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IPMD: Taking Action

PBMs are considered the “middlemen” of the pharmacy industry. Initially, they were formed to help reduce the cost of prescription drugs, BUT through anti-competitive practices, they are now a multi-billion dollar industry that answers only to their shareholders and has become one of the major contributors to rising drug prices. Federal and state legislators on both sides of the aisle have spoken out against them!

PBMs make money in many ways, some are straight forward BUT many are non-transparent. These unfair practices, some of which are listed below, are hard to prove because PBMs are unregulated and protected by contract laws.


However, litigation along with legislative initiatives are underway around the country to change this….

Non-transparent PBM practices include:

  • Taking fees from health plan sponsors (such as Blue Cross, Blue Shield, or the state) to manage covered medication lists or formularies.

  • Earning commissions on rebates they negotiate with pharmaceutical manufacturers. PBMs promote higher-priced drugs to benefit from these commissions – this is typically done by switching drugs in and out of a formulary from one year to another. For example, they may cover a specific brand of test strips for one year and then switch to another company the next year if they get a better rebate.  There is no disclosure

  • Charging fees to pharmacies for transmitting claims to insurance companies, similar to a bank charging a merchant for credit card transactions. However, in this case, the PBM charges even when transactions fail, if they send a message saying a drug needs authorization, the patient gives the wrong ID card…each transaction can be charged anywhere from $0.07-0.25. These charges add up pretty quickly, especially when pharmacy only makes a few pennies on most generic drugs.


Anti-competitive PBM practices include:

Spread PricingPBMs get a certain amount for each medication from health plan sponsors, however, they reimburse pharmacies at a lower rate and retain the difference between what they are paid and what they pay the pharmacy.  It is estimated that PBMs earn at least 30% in spread pricing.  What this means is that if a health plan sponsor pays $10 for a drug, PBM’s keep $3 and give pharmacy $7.  This may seem generous but in many cases, the cost of the drug is higher than $7 so the pharmacy actually loses money by filling the prescription. Sounds ridiculous right? But it is the reality. In the past few years, this practice has led to many independent pharmacies closing their doors.

Narrow Networks or Mandatory Mail Order: PBMs inform health plan sponsors that if they narrow the network of pharmacies a patient can fill prescriptions (basically restrict patient choice) then the health sponsor will save X percent in prescription spending, thereby reducing their overall health costs. This forces patients to fill prescriptions at PBM-owned pharmacies (at the retail level or through mail order) and boost their own profits.

Complicated Pharmacy Reimbursement Models:  PBMs will reimburse pharmacies in their network according to various reimbursement models.  The most current model that has been adopted by 2 of the 3 largest PBMs is GER.  GER or generic effective rate is the rate that PBMs will pay pharmacies for drugs they dispense generic medications.  GER rate is calculated by using AWP (average wholesale price) – X% of AWP (in this case X = 82).  This pricing model is used to determine how generic drugs are reimbursed.  For example, if a pharmacy dispenses a generic medication with an AWP of $50, they will be paid $50 – 82% of $50 or $50-41 = $9.  Thus, the pharmacy is reimbursed $9.  Now in most cases, the pharmacy will lose money because the cost of the medication is generally higher than the reimbursement.  The GER rate is arbitrarily set by PBMs and is used as another tool to squeeze out the independent pharmacies.

Maximum allowable cost (MAC):  These pricing lists are determined by the PBMs and used to reimburse pharmacies.  The supposed cost savings achieved by this practice are not passed to health plan sponsors and they difference is pocketed by the PBMs. Health plan sponsors cannot fight this practice because MAC lists are considered proprietary and PBMs will not share data of actual price paid to pharmacy versus what they bill to health plan sponsors.

Pharmacy Clawbacks: Pharmacy clawbacks are the practice of charging a patient higher copays then clawing back or taking the money from the pharmacy that filled the prescription.  When this happens both the patient and the pharmacy loses – the patient not only pays a high copay but also their monthly premium for their pharmacy benefits, and the pharmacy loses because when the PBM takes back money, it essentially pays pharmacies below cost for medications. Hopefully pending litigation will help stop this practice.

The Big Picture

Three PBMs control 85% of the market, thereby controlling the structure of contracts.  Independent pharmacies have no choice but to accept the contracts as written, otherwise they cannot participate in the network and thereby cannot process prescriptions for the majority of their patients.

If PBMs are allowed to be unregulated and continue with their anticompetitive practices, there will be no more independent pharmacies left.  Patients will have to go to their local corporate pharmacy where their pharmacists won’t even have time to talk to them about their medications or answer questions because of working environments within these corporate giants whose main goal is to make a profit.

Having a positive impact on someone’s health is the most fulfilling aspect of Pharmacy.  As such, independent pharmacists are making a choice to struggle financially but be a valuable part of the healthcare team and an essential part of our communities. We hope that you will fight with us, so we can continue to survive and hopefully thrive and be there for our patients.

Help us make a stronger, healthier Maryland!! 

Subscribe to our Email List or contact your state legislator to ask for PBM transparency and regulation. 
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