In the first of a two-part series, leaders of industry associations present their expectations for pharmacy operators for this year. The views of other organizations will appear in the next issue of Chain Drug Review.

Peter Matz

Up until a few years ago, when meeting with lawmakers to advocate for pharmacy benefit manager reform measures, we typically had to spend a significant amount of time explaining what a PBM is before we could move on to the many ways PBM anticompetitive practices harm supermarket pharmacies and customers and the reforms necessary to provide them with urgently needed relief.

For the uninitiated, PBMs are powerful middlemen at the center of the U.S. prescription drug system. Unfortunately, PBMs have grown and vertically integrated to the point where the three largest PBMs control over 80% of prescriptions, up from 30% in 2010. The six largest PBMs have merged with the biggest health insurance companies and pharmacies they’ve acquired, giving them enormous influence over which medicines are prescribed to patients, which pharmacies patients can access, how much patients will pay at the pharmacy counter and the amount pharmacies are ultimately reimbursed. Yet, PBMs are one of the least regulated sectors of the health care system and drug supply chain.

Importantly, this market concentration empowers PBMs to give supermarket pharmacies of all sizes take-it-or-leave-it contracts. The pharmacy must either accept a PBM’s mandated contract terms (including, among other things, allowing the PBM to unilaterally set prices for drugs and then later impose retroactive direct and indirect remuneration [DIR] fees based on an opaque methodology), or give up the ability to serve the many customers whose health plans contract with the PBM — including existing customers who have long-standing relationships with their pharmacists.

In recent years, we’ve come a long way in educating lawmakers about PBMs and their egregious practices. We rarely have to spend time setting the stage with background information and can get right to the heart of why PBM reform is so urgently needed. Even better, many bipartisan bills addressing PBM business practices have been passed by House of Representatives and Senate committees this year, making them ripe for broader consideration. These legislative efforts coincide with an ongoing Federal Trade Commission investigation into the impact of PBM tactics on prescription drug access and affordability, demonstrating the Biden administration’s interest in targeting PBMs. The House Oversight Committee subsequently launched its own PBM investigation.

The issue of PBM reform is incredibly important to FMI and our members. Our member companies operate roughly 12,000 supermarket pharmacies across the United States, which have always played an important role in protecting public health and providing services that support patient and grocery shoppers’ health and well-being. Unfortunately, PBMs use their market power to stifle competition among the country’s most accessible and trusted health care professionals — pharmacists and their pharmacies.

PBMs have created endless schemes to reduce reimbursement, claw back funds, restrict networks, conduct predatory audits and effectively force pharmacies to provide drugs below cost. These practices have resulted in extremely harmful impacts to supermarket pharmacies and customers, preventing many of our members from opening new locations and forcing others out of the pharmacy business altogether — with the impact being particularly acute in rural, urban and underserved communities where closures are more prevalent and detrimental to a community’s access to health care.

FMI’s PBM reform priorities

When we talk about PBM reform from the perspective of supermarket pharmacy, the first and most fundamental priority is increasing transparency into PBM operations and pricing arrangements, which are incredibly opaque. If pharmacies can’t discern the true cost of dispensing medications, then they can’t negotiate fair reimbursement terms, making it nearly impossible to operate financially viable pharmacies. Although increased transparency alone won’t keep pharmacies in business, it will help pharmacies make more-informed decisions, leading to a fairer and more competitive marketplace.

The second — and most egregious problem facing supermarket pharmacy operations — is the pervasive under-reimbursement by PBMs, which happens when pharmacies are paid less for dispensing medications than the costs they incur to acquire and dispense the drugs. Currently, pharmacies, including those operated by FMI’s supermarket member companies, are subject to the unfavorable terms of PBMs’ take-it-or-leave-it contracts, which include inadequate and unfair reimbursement terms that ultimately result in pharmacies dispensing prescriptions at a financial loss. Under-reimbursement threatens the viability of pharmacies, putting pharmacy access and patient choice at risk.

Earlier this summer, FMI surveyed our supermarket pharmacy members, and the results showed that although 81% of pharmacies are filling more prescriptions than last year, 80% are less profitable. Overall, 65% of FMI pharmacy businesses are not very or not at all profitable. A direct link can be drawn to under-reimbursement. Therefore, it is critically important for policy makers to establish reimbursement protections ensuring pharmacy payments cover their drug acquisition costs, plus a professional dispensing fee to incorporate the costs of a pharmacist’s time to provide quality patient care. These protections should apply to all pharmacies that are not otherwise owned by or affiliated with a PBM.

Below-cost pricing is just one way that PBMs systematically leverage their market power. The clawback of pharmacy DIR fees is among the most harmful of PBM practices, which is why FMI continues advocating for the elimination of retroactive pharmacy DIR fees and the creation of meaningful pharmacy performance measures. These PBMs charge unfair and exorbitant fees to pharmacies long after prescriptions are dispensed and picked up by patients, describing them as fees intended to incentivize improved pharmacy performance, yet there is no transparency and pharmacies are not told which metrics are being used to evaluate their performance.

The exponential growth of DIR fees creates access issues for patients and increases the potential for pharmacy deserts, as FMI members point to skyrocketing DIR fees as one of the greatest contributing factors to both pharmacy closures and decisions not to expand. Simply banning DIR fees, however, won’t solve the problem, as anticompetitive PBMs would adjust their reimbursement terms with pharmacies to maintain their margins. That’s why protecting pharmacy reimbursement, as noted above, is so vital to preserving supermarket pharmacy access in communities nationwide.

FMI is also focused on prohibiting spread pricing as part of our PBM reform advocacy. Spread pricing occurs when a PBM charges health plans for prescription drugs more than they reimburse the pharmacy. Instead of passing the full payment on to pharmacies, PBMs keep the “spread” as yet another hidden revenue stream, while pharmacies are reimbursed below their costs. FMI is committed to addressing this glaring problem through comprehensive reform measures that prohibit the use of spread pricing by PBMs while, once again, requiring fair and transparent reimbursements to pharmacies.

Legislative activity on
PBM reform

Fortunately, this year we’ve seen an incredible amount of activity in the halls of Congress to address these PBM abuses. There have been numerous congressional hearings scrutinizing PBM practices and literally dozens of PBM reform bills introduced in both the House and Senate — many of which were cobbled together to form legislative packages that have advanced through committees and now await full consideration.

The House is further along in the process after leaders combined bills from the committees on Energy and Commerce, Ways and Means, and Education and the Workforce to create the Lower Costs, More Transparency Act of 2023. In the Senate, the Finance Committee passed the Better Mental Health Care, Lower-Cost Drugs, and Extenders Act, which built on the Modernizing and Ensuring PBM Accountability (MEPA) Act that the committee passed previously; the Commerce Committee advanced the PBM Accountability Act; and the Health, Education, Labor and Pensions Committee passed the PBM Transparency Act.

The House package would require PBMs to provide data to employers on the drugs covered by their health plans that were dispensed during the reporting period, including each drug’s wholesale acquisition cost, the total out-of-pocket spending by enrollees on such drugs, and the rationale for formulary placement for certain drugs; the amount received by the PBM in rebates, fees and alternative discounts for certain drugs; and the total net spending on prescription drugs by the health plan during the reporting period. This would allow FMI members and all employers that sponsor health plans to monitor whether their contracted PBMs are choosing drugs to reduce plan costs or to increase their own profits. Of particular significance to FMI pharmacy members, the legislation also bans the use of spread pricing by PBMs in Medicaid while requiring fair and transparent reimbursements to pharmacies.

The Senate bills include similar transparency requirements, and all three packages target spread pricing, with the Finance bill containing the same Medicaid spread pricing ban as the House package. Importantly, the Finance legislation also includes several pieces of the comprehensive pharmacy DIR reform measure FMI and our pharmacy allies have long sought, representing a significant step toward stabilizing the operating environment for pharmacies and promoting transparency, competition and affordability within the prescription drug supply chain. Additionally, the Finance package would prohibit PBM compensation from being based on the cost of medications to address a misaligned incentive that drives up drug costs.

Looking ahead

Notwithstanding the political headwinds facing Congress as we wrap up 2023 and head into the New Year, we’re continuing to work with the House and Senate committees as well as leadership with the goal of ultimately getting FMI-endorsed PBM reform measures across the finish line. While it’s true that Washington often grinds to a halt during election years, the flurry of legislative activity we’ve seen on Capitol Hill this year is certainly encouraging. Moreover, with a House package targeting PBMs poised for floor consideration, and Senate Majority Leader Chuck Schumer pledging to move a health care package featuring PBM reform measures that advanced through the three Senate committees, we’ll continue a full-court press aimed at securing passage before the legislative session ends. We are committed to ensuring supermarket pharmacies across the country can continue doing what they do best — providing customers and patients with critical health care services and life-saving medications.

Peter Matz  is the director of Food, Pharmacy and Health Policy at FMI – The Food Industry Association.