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A pharmaceutical middle-man threatens Hampton Roads’ independent pharmacies

Thomas ‘T.W.’ Taylor owns Williamsburg Drug Company, one of the dwindling number of independent pharmacies in the state. He said unpredictable fees, and other factors, could drive him and others out of business. (Photo by Nick McNamara)
Thomas ‘T.W.’ Taylor owns Williamsburg Drug Company, one of the dwindling number of independent pharmacies in the state. He said unpredictable fees, and other factors, could drive him and others out of business. (Photo by Nick McNamara)

 This is part one in a series of stories about pharmacy benefit managers and its impact on Hampton Roads. Read part two HERE.

Behind the counter at Williamsburg Drug Company, owner Thomas ‘T.W.’ Taylor is at work processing the day’s orders, seeing loss after loss. A minus $4.07 here and minus $20.66 there is nothing but a typical day for Taylor. 

“This one will be a good one here - so this [drug] cost us $343.48 and we’re going to lose $3.72,” Taylor said while filling one prescription. “But that’s not the loss, because it costs me $12 to fill it, so I’m really losing $15 on this - or $16.”

Pharmacists receiving reimbursement for prescriptions that fall below their cost of acquisition or just cents above cost is ubiquitous in the industry. They say that is the reality of contending with pharmacy benefit managers, or PBMs.

Taylor said those consolidated PBMs offer take-it-or-leave-it contracts with no room for negotiation, with every challenge to reimbursement for a processed claim coming back denied. 

“They deny all of them, and they do that because they’ll say something like it meets our criteria or whatever they’re going to say,” Taylor said. “They just do whatever they want.”

The reimbursement rate, plus other practices of PBMs, are making the pharmacy business untenable for many independent shops.

“It’s really gotten to be bizarre that we have no control of anything in our own profession,” Taylor said. It’s just, pretty much ridiculous.”

Taylor estimates that 25 years ago Williamsburg was home to around 10 independent storefronts. That now sits at four and two are Williamsburg Drug Company stores.

Data from the National Community Pharmacists Association (NCPA) shows there were 23,106 independent pharmacies in 2011 in the country. In 2021, that number was 19,474.

In Virginia, the number fell from 353 independent pharmacies in 2017 to 282 in 2021.

There are a number of reasons why that number has declined, but PBMs are the latest section of the pharmaceutical supply chain to become a focus for reform.

PBMs are non-patient-facing intermediaries for insurance providers. They negotiate lower prices with drug manufacturers on behalf of insurance providers as well as processing claims from and managing contracts with retail chains and independent pharmacists. 

In practice, this takes the form of seeking rebates off the list price of drugs from manufacturers to reduce costs for insurance companies, of which they receive a portion, as well as determining if and where drugs fall on formulary lists and how much of their cost a provider will cover for policyholders. 

PBMs also set the rate of reimbursement for prescription drugs that insurance companies provide to contracted pharmacies and levy service and performance fees which pharmacists like Taylor say threaten the viability of independent pharmacies.

The sentiment is shared by independent pharmacists across Virginia and the U.S., and has prompted a bipartisan effort to introduce regulations and improve transparency surrounding the practices of pharmacy benefit managers or PBMs. 

The industry has seen significant consolidation over the decades since inception, with three PBMs now covering around 80 percent of the entire market - each owned by a major health insurance company, and some like CVS Caremark under an ownership umbrella that includes their own pharmacies. 

“In recent years these businesses have consolidated into mega-corporations that dominate the market,” said Finance Committee Chair Sen. Ron Wyden (D-OR). “That consolidation has allowed PBMs to adopt tactics and play games with their data that result in higher profits for themselves and higher costs for everybody else.”

Federal lawmakers like Wyden and Virginia U.S. Sen. Mark Warner are working on bills to better regulate PBMs.

The Modernizing and Ensuring PBM Accountability (MEPA) Act progressed through Wyden’s Finance Committee earlier this summer. Senators from both sides of the aisle expressed the importance of taking action, with ranking member Sen. Mike Crapo (R-ID) calling the bill a “blueprint for modernizing federal prescription drug benefits to increase competition and drive down costs.” 

Warner, who is on the finance committee, told WHRO via email the MEPA Act is another avenue to lower the cost of medicines.

“For too long, pharmacy middlemen have moved away from their origins negotiating to bring prices down on behalf of insurers and consumers, and have instead moved toward extracting profit, leading to higher drug prices, more federal spending, and bigger out-of-pocket costs for Virginians,” Warner’s office wrote.

Warner’s staff said a number of bills related to PBMs may become a single legislative package down the road. 

The world changes fast.

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