It’s been hard for Kevin Layne, like many other independent pharmacists in North Carolina, to keep his business going.
Between him and his twin brother Keith, Layne has owned and run Layne’s Family Pharmacy in Rockingham County since 2001. Ninety people worked for them at their busiest. It’s now only 25.
But the drugstore is very busy. Many bins hold medicines that need to be filled, and the Laynes go through them like a well-oiled machine.
“We have business, but it’s not making us money,” Layne quipped.
If things don’t get better soon, he’s afraid he’ll have to lay off workers and close his doors, just like other small pharmacies that have had to do that. In August, two drug stores in his county shut down.
One hundred neighborhood shops in North Carolina have shut down since January 2022. The National Community Pharmacy Association (NCPA), which speaks for independent community pharmacies, says that 300 of them closed across the country last year alone.
Doug Hoey, CEO of the NCPA, said in a news release in February that “nearly a third of independent pharmacy owners may close their stores this year.”
Why are small pharmacies across the country having such a hard time?
“Big insurance plans and their pharmacy benefit managers are cutting back on prescription reimbursements,” Hoey said. “We need help right away.”
He says that “millions of patients could be stuck without a pharmacy” if these stores keep closing.
People from rural areas and disadvantaged groups are more likely to live in “pharmacy deserts” where pharmacies have closed. This means that the problem is not just one of access, but also one of fairness.
What is a pharmacy benefit manager?
PBMs stand for pharmacy benefit managers. A lot of people have never heard of them. But they have an effect on almost everyone.
In the NC General Assembly, Rep. Wayne Sasser, R-Montgomery, is one of the people who are sponsoring a bill to control pharmacy benefit managers. He used to work as a pharmacist. Sasser says that PBMs “hide way in the weeds of what’s really going on.” They’re taking advantage of everyone.
In the late 1960s, insurance companies put together and hired PBMs to help them handle claims for medicines.
Sasser said that PBMs quickly changed their job to make more money. They started to talk with drug companies directly. Now, PBMs decide which drugs your insurance covers and how much you and your insurance plan will pay for each one.
In this case, a PBM might tell a drug company that if the company pays the PBM $300 every time a certain drug is given, the PBM will add the drug to its “formulary,” which is a list of drugs that insurance companies will pay for. That $300 is a refund, which means that the company that made the drug is paying less for it.
What do the $300 PBMs do?
PBMs say that the deals they make with drug companies keep insurance rates and drug prices low because some of the refunds they get are given to the health plans that pay for the drugs.
This is why the Pharmaceutical Care Management Association (PCMA), a national group that speaks for PBMs, says that laws that make it harder for them to get lower drug prices for Medicare Part D patients through rebates would “raise premiums 25% and cost taxpayers $170 billion.”
In response to a question, Connor Rose, senior director of state relations at PCMA, said that Sasser’s bill would “make rebates more clear and reimburse pharmacies more fairly,” which means that “pharmacists are trying to raise the price of prescriptions.”
It’s not clear what rebate the PBM is asking for each drug because they report these rebates to the health insurance company as a whole for all the drugs they cover. It is also possible for the health plan to not know if the money it gets from a PBM is less than what the PBM got from the maker.
Because of new cases, this might be the case. Along with the state of Illinois, CVS Caremark agreed in July to pay $45 million to settle claims that the PBM did not give grants to the state.
He thinks the $300 the drug company gives to the PBM is a “bribe” instead of a refund because of this.
Regulators are beginning to look at PBMs
The Federal Trade Commission and the House Committee on Oversight and Accountability are both interested in how PBMs work. For more than a year, the committee has been looking into PBMs and how they contribute to higher health care costs. And the FTC found that OptumRx, CVS Caremark, and Express Scripts, the three biggest PBMs, handle 80% of all medications filled in the U.S.
Also, these businesses are vertically merged, which means that the PBM is owned by or closely linked to an insurance company and a group of pharmacies that work with it. In the case of CVS Health, it owns both the PBM CVS Caremark and the insurance company Aetna.
Were big insurance companies starting to work with PBMs for what reason? Sasser said, “They figured out how to make more money in the PBM business than they could make in the health insurance business.”
The Health Services business of CVS Health, which includes CVS Caremark, made $186.8 billion in 2023. Optum, which is part of UnitedHealth Group and includes OptumRx, made a total of $226.6 billion. Evernorth, which is part of Cigna Group and includes Express Scripts, made a total of $153.5 billion. The Fortune 500 list of the biggest U.S. companies has all three of them in the top 25. United Health Group and CVS Health are in the top 10.
“Which is better for patients: pharmacists who care for patients every day or $100-plus billion PBM companies that never touch a medication?” asked Penny Shelton, who is the head of the NC Association of Pharmacists and works to promote pharmacies.
The Sasser agrees. He said that PBMs are “just a cash cow and they have no liability.” “They have nothing to lose.”
Independent pharmacies driven into the red
Shelton said that pharmacists’ complaints about PBM practices can be summed up in two groups: not getting enough money back and sending customers to the PBM’s own businesses.
Shelton said, “Most people don’t know that pharmacies don’t get to choose how much they get paid for the prescription drugs they give out.”
“Our dispensing fees have gone down to zero in some cases,” Wesley Hickman, owner of Hickman’s Pharmacy in Leland, Brunswick County, said. “That is untenable because you’re only being paid based on the cost of the drug, not the service you provide.”
The dispensing fee pays for the bottles used to hand out prescriptions, keeps the lights on, and pays the pharmacists’ wages.
Layne said that PBMs pay up to $200 less than the cost of some drugs that his drugstore sells.
Layne said that some pharmacists will just tell people, “Oh, we’re out of that,” for this reason. That’s not always the case. He said that one thing that pharmacists can’t always tell people is, “Your insurance won’t pay me enough to reorder the drug so I can keep it on hand.”
Pharmacists that N&O talked to said they had to lie to customers because their contracts with PBMs don’t let them talk about how drugs are priced.
Some doctors keep giving out drugs like Eliquis, which stops blood clots and strokes, even though it costs them money to do so because it saves lives.
“So that we can be honest with our customers,” Layne said, they no longer carry most brand-name drugs by policy. “We can’t pay for it.”
PBMs find ways to favor their own pharmacies
Not every pharmacy is being hit the same way. The FTC report had examples of PBMs with affiliated pharmacies, like CVS pharmacies and CVS Caremark, paying their own pharmacies a lot more for the same drug than pharmacies that were not connected with the PBM.
PBMs also steer people away from neighborhood pharmacies and toward their own stores or mail-order services. They do this in a number of ways, such as by not letting pharmacies that aren’t connected with them sell expensive “specialty” drugs or by lowering co-pays for patients who go to one of their own pharmacies or get their medicine through an affiliated mail-order pharmacy.
One PBM offered Hickman a deal that would pay him back “less than what I pay for the drug.” He said he turned down the job offer but told the PBM he was willing to talk things over. He never heard back, and patients writing to him with complaints was the only way he found out there would be no talks.
“About three patients who are no longer in our network came in today and were very upset about it,” Hickman said. “They didn’t want to go to a big pharmacy chain.”
As Sasser points out, it is against the law in North Carolina for PBMs to make patients go to pharmacies that are connected with them. He said that the trouble is that “we don’t have anyone in charge of enforcing that law.”
The benefits of a local touch
Sen. Gale Adcock, D-Wake County, feels for small businesses in Wake County. She said, “Our people in rural areas have even less access to care when pharmacies close because of PBM practices.” That’s not right, and I find it scary.
Local doctors say that it’s not just getting health care that’s hard to get. Also, it’s good.
Layne said, “Anyone can put a label on a bottle of pills.” “But do they know that shellfish and a certain dye make you sick?”
Layne said that one thing that makes local independent pharmacies stand out is that they serve the people in the areas where they are located.
“These people live next door,” he said. “I care about them, and I’m sorry. You don’t get that from many chains, and you surely don’t get it from mail-order.”
Hickman said that another problem with mail-order pharmacies is that many drugs are made of proteins, and “if you expose proteins to a high enough temperature, they become denatured.” In other words, the protein can’t work right anymore.
He said, “They’ll have to call again and ask for a new drug, when they can just walk in and I can open my fridge, put a label on it, and sell it to them.” A recent story in the New York Times talked about how hot summers could make mail-order medicines less effective.
People telling Hickman they had to go somewhere else made his day rough, especially since his son was with him. “This is the story of the American dream: if you work hard enough, you’ll get ahead in this country.” This is not going to work out for him if we don’t fix it.
House Bill 246 — leveling the playing field?
Congress and the FTC are trying to keep PBMs in check, so Rep. Sasser wrote House Bill 246 to help North Carolina’s private pharmacists with some of the problems they face.
Without a single vote against, the bill passed the House on April 27, 2023, and was sent to the Senate. The bill was sent to the Senate Rules Committee on May 1, 2023. It’s still there after more than a year.
The head of the Senate Rules Committee, Sen. Bill Rabon, did not answer a call for comment.
Sasser says the bill’s goal is to make sure shops get paid fairly. PBMs would have to pay pharmacists at least the “national average drug acquisition cost” (NADAC). This number is found by polling pharmacies about how much they spend on drugs and adding a fee for selling them.
Also, PBMs would have to be open about the payments they get from drug companies in exchange for adding a drug to a health plan’s list of covered drugs. They would also have to say how much of the refund they keep.
Hickman says that being open about why pharmacists are having trouble is important. He said, “I think it would become very clear where the issue is if one person could see it all.”
PBMs refuse to share information about prices and rebates. According to The N&O, the state treasurer released a chart in 2023 that showed how much of a refund the NC State Health Plan was getting from its PBM, CVS Caremark. This was done while the health plan was looking into the cost of GLP-1 weight loss drugs. The treasurer doesn’t have access to the exact amount of the refund, so the office of the treasurer had to guess how much the rebate would be based on how much the state spent on the drug in total.
The plan had to quickly take down the chart and post a new one with the estimates crossed out, even though it was only a guess. It said it did that because the PBM put pressure on it to.
Two months later, the health plan board stopped new orders for the weight loss drug until the cost could be lowered. CVS Caremark told the plan that it was breaking its contract and would no longer get the rebate. The head of the State Health Plan, Sam Watts, said that the state would lose $54 million if they lost the rebate.
As part of HB 246, pharmacies that have the right licenses would be able to sell specialty drugs. These are usually expensive drugs that PBMs call “specialty” because they treat complicated conditions. People wouldn’t have to go to the PBMs’ own niche pharmacies for this reason.
Finally, the bill aims to protect health plans by getting rid of “spread pricing,” which is when a pharmacy benefits manager (PBM) charges a health plan more for a drug than it pays the pharmacist and keeps the difference.
The Congressional Budget Office says that getting rid of spread pricing and making things more clear could save taxpayers and state Medicaid offices about $1.1 billion over the next ten years.
The bill is not meant to “pick on PBMs,” says Sasser.
“The rest of the business world is regulated to protect the consumer,” he said. “That’s what we want pharmacy benefit managers to do.”
According to Shelton, the head of the pharmacy association, “most of the senators in North Carolina have met with members and leaders of our association.” It is clear that both Democrats and Republicans back HB 246,
So, independent doctors are wondering why the bill hasn’t been talked about in the Senate.
Some people blame Phil Berger, the Republican leader of the Senate. He and Rules Chair Rabon decide which bills make it through committees and to the floor for a vote. “Berger says the bill won’t go to the Senate floor,” Sasser said.
A spokesman for Berger named Randy Brechbiel said that the bill “involves the legislature in regulating the free market and passes costs onto consumers and insurance premiums.”
He called that claim a “false narrative.”
Adcock said, “I haven’t seen any data that shows this will cost clients, employers, or insurers more money in any way.” “You can say anything, but you need proof to back it up.”
Layne and a few other independent pharmacists tried to talk to Berger about the problem, but it didn’t help much.
Layne said, “I know Phil, his wife, his kids, and his grandchildren.” “We’ve been their pill store for many years.”
He said, “I believe Phil is a good person.” “I’ve always had a lot of respect for him, but we don’t understand why we can’t do something to improve things at the state level. That’s what I’d like to see.”
He asked, “Could the bill be better?” “I’m not sure.” That’s what reps and senators are for, though.
Layne said, “We need help.” “Right now, things are going badly and there’s no way out.” I wonder if the PBMs will be content until all the small businesses shut down.