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Have you ever stopped to think about how much your pharmacy earns when it dispenses your medication? It turns out that pharmacies, particularly independent pharmacies, sometimes wind up losing money on those prescriptions.
That’s largely due to the low insurance reimbursement rates middlemen, known as pharmacy benefit managers, or PBMs, pay pharmacies and the fees they charge to pharmacies after drugs are dispensed, according to John Norton. Norton is director of public relations for the Alexandria, Va.-based National Community Pharmacists Association, a trade association for independent pharmacies. PBMs include companies like Express Scripts Holding Co., CVS Health Corp.'s Caremark, and UnitedHealth Group Inc.’s OptumRx, and independent pharmacies say their practices may threaten the future survival of nonchain pharmacies.The PBM reimbursement and fee issues mean independent pharmacies have to find ways to diversify their revenue streams, Norton said. “These take-it-or-leave-it contracts with PBMs leave us powerless to negotiate better terms,” he told Bloomberg Law Feb. 26.
Independent pharmacies, more than 80 percent of which are located in population centers of 50,000 or less, have been on the decline and represent about 36 percent of the total U.S. retail pharmacy marketplace. According to the 2017 NCPA Digest, below-cost reimbursements and fees contribute to independent pharmacies’ gross margins falling by five percent over the past five years.
The Pharmaceutical Care Management Association (PCMA), a Washington, D.C.-based trade association that represents PBMs, didn’t directly address the financial impact of PBM reimbursement rates and fee practices on pharmacies in an email to Bloomberg Law. The group said the post-sale fees they charge pharmacies on drugs covered under Medicare, known as direct and indirect remuneration (DIR) fees, save the health care system considerable money.
“Direct and Indirect Remuneration (DIR) is a form of performance-based payment used by pharmacy benefit managers (PBMs) to promote value and quality and helps keep premiums down for Medicare beneficiaries,” the group said in the Feb. 26 email. “The price concessions that PBMs negotiate with drug manufacturers and drugstores and report to the Centers for Medicare & Medicaid Services as DIR are generating significant savings for the federal government and are projected to save enrollees in standalone [Medicare] Part D [drug benefit] plans $48.7 billion on their premiums over the next 10 years.”
But the DIR fees pose a huge challenge for pharmacies, Norton said.
Although both chain and independent pharmacies face these issues, independent pharmacies feel a much greater impact because more than 90 percent of their revenue comes from prescription sales, Norton said, while chain drug stores are less reliant on such sales.
“The reality is that losing money or breaking even on prescriptions is a fact of life for community pharmacies,” Norton said. “It makes running our businesses very challenging.”
Bloomberg Law contacted the Alexandria, Va.-based National Association of Chain Drug Stores. which represents chain retail drugstores, for comment on the issue but no one was available to respond.
“Reimbursement with all companies is based on a formula which is usually based on the maximum allowable cost (MAC) of the medication plus a small fee,” Andrew H. Fox, a staff pharmacist at CARE Pharmacies Inc. in Silver Spring, Md., told Bloomberg Law Feb. 22. “Sometimes it’s based on some cost minus a percentage plus a fee. In cases where the percentage is deducted and the medication is expensive, it will cost us money to dispense the medication.”
“This is especially true when we dispense a 90-day supply since we only get one fee and the percentage deducted brings the reimbursement to below our cost,” Fox said.
“The reimbursements we rely upon are based off of the maximum allowable cost list,” Norton said. “We don’t know the criteria for the rates, and the PBMs are often slow to update their list when prices rise, but nevertheless we continue to dispense the prescriptions.”
“What frustrates me most is low reimbursement by insurance companies,” Fox said. “They are behind in keeping up with price increases, so we are forced to accept reimbursement based on out of date pricing. Also, we get charged a fee for every transaction they adjudicate.”
“Cigna is particularly bad in that respect, charging transaction fees of $5 per claim,” Fox said. “When we dispense an inexpensive generic, there are many times where it costs us money to dispense medication.”
That hits independents hard because nearly 90 percent of the prescriptions they dispense are generic, Norton told Bloomberg Law.
Post-sale fees levied by PBMs on drugs covered under Medicare, known as direct and indirect remuneration (DIR) fees, also pose a huge challenge for pharmacies, Norton said.
“These are clawbacks from PBMs that happen weeks or months after a prescription is dispensed,” Norton said. “We literally don’t know what we will make on these prescriptions, but, nevertheless, we dispense them,” he said.
“Eighty-four percent of independent community pharmacy owners say they never know what their final reimbursement will be at the point of sale, and 77 percent say it takes four to 12 months before they learn what the final reimbursement figure will be,” Norton said. “The only realistic solution is to end the retroactive nature of DIR fees,” he said.
One drug on which independents have been losing money recently is the Roche/Genentech flu treatment, Tamiflu, Norton said.
“Our crazy flu season has led to a lot of patients looking for Tamiflu,” Norton said. Although NCPA members reported chronic underpayments for the drug, “the pharmacies eat the losses because of their concern for their patients and the reality that the window for this problem would be limited,” Norton said.
“PBMs make more money than anyone else, and they do very little for it,” Fox said.
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