The Demise Of American Pharmacies: How Middlemen Put ‘kerosene On The Fire’

The U.S. Congress near drugstore use head (PMB) betterment retired of its latest backing package. Despite that, states are taking connected nan intermediaries who determine really pharmacies are paid for nan medications they dispense. 

This is portion 2 of a three-part bid connected struggles wrong American pharmacies and nan effect it has connected entree to wellness care. In portion one, we covered really consolidation ‘bloated’ pharmacies.

In April, Arkansas Gov. Sarah Huckabee Sanders, R, signed legislation banning PBMs from owning pharmacies successful nan state, claiming that nan companies prosecute successful anticompetitive practices. Meanwhile, a fistful of different states person laws successful nan useful to reside nan costs processors. On apical of imaginable legislation, 39 authorities attorneys wide called connected Congress to walk authorities akin to Arkansas’ connected nan national level.

As of March, 326 pharmacies closed their doors aft PBM betterment was dropped from nan backing measure according to nan American Economic Liberties Project.

What is simply a drugstore use manager?

Pharmacy use managers person been a portion of costs processing wrong nan drugstore ecosystem for decades. 

“A drugstore use head is simply a middleman betwixt a supplier shaper and nan drugstore and yet to nan diligent who needs nan medication,” erstwhile wellness security executive Wendell Potter told Straight Arrow News. 

PBMs discuss prices betwixt manufacturers and pharmacies while besides managing medicine supplier benefits. 

“I started practicing drugstore measurement backmost successful 1980 and, you know, PBMs really started retired arsenic being thing but processing,” Rep. Buddy Carter, R-Ga., who antecedently owned unit drugstore locations told Straight Arrow News. “They conscionable process claims.”

“And, each of a sudden, formularies became very prevalent, and security companies began to understand that they could power nan value of a medicine by including them connected their primary, connected their formulary,” Carter added.

PBMs are besides responsible for formularies, which are a database of medicine narcotics covered by an security plan.

Growth of PBMs

“Just a fewer companies determine what happens pinch medicine narcotics for almost nan full country,” Douglas Hoey, CEO of nan National Community Pharmacists Association told Straight Arrow News.

The 3 largest PBMs handled processing for 80% of each prescriptions filled successful 2023 according to a Federal Trade Commission report from July 2024.

CVS owns astir 10,000 stores, arsenic good arsenic owning wellness insurer Aetna. The mixed institution besides owns a PBM, Caremark. Meanwhile, security supplier Cigna bought PBM Express Scripts successful 2018. And UnitedHealth Group has OptumRX, a PBM, nether its umbrella.

“The vertical integration has conscionable really put kerosene connected nan fire,” Hoey said. “So nan vertical integration was erstwhile nan wellness security companies and nan PBMs utilized to beryllium separate, but past they merged.”

Each of these PBM/insurance institution combinations owns a brick-and-mortar aliases online pharmacy.

The FTC study recovered that “pharmacies affiliated pinch nan 3 largest PBMs now relationship for astir 70 percent of each specialty supplier revenue.”

“Only 1% of nan prescriptions [are] specialty drugs, but 53% of nan medicine dollars spell to specialty drugs,” Hoey added. 

“You person diligent steering, wherever nan PBMs and nan security companies are steering their patients toward their pharmacy, and they reimburse their pharmacies much than they reimburse independent unit pharmacies,” Carter said.

Another FTC report from January recovered that nan large 3 PBMs raised prices connected specialty narcotics astatine their affiliated pharmacies, generating $7.3 billion successful added gross from 2017 to 2022.

But not everyone agrees pinch nan FTC’s findings.

“It’s clear this study again fails to see nan entirety of nan medicine supplier proviso concatenation and makes sweeping assertions astir nan domiciled of PBMs disconnected from a afloat appreciation of their captious cost-saving domiciled for employers, unions, taxpayers, and patients,” nan Pharmaceutical Care Management Association, a waste and acquisition group representing PBMs, told Straight Arrow News aft nan study was released. 

How PBMs maximize profits

Hoey gave Straight Arrow News an illustration of really drugstore use managers make money. He utilized nan illustration of covering insulin made by Novo Nordisk and Eli Lilly. 

“So Express Scripts, arsenic an example, could spell to Lily and say, ‘If you want your insulin to beryllium covered by my security company, past you’re going to person to salary maine 50% of nan database value of nan drug.’” he explains.  “So Lily agrees to that and past Express Scripts successful this example, goes to Novo and says, ‘Lily is going to salary maine 50%. How overmuch are you going to salary maine to make your supplier beryllium put connected nan formulary and bump theirs off?’ ‘Well, we’ll salary 60%.’ So it’s for illustration this auction process.

“The PBMs would support those rebates,” Hoey continued. “The PBMs past began to stock immoderate of that rebate backmost pinch nan employer. So nan employer would say, ‘Hey, this is simply a bully woody for me, because moreover though I’m paying a batch much for insulin than I usually would, I’m getting immoderate of those dollars back, and I tin usage that to salary for my employees’ premiums.’ So arsenic clip has gone on, nan large employers, they get a batch of those rebates back. The patient, though, is still paying nan database price.”

Pharmacy closures are threatening 1 of nan first lines of wellness care. In nan 3rd portion of this bid Straight Arrow News dives into drugstore deserts and nan deficiency of entree to medicine.