to attributed the need to lie to customers to gag clauses in their contracts with PBMs that prevent them from discussing how a drug is priced.

Some pharmacists continue to dispense drugs like Eliquis, which is used to prevent blood clots and strokes, because although they lose money dispensing it, Eliquis is a life-saving medication.

Layne said their policy now, “so that we can be honest with our customers,” is that they don’t stock most brand name drugs anymore. “We can’t afford it.”

PBMs find ways to favor their own pharmacies

Not all pharmacies are affected equally. The FTC report included case studies of PBMs with affiliated pharmacies, like CVS pharmacies and CVS Caremark, reimbursing their own pharmacies at much higher rates than unaffiliated pharmacies for the same drug.

PBMs also steer customers away from community pharmacies and toward their own brick-and-mortar or mail-order businesses. They do this in a variety of ways — refusing to allow unaffiliated pharmacies to dispense high-dollar “specialty” drugs, for example, or reducing co-pays if patients visit one of their own pharmacies or receive their medication through the PBM’s affiliated mail-order pharmacy.

Hickman said one PBM offered him a contract that would reimburse him “less than what I pay for the drug.” He said he declined the contract but told the PBM he was open to negotiation. He never heard back and only found out there would be no negotiations when patients began to write to him with complaints.

“We had about three patients come in today that we are no longer going to be in-network with that were very upset about it,” Hickman said. “They didn’t want to go to a chain pharmacy.”

Sasser notes that it is illegal in North Carolina for PBMs to force patients to go to their own affiliated pharmacies. The problem, he said, is that “we don’t have anybody in charge of enforcing that legislation.”

The benefits of a local touch

Sen. Gale Adcock, D-Wake County, empathizes with local independent pharmacies. She said when pharmacies start closing because of PBM practices, “Our citizens in rural communities have even less access to care. That is not right, and it’s scary to me.”

According to local pharmacists, it’s more than access to health care that’s affected. It’s also quality.

“Anybody can slap a label on a bottle of pills,” said Layne. “But do they know that you’re allergic to a certain dye or shellfish?”

What’s unique about local independent pharmacies, Layne said, is that they serve the communities they are a part of.

“These are my neighbors,” he said. “I care about them, and I’m sorry — you don’t get that through a lot of the chains, and you certainly don’t get it through mail-order.”

Another concern with mail-order pharmacies, Hickman pointed out, is that many drugs are protein-based, and “if you expose proteins to a high enough temperature, they become denatured.” This means the protein can no longer function properly.

Hickman said, “They’re gonna have to call back and get a new drug sent to them, when they can just walk in, and I can go open my fridge, and I can put a label on it and then sell it to them.” A New York Times article recently highlighted how hot summers could reduce the efficacy of medications delivered through the mail.

For Hickman, having customers tell him about being forced to go elsewhere made for a hard day, particularly because his son was with him. “You’re told this story of the American dream, that if you work hard enough … you’ll get ahead in this country. And I don’t see that future for him if we don’t fix this.”

House Bill 246 — leveling the playing field?

With Congress and the FTC attempting to rein in PBMs, Rep. Sasser drafted House Bill 246 to address some of the issues that independent pharmacists face in North Carolina.

On April 27, 2023, the bill passed unanimously in the House and was passed on to the Senate. On May 1, 2023, the bill was referred to the Senate Rules Committee. Over a year later, it’s still there.

Sen. Bill Rabon, chair of the Senate Rules Committee, did not respond to a request for comment.

According to Sasser, the bill seeks to ensure pharmacies are reimbursed fairly. PBMs would have to reimburse pharmacists at least the “national average drug acquisition cost” (NADAC), which is calculated based on surveys of how much pharmacies spend to acquire a drug, plus a dispensing fee.

And it would require PBMs to be transparent about the rebates they receive from manufacturers to place a drug on a health plan’s list of covered drugs. They also would have to report how much of this rebate they keep.

Hickman argues that transparency is essential to understanding why pharmacies are struggling. If “one person could see it all,” he said, “I think it would become very clear where the issue is.”

PBMs insist on keeping pricing and rebate information secret. In 2023, when the NC State Health Plan was looking into the cost of GLP-1 weight loss drugs, The N&O reported, the state treasurer published a chart that included the amount of the rebate the health plan was receiving from its PBM, CVS Caremark. The treasurer’s office had to estimate the rebate based on how much the state spent on the drug overall, because the treasurer does not have access to the actual amount of the rebate.

And even though it was just an estimate, the plan had to quickly take down the chart and post a revised version, with the estimates redacted. It said it did so in response to pressure from the PBM.

Two months later, when the health plan board imposed a moratorium on new prescriptions for the weight loss drug until it could address the cost, CVS Caremark notified the plan that it was in violation of its contract and would lose its rebate going forward. Sam Watts, the State Health Plan director, said losing the rebate would cost the state $54 million.

Another component of HB 246 would allow pharmacies with the appropriate accreditation to stock specialty drugs, which are often high-dollar drugs defined by PBMs as “specialty” because they treat complex conditions. This would free patients from having to go to the PBMs’ own specialty pharmacies.

Lastly, the bill seeks to protect health plans by eliminating “spread pricing” — charging the health plan more for a drug than the PBM pays the pharmacy, and pocketing the difference.

The Congressional Budget Office estimates that eliminating spread pricing and increasing transparency could save state Medicaid offices and taxpayers an estimated $1.1 billion over the next decade.

Sasser says the bill is not intended to “pick on PBMs.”

“The rest of the industry is regulated where the consumer is taken care of,” he said. “So that’s what we want to happen with pharmacy benefit managers.”

According to Shelton, the head of the pharmacy association, “Members and leadership within our association have met with the majority of NC senators. We know we have bipartisan support for HB 246.”

Independent pharmacists wonder, then, why the bill has not been heard on the floor of the Senate.

Some point the finger at Republican Senate leader Phil Berger, who along with Rules Chair Rabon decides what bills move through the committee and to the floor for a vote. Sasser said the “only thing I’ve been told is that (Berger) says the bill’s not coming to the Senate floor.”

Randy Brechbiel, a spokesperson for Berger, said the bill “inserts the legislature into regulating the free market and passes costs onto consumers and insurance premiums.”

Adcock said that claim is a “false narrative.”

“I’ve seen no data that indicates this will in any way cost either patients or employers or insurers more money,” Adcock said. “You can say anything, but you need to back it up with evidence.”

Layne and other independent pharmacists spoke with Berger about the issue, to limited avail.

“I know Phil, I know his wife, I know his children, I know his grandchildren,” Layne said. “We’ve been their pharmacist for decades.”

“I think Phil is a good man,” he said. “I’ve always had a lot of respect for him, but it’s perplexing to us why we can’t do something on the state level to make it better, and that’s what I would like to see.”

“Could the bill be better?” he asked. “I don’t know. Maybe so, but that’s what the representatives and senators are for.”

“We need help,” said Layne. “The way it is now, we’re on a downhill slide with no end in sight. I wonder if the PBMs will be happy until all of the independents are out of business.”

NC Reality Check is an N&O series holding those in power accountable and shining a light on public issues that affect the Triangle or North Carolina. Have a suggestion for a future story? Email [email protected]

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