Stifling Pharmacy Competition for Consumers

Today an uneven playing field shortchanges local pharmacists and denies patients and health plans the benefits of true pharmacy competition. Small business community pharmacies receive one-sided, take-it-or-leave-it contracts from major corporations like PBMs. The independent pharmacist may be forced to either dispense drugs at a financial loss or lose access to many longtime patients. Current antitrust laws prevent independent pharmacies from collectively negotiating contracts, as opposed to large pharmacy chains with greater leverage.

"Right now, if I say 'I'd like to negotiate,' the PBM will tell me the customers under their plan can go to the Walgreens down the street," Holly Whitcomb Henry, RPh, owner of Rxtra Care pharmacy in Seattle and past president of NCPA told Brian Caswell, of Wolkar Drug in Baxter Springs, Kan. added, "The contracts have become egregious, with 15 to 20 pages of legal documents and red tape that we can't understand. As the PBM industry has shrunk to a handful of companies, they take more and more and give us less and less."

Some common, controversial PBM contract provisions include:

  • Low reimbursement that fails to cover pharmacy costs and overhead, such as through "maximum allowable cost" or MAC provisions.
    • It is increasingly common under PBM contracts for community pharmacies to have to dispense some drugs at a financial loss. Sometimes this occurs through the imposition of a Maximum Allowable Cost, or MAC, which acts as a cap on pharmacy reimbursement. Pharmacists are asked to sign PBM contracts without basic information about how MAC-based reimbursement rates are determined and updated. For example, PBMs often lower those MACs arbitrarily or swiftly when drug costs go down but raise MACs belatedly when drug costs increase.
  • Restricted pharmacy networks that reduce patient choice.
    • Some patients are limited from accessing their pharmacy of choice or are financially punished for having their prescription filled at a community pharmacy rather than a "preferred pharmacy," such as one owned by their health plan's pharmacy benefit manager, in particular a mail order facility. The local, community pharmacy is rarely, if ever, offered an opportunity to match or beat the price in order to remain "in the network" with the same access to those patients.
  • Provisions that allegedly allow PBMs to increase their profits by redefining brand-name drugs as generic drugs and vice versa.
    • PBMs can reap huge brand drug rebates by manipulating brand and generic drug definitions. For example, in its long-running, 2011-2012 dispute with pharmacy chain Walgreens, PBM Express Scripts reportedly sought the right to unilaterally change the definition of "brands" and "generics." (the two parties have since agreed to terms.) Such contracting schemes can further increase PBM windfall profits. In addition, the practice can greatly impact community pharmacy reimbursement as PBM contracts may pay pharmacies less for one drug than the other.

      Experts believe that this practice is very widespread and represents several percentage points in undisclosed PBM revenues, costing payers tens of millions of dollars annually.

      As Linda Cahn of Pharmacy Benefit Consultants writes in Managed Care, "...when it is in PBMs' interests to classify more drugs as generics, they magically recharacterize the drugs as generics. For example, PBMs wanting to make their generic substitution rate appear greater reclassify drugs that they invoiced as brands as generics when calculating the number of generic drugs dispensed. Similarly, if a contract calls for a PBM to pay a specified rebate 'per brand drug claim,' it can reclassify drugs that were invoiced as brands as generics for the purpose of calculating rebates..."

  • Egregious audit practices that harshly penalize pharmacies over minor technicalities.
    • While legitimate oversight efforts are warranted, the pharmacy audits often set forth in contracts with PBMs and health plans have gone well beyond their intended purpose. Rather than concentrating on true fraud, audits often punish pharmacies severely for trivial issues (e.g., a busy physician misspelling a patient's name or writing the incorrect date).

      PBMs can retain a significant or all "recoveries" from PBM-conducted retail pharmacy audits. The revenue and profit stream from pharmacy audits is not always shared. For more, read "Community Pharmacists Describe PBM Audit and Reimbursement Practices That Undermine Patient Care, Local Jobs."

  • Delaying reimbursement of pharmacy claims to generate additional PBM revenue.
    • PBMs sometimes delay reimbursement payments to pharmacies, sometimes referred to as the "float," in order to generate interest income with those funds.

      For example, during implementation of the Medicare Part D prescription drug benefit in 2005-2006, independent community pharmacists spent countless, uncompensated hours helping millions of seniors resolve problems utilizing their new prescription drug benefit. Even as pharmacists were helping these seniors, they reported having to wait many weeks for reimbursement for their prescription drug and dispensing costs from the sponsors of the Medicare Part D plans, mainly the major pharmacy benefit managers or PBMs. As a result, during this period hundreds of community pharmacies closed.

      Recognizing this, Congress enacted a bipartisan provision in 2008 to require timely, 14-day reimbursement by Part D plans to keep locally owned pharmacies whole. However, many pharmacists allege that the practice continues today in other health plans.

  • "Gag clauses" intended to prevent pharmacists from speaking out.
    • In order to deter community pharmacists from speaking out publicly, or to employers or other health plan sponsors, about unfair contract provisions, many PBM contracts include "gag clauses" that threaten a local pharmacy with termination of that contract should they complain about these practices and others.