September 03, 2019
In this 3-part series, Mark Munger, PharmD, highlights the impact pharmacy benefit managers have on community pharmacies. In part 1, Dr Munger provides details on why he believes PBMs are directly or indirectly contributing to the closure of community pharmacies.
Throughout America community pharmacies are closing. Since 2003, about 16 percent of independent rural pharmacies–or roughly 1,230 stores–have closed, with fewer than 6,400 remaining, according to figures released in July 2019.1,2 Community pharmacy closures are not unique to independent pharmacies as Walgreens recently announced that they will close 200 stores this year.3 These store closings are in addition to the chain closing 200 stores in the United Kingdom.4 Earlier this year, CVS stated the company was closing 46 stores.5 Many persons have written about the potential demise of community pharmacy over the years, including me.6-7 These posts are no long the “Boy Who Cried Wolf”—one of Aesop’s fables, U.S. community pharmacy is slowly dying.
I would like to address community pharmacies’ pre-morbid condition in three parts, why, what are the consequences, and offer some answers to reverse the condition? This is part 1: The Why?
Problem #1 Reimbursement pressures are the critical issue. Our healthcare is delivered through providers and funded through payers. They need each other, but do not speak directly to one another. The reason for lack of communication is third parties; insurers and pharmacy benefit managers (PBMs). PBMs have imbedded themselves into the healthcare system solely for the business of making a profit—a lot of profit. Estimates are that they may contribute $6 trillion to the U.S. healthcare budget over a decade.8 Most importantly they provide only limited patient care!
Problem #2 The PBM industry is highly concentrated. Approximately 70% of prescription claims are processed by only 3 PBMs. Services offered include a community retail pharmacy network, mail-order dispensing, manufacturer rebate negotiations, formulary development, utilization management, claims adjudication, and eligibility determination. These offerings have provided PBMs to become more vertically integrated throughout the drug supply chain. In addition, PBMs often control which medications are covered and patient out of pocket money per prescription. Thus, PBMs have significant leverage based on the volume of prescription claims. Imbedded in this complex drug supply chain are a number of administrative and service fees. It is increasingly difficult to understand how or even if these fees are passed along to the patient consumer or insurance plans to reduce the cost of care.
Problem #3 The Centers for Medicare and Medicaid Services describe payment adjustments after the point of sale as Direct or Indirect Remuneration (DIR) “fees, payments or payment adjustments.”9-10 DIR fees hide the true cost of the drug. The fees are often tied to performance metrics including refill rates, generic dispensing rates, preferred product rate, audit performance/error rates and other so called quality measures and the community pharmacy is compared to other pharmacies in the network.11 Community pharmacies are not always aware or able to meet the metrics. Therefore, a PBM final reimbursement, tied to point-of-sale reimbursement is not known, often for months in advance. These fees are causing community pharmacies to lose revenue thereby contributing to not reaching the critical profit/loss equilibrium, resulting in the many community pharmacy closures mentioned above.
Are PBMs directly or indirectly contributing to the closure of community pharmacies? The answer is yes.
Stay tuned for Part 2 next week.
Mark A. Munger, PharmD, FCCP, FACC, is a professor of pharmacotherapy and adjunct professor of internal medicine, at the University of Utah, where he also serves as the associate dean of Academic Affairs for the College of Pharmacy.
- Rural Pharmacies are closing: Where does that leave patients? https://health.usnews.com/health-care/patient-advice/articles/2018-10-17/rural-pharmacies-are-closing-where-does-that-leave-patients Accessed 08/2019
- Lunds & Byerlys quits pharmacy business, closing 14 locations. https://www.bizjournals.com/twincities/news/2019/07/11/lunds-byerlys-quits-pharmacy-business-closing-14.html Accessed 08/2019
- Walgreens to close 200 US stores. https://www.cnbc.com/2019/08/06/walgreens-to-close-200-stores-in-us.html Accessed 08/2019
- Walgreens posts quarterly earnings beat as prescription drug sales rise. https://www.cnbc.com/2019/06/27/walgreens-boots-alliance-q3-earnings-2019.html Accessed 08/2019.
- CVS closing 46 stores: See the list of struggling locations that are going away. https://www.usatoday.com/story/money/2019/05/02/cvs-health-cvs-pharmacy-store-closing-list/3649440002/ Accessed 08/2019
- The Noble Community Pharmacy Profession: Is it in Jeopardy? https://www.managedhealthcareconnect.com/content/noble-community-pharmacy-profession-it-jeopardy Accessed 08/2019
- Munger MA, Gordon E, Hartman J, Vincent K, Feehan M. Community pharmacists’ occupational satisfaction and stress: A profession in jeopardy? J Am Pharm Assoc 2013;53(3):30-44
- Sanjay Gupta. What 'Medicare for All' means, politically and practically https://www.cnn.com/2019/02/25/health/what-does-medicare-for-all-mean/index.html Accessed 08/2019
- A Payer’s Gide to Managing Pharmacy Benefits: Understanding the Complexity of DIR Fees. http://blog.transparentrx.com/2019/03/understanding-complexity-of-dir-fees_30.html Accessed 08/2019
- Medicare Part D –Direct and Indirect Remuneration (DIR). https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect- remuneration-dir Accessed 08/2019
- Frequently Asked Questions (FAQs) About Pharmacy DIR Fees. http://www.ncpa.co/pdf/dir- faq.pdf Accessed 08/2019