Yves here. The new problems coming up with the Biden Administration scheme to limit Medicare drug prices is a predictable outcome of trying to find a simple path through a highly complex system you don’t fully understand. We’ve repeatedly written about obliquity, that in highly complex systems, trying to do seemingly simples things generally backfires. Companies that set out to maximize shareholder value perform less well than one that set loftier goals (BTW often including customers and/or product excellence, who’d have thunk it?).
The issue here is the ludicrous relations among drug companies, independent pharmacies, pharmacy chains, pharmacy benefit managers, and insurers, where squeezing anyone without much power is institutionalized. Why Uncle Sam has played along for so long is a direct result of the power of the health industry lobby, which wields more clout than banks or AIPAC. Matt Stoller has written on the price-gouging performed by oligopolistic pharmacy benefit managers.
It would seem that a way to get a better grip on this problem would be to force pharmacy benefit managers to disclose contracts with any entities as regards Medicare payments and compliance. How the pharmacy benefit managers can assert the right to confidential treatment in what are ultimately government agreements is beyond me. But we’ve seen the same secrecy playbook executed as successfully with private equity, and with a similar lack of justification.
By Susan Jaffee. Originally published at KFF Health News
Months into a new Biden administration policy intended to lower drug costs for Medicare patients, independent pharmacists say they’re struggling to afford to keep some prescription drugs in stock.
“It would not matter if the governor himself walked in and said, ‘I need to get this prescription filled,’” said Clint Hopkins, a pharmacist and co-owner of Pucci’s Pharmacy in Sacramento, California. “If I’m losing money on it, it’s a no.”
A regulation that took effect in January changes prescription prices for Medicare beneficiaries. For years, prices included pharmacy performance incentives, possible rebates, and other adjustments made after the prescription was filled. Now the adjustments are made first, at the pharmacy counter, reducing the overall cost for patients and the government. But the new system means less money for pharmacies that acquire and stock medications, pharmacists say.
Pharmacies are already struggling with staff shortages, drug shortages, fallout from opioid lawsuits, and rising operating costs. While independent pharmacies are most vulnerable, some big chain pharmacies are also feeling a cash crunch — particularly those whose parent firms don’t own a pharmacy benefit manager, companies that negotiate drug prices between insurers, drug manufacturers, and pharmacies.
A top official at the Centers for Medicare & Medicaid Services said it’s a matter for pharmacies, Medicare insurance plans, and PBMs to resolve.
“We cannot interfere in the negotiations that occur between the plans and pharmacy benefits managers,” Meena Seshamani, director of the Center for Medicare, said at a conference on June 7. “We cannot tell a plan how much to pay a pharmacy or a PBM.”
Nevertheless, CMS has reminded insurers and PBMs in several letters that they are required to provide the drugs and other benefits promised to beneficiaries.
Several independent pharmacists told KFF Health News they’ll soon cut back on the number of medications they keep on shelves, particularly brand-name drugs. Some have even decided to stop accepting certain Medicare drug plans, they said.
As he campaigns for reelection, President Joe Biden has touted his administration’s moves to make prescription drugs more affordable for Medicare patients, hoping to appeal to voters troubled by rising health care costs. His achievements include a law, the Inflation Reduction Act, that caps the price of insulin at $35 a month for Medicare patients; caps Medicare patients’ drug spending at $2,000 a year, beginning next year; and allows the program to bargain down drug prices with manufacturers.
More than 51 million people have Medicare drug coverage. CMS officials estimated the new rule reducing pharmacy costs would save beneficiaries $26.5 billion from 2024 through 2032.
Medicare patients’ prescriptions can account for at least 40% of pharmacy business, according to a February survey by the National Community Pharmacists Association.
Independent pharmacists say the new rule is causing them financial trouble and hardship for some Medicare patients. Hopkins, in Sacramento, said that some of his newer customers used to rely on a local grocery pharmacy but came to his store after they could no longer get their medications there.
The crux of the problem is cash flow, the pharmacists say. Under the old system, pharmacies and PBMs reconciled rebates and other behind-the-scenes transactions a few times a year, resulting in pharmacies refunding any overpayments.
Now, PBM clawbacks happen immediately, with every filled prescription, reducing pharmacies’ cash on hand. That has made it particularly difficult, pharmacists say, to stock brand-name drugs that can cost hundreds or thousands of dollars for a month’s supply.
Some patients have been forced to choose between their pharmacy and their drug plan. Kavanaugh Pharmacy in Little Rock, Arkansas, no longer accepts Cigna and Wellcare Medicare drug plans, said co-owner and pharmacist Scott Pace. He said the pharmacy made the change because the companies use Express Scripts, a PBM that has cut its reimbursements to pharmacies.
“We had a lot of Wellcare patients in 2023 that either had to switch plans to remain with us, or they had to find a new provider,” Pace said.
Pace said one patient’s drug plan recently reimbursed him for a fentanyl patch $40 less than his cost to acquire the drug. “Because we’ve had a long-standing relationship with this particular patient, and they’re dying, we took a $40 loss to take care of the patient,” he said.
Conceding that some pharmacies face cash-flow problems, Express Scripts recently decided to accelerate payment of bonuses for meeting the company’s performance measures, said spokesperson Justine Sessions. She declined to answer questions about cuts in pharmacy payments.
Express Scripts, which is owned by The Cigna Group, managed 23% of prescription claims last year, second to CVS Health, which had 34% of the market.
In North Carolina, pharmacist Brent Talley said he recently lost $31 filling a prescription for a month’s supply of a weight control and diabetes drug.
To try to cushion such losses, Talley’s Hayes Barton Pharmacy sells CBD products and specialty items like reading glasses, bath products, and books about local history. “But that’s not going to come close to making up the loss generated by the prescription sale,” Talley said.
His pharmacy also delivers medicines packaged by the dose to Medicare patients at assisted living facilities and nursing homes. Reimbursement arrangements with PBMs for that business are more favorable than for filling prescriptions in person, he said.
When Congress added drug coverage to Medicare in 2003, lawmakers privatized the benefit by requiring the government to contract with commercial insurance companies to manage the program.
Insurers offer two options: Medicare Advantage plans, which usually cover medications, in addition to hospital care, doctor visits, and other services; as well as stand-alone drug plans for people with traditional Medicare. The insurers then contract with PBMs to negotiate drug prices and pharmacy costs with drug manufacturers and pharmacies.
The terms of PBM contracts are generally secret and restrict what pharmacists can tell patients — for example, if they’re asked why a drug is out of stock. (It took an act of Congress in 2018 to eliminate restrictions on disclosing a drug’s cash price, which can sometimes be less than an insurance plan’s copayment.)
The Pharmaceutical Care Management Association, a trade group representing PBMs, warned CMS repeatedly “that pharmacies would likely receive lower payments under the new Medicare Part D rule,” spokesperson Greg Lopes said. His group opposes the change.
Recognizing the new policy could cause cash-flow problems for pharmacies, Medicare officials had delayed implementation for a year before the rule took effect, giving them more time to adjust.
“We have heard pharmacies saying that they have concerns with their reimbursement,” Seshamani said.
But the agency isn’t doing enough to help now, said Ronna Hauser, senior vice president of policy and pharmacy affairs at the National Community Pharmacists Association. “They haven’t taken any action even after we brought potential violations to their attention,” she said.
Where are we going?
And what am I doing in this handbasket?
Thanks Obama!
So great to have affordable care…
Trump derangement has done yeomans work keeping real issues out of the news…
Truly a disgusting country and it will get worse.
I’m sure CVS is making the appropriate campaign contributions as they march to monopoly.
Piketty and others got access to anonymized tax records and that helped peer into income distributions.
On a related theme, seeing some research on pharma records from manufacture to ingestion, value chains, transfer pricing, waterfall charts and similar concepts would be enlightening.
Show drug consumers where their dollar is going. Without that, everyone is a nameless revenue source with an actuarial value to be exploited. For fun, add in some of that Goldman analysis that showed how curing isn’t a sustainable business model. And show a few cures.
Next, while generating wish lists, tighten up the record-keeping on Congress to show 100% of who gets paid what by whom. Without some way to have greater transparency on the legislative end there isn’t much hope of the Critters ever voting against their enlightened, or coerced, self-interest. Truth-in-legislating, where everyone discloses to constituents just which entities are funding what.
Not very realistic, but why not dream big and get Critters to answer standardized questions? Not much is likely to happen for the benefit of individuals, families and communities without some first steps.
The price gouging is taking place at the supplier level, not the pharmacy. Similar to any retailer, if they can’t make a profit on a product, they will just stop stocking it. I don’t think that takes an advanced economics degree to figure out.
Neither we nor the article suggested the pharmacies are gouging. And you are wrong about fingering the suppliers, as in the drug companies, as creating the big problems with the Medicare effort to contain drug prices. The big sinners here are the pharmacy benefit managers, as we and the article make clear.
https://www.americanprogress.org/article/5-things-to-know-about-pharmacy-benefit-managers/
thanks Yves. I would say you can remove my above comment, but your response was so helpful that I wouldn’t want you to remove it. This is why I love this site as I can come in here thinking I know how something works, realize I was ignorant, and learn something. Much appreciated.
This problem has been going on for some time. It’s not about retail portions of business making money. It is by design intended to wipe out any independent pharmacies that still exist outside of the pharmacy benefits managers express scripts and cvs.
My sister is a career pharmacist at an independent pharmacy in St. Paul mn. They lose money on a larger and larger portion of their prescriptions. Again it is by design to kill independent competition. She did have an employer that closed like 10 years ago for this very reason. They decided it wasn’t worth it.
Just like about every industry, it has come down to 2 or 3 companies that control it and abuse their position with anti competitive tactics. The legislation that comes out of these conditions are called things like “the freedom choice act” or the “the equity in health act”.
I have learned that the name of the legislative act and the result of its implementation are always the direct opposite. So like no choice and no equity. Lobbyists are some really bad people. And they mostly work for those 2 or 3 companies left in various industries.
Sadly, this is one result from a system in which Big Food, Big Pharma, and the medical establishment collude to profit from creating chronic disease (CHD, diabetes, dementia, etc) by selling crap food on the one hand and then by “treating” (not preventing) the conditions with endless drug prescriptions.
And of course Big Pharma lobbyists have bought off the congresscritters, thus making common drugs in the USA far more expensive than elsewhere — insulin being the classic example.
Now the pharmacies are crying about the legislation that makes their drug profits lower. I didn’t see them complain about the ready made market given to them by the CONgress where Medicare was not allowed to negotiate prices with the pharma companies. It was profits all around. Happy situation.
I have no sympathy for the pharma companies and their supply chain. I feel that most drugs are unnecessary and are forced on the patient by physicians and hospitals. Most do not cure anything, they just form a steady flow of $$$$ to the pharmas.
Thank you Bush, the late senator Ed Kennedy,
Can someone explain why there is a nationwide shortage of medications such as ritalin and other stimulants? These medications have been around forever, and are mostly generic.
Yeah, there is no government owned pharma manufacturing/distribution.
All is manipulated with secret contracts with private PBMs and private pharma makers.
So small pharmacies cannot get contracts for the drug unless they pay too much to the monopolies to get any profit selling the drugs.