Prescription drug middlemen are bad for patients, crushing indy pharmacies
Kemper Drug in Elk River recently closed its doors for the last time after having served the community for over 70 years.
Businesses fail every day, but Elk River became the latest in a long list of Minnesota cities to lose one or all of its pharmacies since 2006. Behind the alarming loss of independent pharmacies in Minnesota is a monopolistic middleman.
When you think about monopolies and prescription drugs, it is likely Big Pharma that comes to mind. From 1995 to 2015, the 60 largest pharmaceutical companies merged to 10 while in 2017 just four companies produced more than 50% of all generic drugs.
This merger wave has given drug manufacturers massive market power. From 2000 to 2018 the largest drug companies made $1.9 trillion in net income and a study from the University of Pittsburgh revealed a major source of that profit is from simply raising the prices of drugs already on the market.
Pharmaceutical manufacturing giants are not the only consolidated part of our drug supply chain. Another culprit in the skyrocketing prices Minnesotans pay for prescription drugs is a little-known middleman entity called a pharmacy benefit manager.
PBMs have played a role in rising drug prices, and they are also the reason so many independent pharmacies have been lost in recent years.
That loss has reached crisis proportions. The Pharmaceutical Care Management Association found Minnesota lost 30% of its small, independently owned pharmacies between 2010 and 2019, more than any other state.
Main streets across Minnesota — particularly in rural communities — have lost essential small businesses that create jobs and economic opportunity and also serve as a key local conduit to help patients navigate their health care needs, something no giant, out-of-state corporation can replicate.
The roots of this crisis can be found in the immense power PBMs have built in recent decades. Today just three PBMs — CVS Caremark, Express Scripts and Optum Rx — manage nearly 80% of the nation’s prescription claims. They are all vertically integrated into large insurance plans and operate their own mail-order and specialty pharmacies. These health care monopolists are no longer interested in serving the original purpose of handling administrative tasks and negotiating the best deal for patients.
Instead, PBMs are focused on protecting and expanding what the National Community Pharmacy Association called “health care kingdoms” by extracting rebates and destroying competitors.
PBMs negotiate rebates from drug manufacturers using access to their formularies — the approved drugs a plan will cover — as leverage. The higher the price for a drug, the larger the rebate for the PBM, which in turn raises the cost of a drug for everyone else. These rebates do not flow to customers for their medicines; they are largely pocketed by PBMs or their health plan clients.
In addition to helping gouge patients, PBMs engage in anticompetitive conduct that undermines independent pharmacies. This can include the more visible, such as CVS Caremark leveraging its ownership of the nation’s largest retail pharmacy chain to steer patients to its chain locations. Or the less visible, such as the low reimbursement rates PBMs provide to independent pharmacies.
In addition to low reimbursement rates, PBMs force unfair take-it-or-leave-it contracts onto pharmacies that include excessive and unnecessary fees. This includes direct and indirect remuneration fees that can be collected after a sale, leaving independent pharmacies with large bills from PBMs months after a patient receives their prescription.
Fortunately, there is bipartisan legislation in St. Paul that would provide some relief.
Bills introduced (HF1752/SF2067) by Sen. Melissa Wiklund, DFL-Bloomington, and Rep. Tina Liebling, DFL-Rochester, would remove PBMs from Medicaid and MinnesotaCare, which together cover about 1.4 million Minnesotans. The state would instead manage the prescription drug benefit in the same way it does an existing fee-for-service program. This would eliminate the administrative and contract costs with the PBMs while paying local pharmacies a dispensing fee of $10.77 per prescription, compared to $0.10-$0.30 from PBMs.
West Virginia provides a powerful example of the potential benefits for Minnesotans. The state implemented a similar model in 2017 and now covers 550,000 Medicaid enrollees this way. Their prescription drug carve-out led to state budget savings of $54.5 million in 2018, while simultaneously also providing an additional infusion of $122 million in dispensing fees to the state’s pharmacy community.
By removing the vast amounts of money kept by out-of-state PBM middlemen, the state can save money while paying local pharmacies more.
There is more state legislators can do to crack down on the anticompetitive practices of PBMs, such as anti-steering prohibitions to prevent self-dealing, which allows PBMs to require patients use their own specialty and mail-order pharmacies.
There is also hope that the Federal Trade Commission will take action against PBMs nationally.
For now though, pharmacies need action this session and carving PBMs out of Minnesota’s public health care programs will help independent pharmacies around Minnesota have a chance to fight for another day.
Authors: JUSTIN STOFFERAHN. LUKE SLINDEE