PBMs are big business. Very big business. Through a combination of monopoly and muscle, they have established themselves as the central finance coordinators over a dizzyingly complex drug market.

A 2015 report from the U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law found that the top three PBMs — Express Scripts, CVS Caremark and OptumRX of UnitedHealth Group — controlled 78 percent of the market, collecting $200 billion a year to cover 290 million enrollees.

Meanwhile, the mom and pop pharmacies that depend on these PBMs to channel money from the rest of the health care market are mice in comparison to these mammoths. The vast disparity in power manifests itself through lopsided contracts, leading independent pharmacists in Maryville and across the country to take a dim view of PBMs.

“They make money off my back and the backs of my employees,” said Phil LaFoy of Blount Discount. “They’re crooked,” said Jeremy Long, a pharmacist who previously worked at City Drug. “Nothing other than a scam,” said Mac Wilhoit of Lowe’s Drugs.

The financial pressure exerted on these small businesses is felt across the state. Tennessee Pharmacists Association Executive Director Micah Cost said his organization has observed a “systematic reduction” of reimbursements from PBMs to independent pharmacies. As a result, many are shuttering their doors, he said. “No one can sit there and take losses on medications like that.”

And nationwide, more than 16 percent of independently owned rural pharmacies closed between 2003-18, according to a policy brief published in July by the Center for Rural Health Policy Analysis at the University of Iowa.

In Blount County, no reimbursements have dropped so hard and so fast as those offered by CVS Caremark through its contract with the county government. Even other local employers that use CVS Caremark for their employee health plans, such as DENSO, have not seen cuts that dramatic.

LaFoy, the head pharmacist at Blount Discount, compiled a spreadsheet of those reimbursements.

From July 2017 to July 2018, his three pharmacy stores filled 13,787 prescriptions for the Blount County government’s health plan. That represents almost a quarter of all prescription fills for Blount County employees, as projected in a 2016 market analysis from Employer’s Health, the intermediary firm that brokered the contract between the county and CVS Caremark.

And although CVS Caremark is supposed to reimburse the pharmacy for the cost of those prescription fills (both buying the drug and the labor involved), more often than not those payments fell far short.

As a result, LaFoy lost more than $150,000 in a 12-month period from 2017 to 2018, he told Blount County commissioners in a special called meeting over the summer. (The meeting, which was attended by local state Reps. Bob Ramsey and Jerome Moon, ultimately saw no action).

Pharmacists at City Drug and Lowe’s Drugs, the other two independent pharmacies in town, also report losing money from the county’s health plan over the past year — creating an arrangement in which these independent pharmacies effectively subsidize drug costs for the county government.

CVS spokeswoman Christine Cramer said the company considers independent pharmacies as important partners in giving members of CVS Caremark-sponsored health plans convenient access to medications. She said independent pharmacies account for about 40 percent of pharmacies in the network, and that the number has grown by more than 2,000 locations, while the number of chain retail pharmacies in the network has stayed “relatively flat.”

She added in an email: “We provide fair reimbursement to all of the pharmacies in our PBM network and we reimburse independent pharmacies at a higher rate on average than the chain pharmacies in our network, including CVS Pharmacy. Pricing is adjusted up or down regularly based on market factors and, in fact, our pharmacy reimbursement has gone up on more than 1,800 drugs this year alone as market factors change.”

The downward zigzag

Reimbursement rates are not set in stone. The rate for a given drug changes from day to day and store to store. PBMs are under no obligation to explain dramatic shifts in rates — even when, as state investigators allege in Arkansas, they are found to disproportionately favor CVS’s own retail stores.

The seemingly arbitrary nature of these zigzagging rates is a source of ire for many independent pharmacists.

Joe Paduda, the director of a trade group of small PBMs for workers’ compensation programs, says PBMs have as many ways to come up with reimbursements rates as there are “grains of sand on the beach.”

That can, and does, include padding profit lines.

“Quite frankly, in other business relationships, it would never even come up, but because PBMs do have significant buying power, they can force pharmacies to sign contracts that have things like MAC (maximum allowable cost) rates in them,” he said, referring to a contracted cap on reimbursements.

LaFoy calls it a blind contract. “There’s a certain amount of faith that a PBM will treat us fairly,” he said.

Proponents point to changing market conditions, which are sometimes rapid, as the cause of these fluctuations. A pharmacist might buy a bulk quantity of an expensive drug in January, but by the time they use the supply to fill prescriptions that summer, its price has dropped — and with it, the reimbursement rate offered by the PBM.

“Something as simple as a hurricane hitting the East Coast can change a drug cost,” said Mike Zacarelli, a pharmacist with CBIZ, the brokerage firm employed by Blount County. He adds that rates also often increase for pharmacists, giving extra returns.

Critics say the downward zigzag of reimbursement rates is not the only game PBMs play.

Many pharmacists also decry what they call “clawback fees.” The PBM, after it reimburses the pharmacy, may collect money through various fees (an umbrella term is direct and indirect remuneration, or DIR fees). The fees can be based on multiple factors, from after-sale manufacturer rebates to random audits of paperwork.

Some of the mistakes they look for include marking a “twice-a-day” prescription as “once every 12 hours.” Pharmacists say these performance metrics are unpredictable.

Long says he has seen pharmacy losses from DIR fees of up to $4,500 for a single patient’s supply of Insulin over a year due to minor clerical errors. These inquiries can reach back through seven years of records to find mistakes.

So why do pharmacists continue to sign these contracts? In principle, a pharmacy could withdraw from a PBM’s network. But doing so effectively would mean pulling out of the market entirely. “I’d be telling half my customers to stick it,” Long said in August.

“If the patients were allowed to see what’s going on, the whole industry would be turned upside down,” he said.

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(1) comment


Until the Commission and the Mayor get serious about providing a quality health insurance product for members instead of focusing on control of the fund nothing will change. As a commissioner I tried more than once to get the commission and Mayor to have the finance department issue a RFQ to determine if there was another broker that could offer employees something other than quadruple out of pocket expenses and tripling of premiums. Blount Memorial did it and is saving a LOT of money without CVS. Why does the Mayor and the HR Committee not at least look at other ways to deal with the health insurance issue rather than continuing to hammer employeea and taxpayers.

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