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The hidden players putting independent pharmacies out of business

NPR The Pulse

NPR Editor’s note: Many independent pharmacies say their business model is threatened by pharmacy benefit managers. To see the impact on one business, reporter Liz Tung interviewed a pharmacist over the course of many months to better understand the issues facing him. In the end, he said he wanted to share what happened to him, but only under the condition of anonymity — he was afraid of backlash from PBMs. We have verified and fact-checked his story, and decided to tell it without using his real name. We’re calling him Bill.

The story of how Bill opened his own pharmacy is about as small-town wholesome as it gets. He first got interested while working at one in high school. And from the beginning, it just felt like a good fit.

“I felt like I wanted to go into health care, and wanted to be able to help patients,” he said. “But I didn’t want to go through a medical school or be a nurse, and I thought that pharmacy would be a good choice for me. The chemistry interested me, and of course the patient interaction was always a good thing as well.”

So Bill went to pharmacy school, and spent the next decade or so working for someone else. Finally, around 15 years ago, he worked up the nerve to open his own business.

“It’s something I’ve always wanted to do — I just never had the gumption,” Bill said. “It’s probably the best decision I made.”

It seemed like a good move. Shortly after opening his own pharmacy, the shop he’d worked at previously shut down, and Bill inherited many of his old customers. “The money wasn’t great, but it was decent.”

Like a lot of community pharmacies, Bill’s business offered personal service — they knew their patients by name, would call them on their birthdays, and even deliver prescriptions right to their doors.

Trouble begins — enter PBMs

It’s hard to pinpoint when exactly things started going south. Bill estimates it was around 2013 when business earnings began to fall.

“There was a drastic decline,” Bill said. After a slight recovery, the pharmacy’s income continued into steady decline.

Bill said the majority of the pharmacy’s earnings come from reimbursements — the money it gets for dispensing prescriptions.

Reimbursements are a lot of pharmacies’ bread and butter, which has become a problem in recent years because pharmacy benefit managers, or PBMs, play a major role in how they work.

PBMs arose in the late 1960s to help insurance companies process prescription claims. Before that, patients had to mail their own prescription claims to their insurance companies and wait to get reimbursed.

With PBMs, the process was streamlined and digitized, easing the burden on insurance companies, and becoming an important link between pharmacies and health plans.

Over the coming years, PBMs’ responsibilities expanded to include reimbursements — the money health plans pay pharmacies to reimburse them for the cost of the medications they dispense. Insurance companies empowered PBMs not only to pay pharmacies, but to decide how much money they should receive.

The problem, pharmacies say, is that over the years, reimbursements have been shrinking, to the point that some aren’t even receiving enough to cover the original cost of the drugs they buy.

What PBMs bring to the table

Pharmacy benefit managers can do this for a few reasons. For one thing, there’s a huge amount of secrecy that surrounds how they operate. The details of the contracts they write, of the formulas they use to calculate reimbursements, are often insanely complicated — or hidden, or both. And that leads to situations such as pharmacies actually losing money on prescriptions they dispense.

Another reason PBMs can get away with lowering reimbursements is that pharmacies need them. Three PBMs control around 75% of the market, so if pharmacies want access to all those customers, they have to accept the PBMs’ terms.

PBMs, however, say they’re justified by their role in the health care world — lowing costs. Continue Reading


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