Biden’s Attempt to Regulate Pharmacy Benefit Managers (PBMs) Backfires, Hurting Independent Drugstores

Pharmacists Claim New Medicare Rule Adds to Woes of Independent Pharmacies

The Biden administration’s efforts to impose limits on pharmacy benefit managers (PBMs), who negotiate drug prices on behalf of the pharmaceutical industry, is having unintended consequences for independent drugstores. The new rule, slated to take effect on January 1st, requires PBMs to take most of their “performance fees” at the time prescriptions are filled, rather than weeks or months later. These clawbacks, which have grown from $9 million in 2010 to $12.6 billion in 2021, have significantly increased patients’ prescription costs at the pharmacy counter. While the rule change was supported by pharmacist groups, they did not anticipate the response from PBMs, who are now demanding new contracts with substantial cuts to payments for dispensing medicines. Pharmacies that refuse to accept these contracts risk losing Medicare customers to the larger PBM conglomerates that have absorbed a growing share of the pharmacy business in recent years.

Pharmacy Benefit Managers (PBMs) Under Fire

PBMs play a central role in the U.S. drug supply chain, negotiating lower prices for insurers, employers, and workers. However, they are widely disliked by independent drugstores, drugmakers, and patients alike, who accuse them of siphoning money from the already expensive U.S. healthcare system without providing additional value. Even national pharmacy chains like Rite Aid, Kroger, and Walgreens have felt the pressure from PBM practices, with some closing stores or reducing staff. The burden on in-store pharmacists and technicians has led to walkouts by CVS and Walgreens employees, who claim that under-staffing has led to burnout and endangered patient safety.

The Plight of Small Pharmacies

Under the current system, PBMs inform pharmacies of the patient’s payment and what the PBM will reimburse the pharmacy at the time of prescription filling. However, PBMs often deduct performance fees from the reimbursement, resulting in the pharmacy receiving less than anticipated. One performance measure used to determine the fees is patient adherence, which puts the blame on pharmacists for factors beyond their control. PBMs have responded to the new rule by issuing contracts offering significant payment cuts for pharmacies, leading many to refuse and potentially lose Medicare customers.

Implications for Independent Pharmacies

The unintended consequences of the new rule are likely to exacerbate the difficulties faced by independent pharmacists, who already struggle to stock popular and expensive new drugs. Integrated PBM-insurance companies, such as UnitedHealth Group, CVS Health, and Cigna, have gained significant market share in specialty pharmacy drugs, which account for more than half of U.S. drug spending. These companies have greater negotiating power with drugmakers, allowing them to sell certain drugs at prices that independent pharmacies cannot match. Express Scripts, one of the largest PBMs, has claimed to support independent pharmacies’ survival but has not responded to requests to implement the 2023 clawbacks gradually over 12 months. The Centers for Medicare and Medicaid Services (CMS) have recommended that PBMs develop payment plans for pharmacies, although it is not a requirement.

Legislative Efforts to Regulate PBMs

Following criticism and an advertising campaign by drugmakers, bipartisan bills have been advanced by Senate and House committees to tighten regulations on PBMs. The Senate Finance Committee’s bills aim to ensure that PBM payments to pharmacies are reasonable, eliminate unfair pharmacy performance requirements, and establish rules for other contract terms. Advocates of these legislative changes argue that they are essential to addressing issues with the Medicare Part D program and protecting specialty pharmacies and other independent drugstores.