Pharmacy Benefit Managers—A Big Hurdle to the Future of Independent Pharmacy

A Pharmacy Benefit Manager (PBM) is a third-party administrator responsible for processing and paying prescription drug claims.  PBMs manage the use and cost of prescription drugs sold to members by establishing and managing formularies (list of covered medications), negotiating discounts and rebates with manufacturers and contracting with pharmacies.

The rise of PBMs from small companies handling medical claims in the 70s to publicly traded corporate giants with revenues exceeding $250 billion dollars has been nothing but spectacular, with 70% of all U.S. prescriptions being controlled by 3 players—Express Scripts, CVS/Caremark and OptumRx (The Big 3). The meteoric growth of PBMs has allowed them to control where their patients purchase medications (with many patients being forced to use the PBM’s own mail-order pharmacies), what medications members are allowed to take (by using therapeutic interchanges, mandatory generic programs or requiring prior authorizations for non-formulary or step therapy products), and how much pharmacies are reimbursed for these medications (often at rates below or at an independent pharmacy’s cost).  Please see Katherine Eban’s 2013 article in fortune magazine titled “Painful prescription: Pharmacy benefit managers make out better than their customers” and NCPA’s “PBM Revenue Streams & Lack of Transparency

When establishing a new pharmacy most PBM or third-party contracts are handled by your Pharmacy Service Administrative Organization (PSAO).  As described in the earlier post, PSAOs act on behalf of their members to contract, process, reconcile and settle claims for prescriptions with third party payers and PBMs.  Although some PBMs allow processing of claims through a PSAO, they will not contract with the organization and require new independent pharmacies to apply and contract directly with the PBMs themselves.  Express Scripts, CVS/Caremark and MedImpact are among the largest PBMs with this requirement.  The new pharmacy must complete a questionnaire, provide documents, and pay a fee for the processing of its application.  When the contracts are received by the pharmacy, they are often very arbitrary with no room for negotiations (a “take it or leave it” approach).  At times, if a pharmacy wants to offer a specialized service (e.g. compounding), they must either undergo further certification at a substantial cost or must promise not to provide and bill such services to the PBM under the threat of termination if such a claim is discovered to have been processed and paid for by the PBM.

As The Big 3 continue to grow and swallow their smaller counterparts, the independent pharmacy industry must also change to accommodate this challenge.  Pharmacy chains such as Walgreen and CVS have been mirroring the PBMs by merging into bigger and bigger conglomerates (e.g. Walgreen & Rite Aid merger resulting in a super chain with over 9000 stores) creating huge economies of scale and bargaining power to deal with the shrinking but more powerful PBMs.  The constant assault on the traditional sources of revenue for an independent pharmacy by PBMs and competitors is fostering creative approaches by independents to find non-traditional revenue streams, such as pharmacy provider and prescribing status.

I don’t have a solution to this or other challenges yet to come, but I believe the adaptability of an independent pharmacist is his/her biggest asset, therefore, he/she must use this strength to its fullest capacity to forge forward.  I created “Independent Pharmacy Review” to offer a forum, where we as independent pharmacists can discuss and use our creativity to answer today’s challenges and those yet to come.

About Ali

I have been a pharmacist since 1986. I have practiced in the community pharmacy setting since 1989. During this time I have learned a great deal about the challenges pharmacists must overcome to provide quality service and patient care. Forging relationships with patients, physicians, pharmacy organizations, other pharmacists, and pharmacy personnel have offered me a unique perspective in how to own and operate a successful pharmacy. I constantly strive to learn new avenues to advance the profession as well as the business of pharmacy. I graduated from University of Washington in 1986 with a Bachelor of Science in Pharmacy, and again in 1989 with a Master in Business Administration. I continued on to Willamette University College of Law, where I earned my Certificate in Dispute Resolution and Juris Doctor in 1992. I hold pharmacy licenses in Washington, Oregon (Retired), and California, and am a member of the California Bar.
This entry was posted in Benefits Managers, Entreprenuership, General Topics, Management, Pharmacy, Services, Wholesalers and tagged , , , , , , . Bookmark the permalink.