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In 1977, Bob Schreiber became the owner of Burns Pharmacy in Morrisville, Pennsylvania. For most of his 42 years in the business, he turned a reliable profit.
But around 2016, Schreiber’s pharmacy reached an inflection point. While his business practices hadn’t changed, he was selling drugs at a loss. It was something he’d seen coming for years, and what ultimately drove him to sell the pharmacy in 2019.
Schreiber blames a sort of middleman in the drug supply chain known as pharmacy benefit managers (PBMs).
Over his time in the pharmacy business, those middlemen grew into some of the most powerful companies in the health care industry. They’re largely responsible for deciding what drugs are covered by health insurance plans, and how much pharmacies can sell the drugs for to people on those plans.
According to Schreiber and 11 other current and former independent pharmacists who spoke with the Capital-Star, those PBMs are responsible for effectively forcing them to sell drugs for cheaper than they can buy them.
For years, pharmacists have been warning that this trend could drive community pharmacies out of business. Now, they’re saying that time is here. Last year, more than 50 chain and independent pharmacies closed in Pennsylvania. This year already, according to the Pennsylvania Pharmacists Association, over 70 chain and independent pharmacies across the state have closed.
“It just got progressively worse,” Schreiber said. “The last two years that I was in business, we lost money, which I had never seen in my 42 years.”
Schreiber believes PBMs are squarely responsible, and in 2019 he sold his pharmacy. In the five years since, pharmacists say the trend of receiving less and less for the drugs they dispense has continued.
While some pharmacies are finding creative ways to work around PBMs, most independent pharmacists across Pennsylvania are facing the same decision as Schreiber: operate at a loss, or get out of the business.
“Pharmacies are the front line of medical care in many of these small communities,” said Pat Lavella, former President of the Pennsylvania Pharmacists Association.
For many patients, Lavella said, the fastest way to get quick and professional medical advice is to ask a pharmacist. It’s also where many patients get vaccines, directions for taking medications and more.
“If we go away, those questions don’t get answered and those problems don’t get treated,” Lavella said.
Prescription drugs on a pharmacist’s counter (John Moore/Getty Images).
Greg Lopes, a spokesperson for the Pharmacy Care Management Association, a Washington, D.C.-based PBM trade group, said Schreiber and other Pennsylvania pharmacists are wrong to blame PBMs.
“There are many factors for community pharmacy closures, however pharmacy benefit managers are supporting community pharmacies in rural areas, including Pennsylvania, through programs that increase reimbursements,” Lopes said. “PBMs recognize the vital role pharmacies in Pennsylvania play in creating access to prescription drugs for patients.”
What is a PBM?
Pharmacy benefit managers are contracted by insurance companies to handle the prescription drug side of health insurance plans.
Let’s say you’re insured, and you drop off a prescription for a brand name drug at your local pharmacy.
Odds are, you’re paying a copay that covers a fraction of what the pharmacy purchased the drug for. Behind the scenes, it’s your PBM’s job to ensure that the pharmacy is reimbursed for the rest of the cost of the drug, plus a small fee to account for the pharmacist’s time and other costs like storage and pill bottles.
If a pharmacy accepts your insurance, that means they have a contract with your insurance plan’s PBM that dictates exactly how much a pharmacy will be reimbursed for the drug you’re taking home.
Over time, pharmacists say those reimbursement rates have shrunk to the point that they’re actually losing money for a number of expensive drugs that they dispense.
And with the three biggest pharmacy benefit managers — CVS Caremark, Express Scripts and Optum Rx — representing an estimated 80% or so of all health care plans, independent pharmacists are often stuck with accepting a raw deal or dropping a large number of insurance plans and likely losing their customers that are covered by them.
Those three major PBM companies are also part of larger companies that own both competing pharmacy chains and health care plans. For example, CVS Caremark is the owner of America’s largest chain pharmacy, CVS, the largest PBM, Caremark, and in 2018 bought one of the nation’s largest health insurers, Aetna.
One independent Pennsylvania pharmacist’s contracts with Express Scripts, which were shared under the condition of anonymity out of fear of retaliation, showed rebates have been going down incrementally for brand name and specialty drugs every year for the last decade.
According to the pharmacist who shared their contracts, like Schreiber, 2016 was the first year those contracts required them to sell brand name drugs at a loss.
While brand name and specialty drugs account for only a small percentage of drugs sold, they make up a massive share of revenue because of their costs. Where many generic drugs cost pennies, it’s not uncommon for brand name drugs to cost into the thousands.
Lavella, for example, said at his Pittsburgh pharmacy, 85 to 90% of all prescriptions he fills are generic drugs, but brand name drugs account for roughly 90% of his revenue.
Rob Frankil, the executive director of the Philadelphia Association of Retail Druggists, said the Express Scripts contracts shared with the Capital-Star were unremarkable. He says they were exactly in line with what he hears from most pharmacists, and that the majority of pharmacies he represents began losing money for every brand name prescription they filled around the same time.
“Reimbursements are getting worse and worse, and they’re only going in one direction,” Frankil said. “I didn’t think it would get to be as bad as it is now.”
At the same time, PBMs are profiting on the other side of the pharmaceutical supply chain. They’re responsible for creating insurance plans’ formularies — the list of drugs covered by the health care plans they work with. In exchange for placing their drugs on those lists of covered medications, PBMs receive kickbacks from the pharmaceutical manufacturers.
Spokespeople for both Optum and Express Scripts replied to questions from the Capital-Star with statements about their commitment to working with independent pharmacies.
Prescription drugs behind the counter of a pharmacy in Edmonds, Washington. (Getty Images)
What can Pennsylvania do?
Though independent pharmacists have been warning about the increasing pressure for years, they say the long squeeze now has independent pharmacies closing at an alarming rate, with over 100 pharmacies closing in Pennsylvania since the beginning of 2023.
In spite of these warnings, lawmakers have done little to rein in PBMs, and even though there have been bipartisan efforts, it’s unclear if the legislature has any appetite for change.
“I’ve been listening to pharmacists in these rural communities tell me that they are losing money and they’re not sure how much longer they can stay open for,” said Sen. Judy Ward (R-Blair). “The reason they can’t make their business model work is that they’re not getting proper reimbursement from the PBMs.”
Ward is one of a small group of lawmakers from both sides of the aisle that has been pushing for PBM reform in the statehouse. Gov. Josh Shapiro has also said that he is interested in tackling the issue.
But in the past decade, only a couple of bills have been passed with any intention of reining in PBMs, and neither of them has had a major impact.
One of those bills aimed to curb PBMs’ ability to claw money back from pharmacies after prescriptions were dispensed. Another prohibited PBM contracts from containing what are known as “gag clauses,” which prevented pharmacists from speaking to patients in instances when paying cash would have resulted in getting cheaper drugs.
Now, Ward and a handful of other lawmakers have a pair of bills that they believe can make a larger difference. Those bills are supported by both the Pennsylvania Pharmacy Association and the Philadelphia Association of Retail Druggists.
Those bills would direct the Pennsylvania Insurance Department to create a way to process and resolve pharmacy complaints against PBMs. It would also be much more restricting of PBMs attempting to retroactively claw money back from pharmacies, and block a practice known as “spread pricing.” Spread pricing is a term for when PBMs bill a health insurance plan at one price for a drug, reimburse pharmacies at a lower one and then profit off the difference.
On its face, the bill would also stop a practice called “patient steering.” All three of the biggest PBMs have their own pharmacies or mail-order pharmacy services. Pharmacists have alleged that patients are sometimes pushed towards those pharmacies with lower copays or promises that it will otherwise limit their out-of-pocket prices.
While the Pharmacy Association and the Philadelphia Association of Retail Druggists support all parts of the bill, national advocacy groups like the liberal-leaning Brookings Institute have warned such measures may only serve as stop-gaps that PBMs will eventually find ways to work around.
One of the most important parts of the bill, however, that even the Brookings Institute supports, is the transparency element. PBMs would be required to report rebates and other payments from drug manufacturers in exchange for placing their products on formularies, and to explain where those rebates go.
As it stands, PBMs have very little oversight and transparency. PBMs’ contracts with pharmacies typically contain confidentiality clauses. One viewed by the Capital-Star even claimed exemption from disclosure under the Freedom of Information Act, even though the contract affects how state and federal funds are spent via Medicaid.
Even the Federal Trade Commission, which is conducting an antitrust investigation into the largest PBMs has struggled to get information. FTC chair Lina Kahn recently said that the companies weren’t cooperating.
Ultimately, the fate of the proposed legislation will come down to whether or not leadership in Harrisburg supports it.
Nathan Akers, Ward’s chief of staff, noted that one challenge to getting more PBM legislation passed has been the companies’ powerful lobbies. The issues are also so complex, he said, that it can be hard for lawmakers not already focused on them to wrap their head around.
“It’s easy for [PBMs] to say, ‘this bill will increase healthcare cost,’ Akers said. “And that’s something nobody wants to do.”
Pennsylvania Senate Majority Leader Joe Pittman (R-Indiana) did not answer a question about whether he would support Ward’s bill, but did say in a statement to the Capital-Star, “we are very interested in discussing ways to help ensure continued access to local pharmacies, which are equipped to respond quickly to needs of area residents.”
Reps. Jessica Benham (D-Allegheny) and Valerie Gaydos, (R-Allegheny) are sponsoring a companion bill in the state House.
Beth Rementer, a spokesperson for House Majority Leader Matthew Bradford (D-Montgomery) said they would “continue to review the bill.”
Cutting out the middlemen
In the meantime, more pharmacists have been looking for workarounds for PBMs.
Kyle McCormick, the founder of Blueberry Pharmacy in West View, is one pharmacist who says he found a way.
After seeing what PBMs were doing to other pharmacies’ business, he decided to open a pharmacy that bypasses the middlemen altogether.
“They serve no function,” McCormick said of PBMs. “They exist to make money … Their role is to provide the best return for shareholders.”
He dispenses strictly generic drugs — which often cost pennies, or fractions of pennies for pharmacists to buy — and only charges customers their actual cost, plus a fee to cover his expenses.
Without brand name drugs, he’s not dispensing anything at a loss, unlike his competitors that work with PBMs.
While McCormick says his business model is growing, he understands many pharmacies would struggle to make the switch.
Often, Medicaid plans have $0 copays, and Medicare plan copays can be lower than what McCormick charges. This means pharmacists in communities with a lot of customers relying on either program may have a hard time convincing their customers to pay more for their regular prescriptions.
“A Medicare recipient who sees a zero, $1 or $3 copay — that’s a significant increase for them,” McCormick says.
In some cases, however, McCormick says he can actually dispense drugs to patients for a lower price than they could get using insurance. That’s because PBM contracts with manufacturers can often dictate the copay on drugs they put on a plan’s formulary.
For patients who want to support pharmacies like McCormick’s, he runs a website where you can find pharmacies in your state operating with a similar business model.
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This report was first published by Pennsylvania Capital-Star, part of the States Newsroom nonprofit news network. It’s supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor Kim Lyons for questions: info@penncapital-star.com. Follow Pennsylvania Capital-Star on Facebook and X.
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