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The number of retail pharmacies in Ohio last year dropped below 2,000, according to a data tool made public last month by the Ohio Board of Pharmacy. That’s worsening fears that especially in low-income rural areas, underserved people will find it even harder to get medicine, vaccines, and advice about how to handle chronic health conditions.
As a possible hint to how we got here, the dashboard also shows an inflection point that occurred almost a decade ago, between 2015 and 2016. That’s where the line charting pharmacy closures crossed over the one marking openings.
They would never re-cross, and some observers say the inflection didn’t occur in a vacuum.
“Those lines crossed for a reason,” said Dave Burke, a pharmacist, former state senator, and executive director of the Ohio Pharmacists Association.
He said that was about the time that increasingly powerful middlemen known as pharmacy benefit managers began imposing tighter and tighter requirements on the pharmacies in their networks and paying them less.
“There was the slow onset of (clawbacks), increasing audits, tighter network requirements, dropping reimbursements,” Burke said earlier this month. “The market changed during that time period and it consistently tightened up, probably even through today.”
The three biggest pharmacy benefit managers, or PBMs, now handle nearly 80% of the insured drug transactions in the United States. Each is affiliated with a major insurer as part of a Fortune 15 conglomerate — UnitedHealth Group, CVS Health, and Cigna-Express Scripts.
Strangle hold
The PBMs act on behalf of insurers to facilitate pharmacy transactions, in part by creating pharmacy networks and determining how much to reimburse pharmacies for the drugs they provide.
Critics say the system is rife with conflicts because the conglomerates own their own insurance companies and pharmacies. Meanwhile, their PBMs make non-transparent deals with their own affiliates and their competitors in both spaces.
The Federal Trade Commission has accused the companies of engaging in anticompetitive practices to inflate the cost of lifesaving drugs such as insulin, and of possibly steering purchases of the most expensive drugs to their own pharmacies.
Competing pharmacies also say that because the big PBMs control access to so many patients, they have no choice but to accept whatever deals they offer.
Indeed, through mergers and other maneuvers, the top-three PBMs have dramatically increased their control over time — from about 45% in 2009, to about 70% in 2016, to nearly 80% by 2021, according to an interim report released last summer by the FTC.
Burke, of the Ohio Pharmacists Association, said that the 2015-2016 inflection point came just as that market control was taking hold.
“I think you saw a lot of consolidation,” he said. “The big three PBMs started to emerge. We had dozens of PBMs in this space and we’re down to three, basically, and that consolidation started at that time.”
The Pharmaceutical Care Management Association represents big players in the PBM industry. It argues that despite all the criticism, PBMs have brought down drug prices by using their clout in negotiations with drugmakers.
On Tuesday, association spokesman Greg Lopes denied that the big-three PBMs were driving Ohio pharmacies out of business.
“It makes no sense that PBMs are putting pharmacies out of business, and blaming PBMs for pharmacy closures is not based on the facts,” he said in an email. “Not a single independent retail pharmacy closed last year in Ohio.”
Mass closures
The Board of Pharmacy dashboard says the number of independent pharmacies has been mostly flat in Ohio, showing a net increase of 37 stores between 2012 and last year. Meanwhile, small chains have declined by a net 39 stores over that period, and large chains have closed a whopping 330 stores over that period.
Antonio Ciaccia, a drug-pricing expert who used to lobby for the Ohio Pharmacists Association, said that by all other indicators, Ohio should have been adding pharmacies of all kinds over the past decade.
An alarming trend: Ohio pharmacy closures spike, openings lag
“Ohio’s population growth has been constant since then,” he said. “The amount of medications we take nationally has been going up constantly. We have an aging population in the state of Ohio, which means you see more medication use. By every other metric, one would assume that pharmacy need and access would be on the uptick. The opposite actually occurred.”
The loss of big-chain pharmacies has been occurring since late 2017, and then it accelerated in the middle of the pandemic.
Rite Aid last year filed for bankruptcy and said it would close hundreds of stores in Ohio and Michigan. CVS last year finished closing 900 stores nationwide. Already in the process of closing more than 1,000 stores, Walgreens earlier this month announced that it was selling itself to a private-equity firm. That raises the prospect that it will close many more — particularly in poor, underserved areas.
Part of the chains’ business woes surely stem from a difficult brick-and-mortar retail environment. People couldn’t or didn’t want to go to the store to buy things during the pandemic so they got used to getting them online.
Black box
But also besetting retail pharmacies were the health conglomerates’ business practices — stretching all the way back to the inflection point between 2015 and 2016 when Ohio’s pharmacy closures exceeded openings.
Ciaccia said that was roughly the same time that CVS’s PBM began to pay the state’s largest Medicaid managed-care provider, Caresource, on a basis similar to the one it was using with the other three managed-care plans it was serving.
Called “spread pricing,” CVS Caremark was billing the plans — and ultimately the taxpayers — for drugs at one rate and reimbursing pharmacies at a far lower one. UnitedHealth’s PBM, OptumRx, was doing the same thing with the one managed-care organization it served.
The contracts were non-transparent, and state officials, pharmacists, and the public were oblivious to the magnitude of the “spread.”
It was massive.
As complaints rose, the Ohio Department of Medicaid in 2018 got the PBMs to turn over their data for 2017. An analysis showed that in that year alone, the PBMs charged the state $224 million more for drugs than they paid the pharmacies that had bought and dispensed them.
Ciaccia said that CVS’s addition of Caresource to the spread-pricing scheme had a huge impact because it served more Medicaid patients than the four other managed-care organizations combined.
And of course, this was just in the government-sponsored Medicaid program. There’s no telling whether, or to what extent, the big PBMs were using spread pricing with private insurers.
Ohio later forbade spread pricing. But as the Medicaid spread was going on, CVS’s real-estate arm was sending letters to retail competitors acknowledging that reimbursements (including, apparently, from CVS’s own PBM) were bad and offering to buy them out.
At the beginning of 2019, CVS announced that it was buying more than 20 stores from the small Ritzman chain and closing all but a few. With the rest, it moved the prescription files to the nearest CVS stores — a practice it used widely in the years leading up to the pandemic.
When the financial turmoil of the pandemic struck, CVS’s “buy-and-close” tactic landed it in hot water with the Board of Pharmacy. The company last year paid the largest amount in Ohio history to settle claims with the board that the remaining CVS stores were so understaffed that they endangered patient safety.
For Ciaccia, Burke, and others, many of the problems troubling the pharmacy world can be traced back to the 2015-2016 timeframe, when questions about PBM consolidation and a lack of transparency began bubbling up. Perhaps not coincidentally, that’s when Ohio’s net number of closures began, never to reverse.
“The plans and the state had no visibility into what the pharmacies were actually being paid,” Ciaccia said. “As soon as that visibility went away, that’s when the floor dropped out. That’s when the pharmacy reimbursements all took a massive hit. Shortly thereafter, that’s when we saw the letters go to pharmacies saying, ‘We know that times are tough, you should sell your pharmacy to us.’ The pharmacy marketplace as a whole has not rebounded from that moment.”
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