Are PBMs Killing Pharmacies, Hiking Medicaid?

Stoney Creek Pharmacy, Nellysford, VA

A form letter mailed this month announced the death of another local independent pharmacy, this one in the bustling community of Nellysford.  Residents of Nelson County’s Rockfish Valley, including those in the large Wintergreen community, will join plenty of other rural areas in the U.S. without a pharmacy close by. 

“Very few independent pharmacies show a profit now unless they sell CBD oil, still unproven, do compounding or find other niche markets that small populations…cannot support,” wrote pharmacist Bob Ladd, who first owned the business in 1988, got out and then bought it back in 2017 in a last ditch effort to make it viable.  A new Dollar General store nearby was a major blow to his non-prescription sales, he added.

Rising drug costs are a major driver of medical inflation and a source of great consumer anxiety, but apparently are not creating economic health for everyone in the pharmacy industry.  There are many reasons these stores close, but advocates for the pharmacists point to the economic influence of the pharmacy benefit managers (PBMs), who stand between the manufacturers and the insurers, retailers and hospitals.

“…despite originally being created to negotiate lower drug prices for health plans, PBMs today leverage their largely unchecked power by keeping drug prices artificially high to maximize their revenues. That’s because higher list prices can generate higher rebates and more opportunities to pocket the difference. This also serves as a disincentive for PBMs to offer lower-cost drug alternatives even when they are readily available,”  wrote Christina Barrille and Rebecca Snead in a recent column for the Richmond Times-Dispatch.

About the same time the issue was the focus of a 60 Minutes segment on CBS.

Even greater depth is provided by a set of articles last year in Ohio’s The Columbus Dispatch. Just the bullet points on the main page (here) get the gist across.  Don’t think for a minute things are much different in Virginia.

Barrille, executive director of the Virginia Pharmacists Association, gave a recent talk to a conservative policy gathering, with a focus on a failed 2019 bill backed by her group.  House Bill 2223, sponsored by Delegate Israel O’Quinn of Bristol, made it out of the House on a tight 53-46 roll call (here), but went on to die in a Senate committee 11-4 (here.)  There is no partisan pattern to the votes, but they provide some good questions for challengers to raise.  The two pharmacists in office, Delegates Chris Jones and Keith Hodges, were yeas.

The bill’s failure followed a successful 2017 bill which prohibited a common practice in PBM and insurance contracts, a provision preventing pharmacists from telling customers they might save money paying out of pocket.  But this new bill – also part of a national economic struggle – went much further.

According to the legislative staff summary, the 2019 bill allowed customers to avoid a mandate they use mail order and fill orders in a pharmacy instead, prohibited a pharmacy benefit manager from imposing different copays or fees on retail community pharmacies, and prohibited PBMs from charging different drug prices to retail community pharmacies.  The lobbying must have been intense.  We can find out later exactly which organizations opposed the bill.

No, we probably can’t, because Virginia’s lobbying disclosure laws are a travesty.

The Virginia pharmacists may have better luck challenging the hold pharmacy benefits managers have on Virginia’s Medicaid program and the state’s own insurance plan for its employees. Barrille and other advocates are convinced huge additional savings would be achieved if Virginia simply took Medicaid pharmacy benefits away from the PBM system entirely.

New budget language (here, the last three paragraphs in the string) requires an actuarial report by October 1 on the most cost-beneficial method for providing pharmacy benefits, with all the rebates and internal accounting tweaks considered.

The ultimate prize, as is often the case, is doing business with the government. Medicare is a federal problem, but Medicaid is co-managed with the states.  The Centers for Medicare and Medicaid Services just issued new guidelines on tracking and accounting for discounts and rebates when calculating and applying medical loss ratios to managed care programs like PBMs.

Some in the General Assembly have been putting the state’s Medicaid program under similar pressure to be sure all rebates and discounts are passed along to the state.  This new language and the actuarial report it requires lay the groundwork for a major effort at transparency and change during the 2020 General Assembly.

In West Virginia (here), the state took back control of the pharmacy benefits in July 2017, expecting to save $30 million per year.  An analysis released earlier this year indicated that turned into $54 million saved instead, while at the same time the payments to West Virginia pharmacists rose by $122 million.  The taxpayers paid less but the vendors got more with the middle man out of the game, they claim.

Ohio followed in 2018 (here), in part responding to the pressure from The Columbus Dispatch and its 40-plus story newspaper campaign.

In Virginia, the recent decision to expand Medicaid to hundreds of thousands more Virginians could expand the potential benefits from a similar approach.  The Senate Finance Committee was told recently that more than 80,000 new enrollees are now receiving one or more prescriptions.  That is only going to grow.

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7 responses to “Are PBMs Killing Pharmacies, Hiking Medicaid?

  1. By expanding your commentary into PBMs, you are now FLAUNTING your WONK!

    Congrats and thank you.

    PBMs, however they were originally created are now running amok and I do NOT think they are keeping prices down – I think they are doing the opposite if my personal experience is any guide! It’s not just Medicaid or even Medicare -it’s across the board and is affecting a lot more than folks on Medicaid!

    So what also struck me in your commentary was this: ” Barrille, executive director of the Virginia Pharmacists Association, gave a recent talk to a conservative policy gathering, with a focus on a failed 2019 bill backed by her group. ”

    So my question is – is this something that Conservatives believe that the government should be involved in – and if so, how would their approach differ from Progressives – and what would be a sweet-spot for compromise legislation?

    It just sometimes seems to me that Conservatives are caught between not wanting to regulate – and then what happens when it’s not even though they talk a big game about free enterprise and markets…..

    Is this PBM thing more or less a normal, expected “market” dynamic or is there something inherently wrong (like with Dominion)? Have the PBMs essentially turned into monopolies that collude to keep prices up and squash competitors?

  2. It took that Ohio newspaper 40 or more stories to address those good questions, and of course 60 Minutes does deep research on its shows, too. I claim no expertise. I’m not sure this is an issue with a conservative/liberal divide at all, since everybody should be concerned if the true cost of the product, with all the manufacturer’s discounts and rebates, is not passing on to the customer but is instead enriching the middle man. And it is market concentration and integration (the insurer or a major pharmacy chain owning the PBM, too) that make that possible. Isn’t there strong consensus around protecting free markets from monopoly manipulation?

  3. I just have to vent that American business managers tend to be cut-throat profit mentality without adequate social responsibility. Another case in point could be Boeing with the recent 737-MAX issues. Environmental groups feel utilities and manufacturing upper management not giving enough concern to environmental issues.

    To some extent, guilty as charged, and this is all part of the divisiveness crisis we are experiencing in America.

    • I think that all businesses need to follow applicable law and regulations. That includes making required disclosures. If they don’t agree with the rules, it’s often possible to challenge the rules before the administering agency or in court. And, of course, they can lobby to get the laws or rules changed.

      There’s a slippery slope between being a good citizen and becoming political. Making community donations and urging charitable work by employees is generally a good idea. But no business should get to the point where it’s taking political positions. A business that does that is courting anger from people who don’t feel the same way. Why would any business want to push away customers? It’s quite disrespectful IMO.

  4. If I understand correctly, the CVS drug store chain owns one of the biggest Pharmacy Benefit Managers in the country. CVS also recently acquired the Aetna medical insurance company. The purported benefit is that vertical integration will allow all sorts of cost efficiencies, some of which will be passed along to the consumer, as well as the roll-out of new ways of delivering health care services.

    On the one hand, I am wary of increased concentration of power in the health care industry. We have heard the same promise of “efficiencies” and benefits to consumers — broken promises, all — from the hospital/health care systems. On the other, the U.S. health care system desperately needs business-model innovation on the delivery side, and one possible innovation is to move as much health care treatment into the lowest-cost settings possible. If that means more people getting flu shots at CVS stores for $25 than in doctors offices for $100 (or whatever doctors charge), that should be encouraged.

  5. Just FYI – I used to be with Medco and then got switched to CVS – and guess what – everything went up! When my doc tried to switch to lower cost drugs, CVS got involved and tried to stop it and we had to fill the prescription at Walmart for about 1/10th what CVS was trying to charge. Anyone who is now with CVS needs to be paying attention.

    And my original question stands. From a Conservative point of view (we already know what Progressives would do) – but from a Conservative point of view – what is their response to this?

    This is not unlike pre-existing conditions and what Conservatives would do about it – if anything.

    If the GOP wants to win – they have to address these issues forthrightly. A fan dance is not going to do it.

    • Look into Good Rx. I’ve had people tell me some of its vendors have good prices.

      FEP BLUE uses CVS Caremark. For mail order prescriptions (90 days), all prices are the same per category of drug. For some generics, the co-pay at a local pharmacy is often cheaper. Giant’s retail prices tend to be less than CVS’s.

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