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Neighborhood pharmacies, under siege

2019-09-09

I proudly represent hundreds of neighborhood-based pharmacists who stand at the front line of health care for families in their communities. Patients depend on their pharmacists for advice on medications, to ask general questions about their health and of course to get the medicine they need, when they need it.

Across New York State, neighborhood pharmacies play a big role in our economy. The National Community Pharmacists Association reported that the Empire State was home to some 2,400 community-based pharmacies in 2017. They generated approximately $8.4 billion in outlet-wide sales and employed more than 22,000 people that year.

But today, independent neighborhood pharmacies face a serious competitive threat. You may assume I’m referring to chain pharmacies, but I’m not. You might think chain drug stores pose challenges to us, but we’re happy to go head-to-head with them when it comes to the quality and intimacy of our services.

In fact, the primary threat to our survival comes from a cadre of greedy middlemen who occupy an obscure and exploitative stratum of the prescription drug supply chain. Called Pharmacy Benefit Managers, they’re a powerful force wreaking havoc on local drug stores.

The stealthy, all-but-extortionate impact of PBMs has surged in the past few years.

OK, so what do these PBMs actually do?

Originally designed to help insurers manage insurance claims paperwork and provide administrative support, PBMs have grown into an unwieldly, hydra-like beast. PBMs play the role of middlemen among insurers, drug makers and pharmacies, exercising control over which drugs your insurance will cover, drug prices and the reimbursement levels pharmacies receive when distributing medications. They can even dictate which drugs doctors can prescribe for you.

And they’ve consolidated. Today, the vast majority of prescriptions are processed by PBMs that own or are owned by major national health insurance companies – Cigna, United HealthCare and Aetna – and these three PBMs, all Fortune 25 corporations, collectively control nearly 80% of the market.

Not only can PBMs determine what drugs a patient uses; they can also determine where a patient gets their drugs. PBMs will frequently self-refer patients to mail order or chain pharmacies that are in their network, resulting in a greater return for the PBM even though this may not be the most affordable option for the patient.

Last January, a survey of more than 500 New York City neighborhood pharmacy owners conducted by the New York City Pharmacists Society showed how deeply PBM abuses are jeopardizing the viability of “mom-and-pop” pharmacies. Seventy percent of the owners were forced to reduce store hours or lay off employees last year because of PBM abuses. Ninety-two percent have contemplated similar curtailments this year for the same reason.

One nefarious PBM practice is called “spread pricing,” which usually pertains to the pricing of generic drugs. Under spread pricing, PBMs charge their sponsor-client one price for a drug, then most often pay the dispensing pharmacy a much lesser amount (frequently below the pharmacy’s cost), pocketing the difference for themselves.

This is contributing to the closure of family pharmacies. And it cost the state’s Medicaid managed care organizations at least $300 million in overcharges in 2018, according to the Pharmacists Society of the State of New York.

PBMs often force neighborhood pharmacies to sign onerous, take-it-or-leave-it contracts that dictate reimbursement rates. As small mom-and-pop businesses, we’re in no position to go up against some of the country’s largest corporations.

A recent state Senate report found that PBMs often demand patients to fill prescriptions using PBM-owned mail order pharmacies, further impairing the viability of local pharmacies.

Fortunately, lawmakers are now recognizing the damage caused by PBM misconduct and are starting to reel in their power. For example, while “spread pricing” continues in the private sector, Albany recently banned its use in the state’s Medicaid program. And, taking a cue from several other states, both houses of the state Legislature recently passed a PBM reform package that will help protect patients, taxpayers and neighborhood pharmacists from our broken prescription drug system.

The bill would mandate the licensing and regulation of PBMs, require disclosure of the details of “spread pricing” in both private and public insurance plans, and require disclosure of information on discounts, rebates and other kick-backs they receive from drug manufacturers — and make sure those savings are passed on to consumers.

Now, it’s up to Gov. Cuomo to sign this bill. The time has come to neuter the deleterious impact of this industry.

Shah is chairman of the New York City Pharmacists Society.