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“We’re just trying to hang on”: How pharmacy benefit managers cost Hampton Roads’ pharmacies

Newman Family Pharmacy in Chesapeake closed in 2021 because of reimbursement practices and fees employed by pharmacy benefit managers, former owner Scott Newman said. (Photo by Nick McNamara)
Newman Family Pharmacy in Chesapeake closed in 2021 because of reimbursement practices and fees employed by pharmacy benefit managers, former owner Scott Newman said. (Photo by Nick McNamara)

 This is part two in a two-part series about pharmacy benefit managers in Hampton Roads and Virginia. Read part one HERE.

Scott Newman used to own and operate Newman Family Pharmacy in Chesapeake’s Great Bridge area.

He closed the business in 2021, attributing it to the practices around reimbursement and fees employed by PBMs.

“If it were profitable or if I wasn’t getting squeezed to the point where I couldn’t pay anybody, including myself - I was always last to do that because there wasn’t really a whole lot extra - we would probably still be up there,” said Newman, who is now board chair of Pharmacists United for Truth and Transparency. 

Like other local pharmacists, Newman said the take-it-or-leave-it contracts he was offered resulted in either losses or reimbursement just cents above the drug acquisition cost.

“I could sell a Snickers bar for $1.25 and make 75 cents,” Newman said. “I’d end up getting reimbursed 25 cents for a 30-day supply of Hydrochlorothiazide, and it cost me 27 cents.”

Newman said the end result is many pharmacists are relying on savings or living off of cash flow like he did in order to keep the doors open, something CPESN’s Cindy Warriner said she’s heard from other pharmacists around Virginia as well. 

“And it's just so sad,” she said. “Then when it gets to the point when they can no longer do it, they sell their files. I would love to see the percentage of prescription files from independent pharmacies that got sold to CVS.”

Warriner, a pharmacist for 35 years and former member of the Virginia Board of Pharmacy, said the pharmacies that are hit hardest are those in rural areas with the number of counties without any providers on the rise.

“Five years ago we only had two counties in the state without a pharmacy in it, we’re up to five,” Warriner said. “You’re at a point where you’re having entire geographic areas without a pharmacy in it and that’s where it gets scary to me. What do those people do to obtain their needed medications?”

Warriner also wants to see federal action joined by state action in Virginia, noting a deficit between the dispensing cost - the aggregate of materials such as pill bottles and personnel time to fill a prescription - and what is paid to pharmacies in dispensing fees under Medicaid. 

A 2019 study by CPA firm Myers and Stauffer LC reports the mean cost of dispensing for pharmacies in the Virginia Medicaid program was $10.63 or $9.95 when accounting for non-specialty pharmacies only. Nationally, the average cost of dispensing for independent pharmacies was $11.22 in 2021 according to NCPA. 

Comparatively, Warriner had an example from a pharmacy in Southwest Virginia showing they receive as low as three or five cents for some Medicaid plans.

“The PBM issue overall has to be handled at the federal level, but there are some things Virginia can do - and one thing they can do is make sure that Medicaid is reimbursed adequately to serve those patients,” Warriner said.

Unpredictable fees may lead to more pharmacy closures

Another factor impacting independent pharmacies are direct and indirect remuneration, or DIR fees.

Originally, DIR fees were part of the reconciliation between a price on a claim and the actual negotiated price of a drug. But PBMs have started using the fees more, attaching them to pharmacy performance measures that independent pharmacists say can be unpredictable.

One of the metrics used for pharmacy assessment in calculating DIR fees is patient compliance, essentially ensuring patients take their medicine, Newman said. 

That’s done by checking if patients fill their prescriptions on time in the spirit of reducing hospitalizations and negative health events, and thus reducing costs to the insurers. 

Newman noted that, aside from the conundrum of pharmacies being held responsible when they cannot actually make patients take their prescriptions, an issue with the approach is that PBMs don’t necessarily account for changes in treatment regimen ordered by physicians.

Plus, PBMs don’t consider some pharmacies’ focus on specialized medicine, like businesses that focus on cancer-related drugs.

“They get crushed with DIR fees because they don’t call their patients [and say] they need to add Zocor because they’re on a diabetic medication,” Newman said. “They don’t handle stuff like that, they do oncology meds only.”

The Community Pharmacy Enhanced Services Network (CPESN) reported 28 independent pharmacies in Virginia lost $19.6 million in revenue over the past five years as a result of below cost reimbursements and DIR fees. 

“We’re just trying to hang on until somebody does something with all these fees that we’re paying, losses we’re taking,” said Taylor in Williamsburg.. “Every time I have one of these losses, it just gets us closer to not being able to help anybody.”

CMS in 2022 issued a Final Rule that requires DIR be calculated at point of sale rather than weeks or months later starting January 1, 2024, part of an effort to increase financial predictability for pharmacies serving Medicare and Medicaid patients. 

While that will be the rule for new prescriptions, Newman is worried how pharmacies will stay afloat as they face retroactive fees from prior claims in 2023 alongside those at point of sale.

“There’s going to be an enormous cash flow crunch for independents coming up in this next year and it might not be sustainable,” he said.

 “I’m glad I sold when I did, because there’s no way I would have been able to navigate that.”

Proposed Regulations and Further Needs

These concerns have culminated in senators forwarding bills like the Pharmacy Benefit Manager Transparency Act and MEPA Act, which now await further consideration by the upper house of Congress.

The proposed legislation features a swath of provisions regulating PBM practices. The PBMT Act bans PBMs from reimbursing pharmacies at lower rates than what they charge health plans and payers while keeping the difference.

The PBMT Act also includes provisions requiring PBMs pass 100% of rebates to health plans and payers; provide full disclosure of drug costs, reimbursement to health plans and pharmacies, the full breadth of fees it charges and receives, as well as file annual reports with the FTC on those figures and differences between reimbursement for pharmacies with which PBMs are affiliated. The FTC and state attorneys general receive authority to enforce the bill’s mandates and levy civil penalties for violations.

The MEPA Act focuses largely on Medicare Part D and Medicaid, requiring annual reports of drug prices and any potential conflicts of interest to Health and Human Services and the standardization of metrics used to assess pharmacy performance. 

PBMs would additionally be required to give pharmacies information on pricing claims in an effort to increase the predictability of reimbursement for drug costs. Pharmacies also receive a requirement to participate in the National Average Drug Acquisition Cost or NADAC survey to help accurately measure the cost of drug acquisition and better inform pharmacy reimbursement. 

The Congressional Budget Office estimates the bill should produce $1.7 billion in federal savings, which is to be directed to the Medicare Improvement Fund. 

Pharmacists are optimistic that the new focus being given to PBMs will lead to positive outcomes as well.

“I’ll take anything,” Taylor said. “Anything gives us more profits than we have now.”

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