Small NC drug stores hope proposed rules help them survive

Some small-town pharmacists in North Carolina are hoping for new regulations that many say would protect them from losing money just by filling prescriptions.

At issue are transactions that happen behind the counters at more than 720 independently run pharmacies in North Carolina and at small drug stores across the country. The process is largely out of sight and unfamiliar to customers.

Pharmacies of all sizes buy medicines and rely on reimbursements from patients’ insurance companies to break even or make money on dispensing drugs. Chain stores often fare better because they have higher volumes of other merchandise sales which subsidize any losses on the pharmaceutical side.

The small, independently owned pharmacies stuck selling drugs below cost have little recourse to challenge the firms that control reimbursements, said Paige Thomas Houston, a third-generation pharmacist at the family-operated Thomas Drug Store in Dunn.

The system, Houston said, is causing some small drug stores to go out of business. Proposed regulations in Congress would benefit the nation’s more than 24,000 independently owned pharmacies by introducing new rules for pharmacy benefit manager corporations.

These PBMs, as they are called, are the middlemen that process prescription drug claims on behalf of insurance companies and Medicare. They decide which drug stores are in-network for customers and how much those pharmacies are reimbursed. Pharmacy benefit managers also act on behalf of insurance payers to negotiate prices and rebates from drug companies.

Generally, the proposed legislation would require PBMs to update their cost lists, explain the rationale behind their reimbursement maximums and offer an appeals process to pharmacists to recover losses when drug costs exceed reimbursements.

The number of independent pharmacies in North Carolina has actually grown about 6 percent over the past five years, according to the N.C. Board of Pharmacy. Some are finding other ways to make money, including medication therapy management where the pharmacists provide a variety of wellness and clinical services for a fee.

But that’s not an option for all independent drug stores. In Harnett County, four small pharmacies have shut down or sold out in the past two years, Houston said. She suspects a contributing factor was declining profit margins on prescription reimbursements.

“You’re going to continue to see that happen,” she said in an interview, adding that when independent pharmacies go out of business, customers lose access, choice and “personalized” service that may not be found at a larger store.

Houston described the contract options with PBMs as “take it or leave it” for small drug stores such as the one that’s been in her family since 1954.

“Take” the contract, and pharmacists brace for unpredictable changes in how much they pay for medicine and how much they’ll be reimbursed, she said. “Leave it,” and pharmacists can expect to see a drop-off in customers because they’ll be dropped from a pharmacy benefit manager’s in-network or preferred pharmacy list.

“I don’t hate PBMs, I just want a fair price,” Houston said. “I’m filing prescriptions and losing money. You cannot run a business and survive by losing money.”

That’s the scenario Houston and other pharmacists in U.S. Rep. Renee Ellmers’ district have described over recent years as small business owners ask for scrutiny of the PBM market.

Ellmers is the only North Carolina representative co-sponsoring the proposal for new regulations, called the Maximum Allowable Cost Transparency Law. The bipartisan bill was introduced last January by Reps. Doug Collins, R-Ga., and Dave Loebsack, D-Iowa.

No votes in more than a year

While the bill wouldn’t increase all reimbursements, the proposed change hits a key market for neighborhood drug stores: generic medications provided for seniors enrolled on Medicare.

Proponents of the change say requiring more frequent reimbursement data would allow small pharmacy owners to adjust their drug stocks accordingly and have a leg up when negotiating on wholesale pricing. Pharmacy benefit managers representatives, though, say such regulations would weaken their bargaining power to control costs for insurance carriers and Medicare.

Industry advocates for both the small drug stores and the PBMs said in interviews there’s no certainty the proposed change would pass. Because the bill would affect several federal health insurance plans, lawmakers referred it to four congressional committees to study. There’s been no vote since it was introduced more than a year ago.

Already though, the federal agency that oversees Medicare began this month requiring PBMs to update reimbursement data more frequently for pharmacies that dispense prescriptions for Medicare’s drug benefit, Part D. Eleven House members last summer signed a letter sent to Medicare officials, supporting the move to offer “great transparency to generic drug payments.” Rep. Walter Jones, a Republican from Farmville, was included.

The adverse affect of low generic drug payments on locally owned businesses and potentially customers is what led Ellmers to co-sponsor reform legislation last year, she told McClatchy in a statement.

Ellmers declined an interview on the issue. Her spokeswoman, Blair Ellis, said she was unavailable.

In the statement Ellmers said: “As a nurse and a legislator, it’s my responsibility to keep a patient-centered focus on healthcare, and we have to ensure that health systems have adequate time to adjust rates so that consumers and businesses are not forced to pay unnecessary costs. This legislation will go a long way in addressing that key concern.”

But the president of an advocacy group for pharmacy benefit managers said the bill Ellmers is backing would likely increase costs for patients if PBMs are forced to share with pharmacies the price deals their drug store competitors receive.

Big chain pharmacies often get larger discounts on medicine. Disclosing those details to smaller stores would undermine negotiations in a complex market where drug prices sometimes charge hourly, Mark Merritt, president of the Pharmaceutical Care Management Association, said in an interview.

Few regulations

Gaps exist between what small drug stores pay for drugs and the reimbursements, Merritt acknowledged. But he argued pharmacy benefit managers aren’t to blame.

Small pharmacies pay co-op-like companies to buy medicines in bulk and handle other tasks like filing claims with health plans. Drug stores struggling with negative reimbursements, Merritt said, may be getting a bad deal through their co-ops on wholesale prices.

But PBM critics say the corporations are opposed to sharing cost and price data because the information would expose the profits that pharmacy benefit managers make as the middleman between insurance payers and drug stores.

Currently, PBMs face few regulations and aren’t required to reimburse pharmacies based on real-time drug costs or to explain how reimbursement rates are set, Susan Pilch, a lobbyist with the National Community Pharmacists Association, said in an interview.

PBMs often issue inaccurate reimbursements using an unfair pricing “benchmark” that disproportionately affects small drug stores, Pilch said. The proposed reform isn’t a fix-all, she said, but “this is at least a good start.”

Still, Merritt contends pharmacy benefit managers are “standing between the patients and the drug companies” to keep costs stable. “We have our market sense of how much these drugs should cost,” he said.

Pharmacist Houston says she’d normally oppose “red tape” in the health care industry, but PBM pricing issues aren’t a “level playing field” for small drug stores.

At Thomas Drug Store recently, she held a spreadsheet showing recent prescriptions she’s lost money on – a routine administrative chore that reveals 32 negative reimbursements over a three-week period from just one of the many PBMs she’s contracted with. The store lost nearly $60 on a 90-day supply for a customer’s generic blood-pressure medicine. Another $28.82 on a generic pain killer.

Sometimes, reimbursements are higher than wholesale cost and stores make money. But it’s hard for a small business to keep up when negative reimbursements come too often and are too high to offset the profitable prescriptions, Houston said.

If a drug store owner chooses to not stock money-losing medications, the business risks losing customers, Houston said.

With most customers using insurance drug plans operated by PBMs, Houston says it’s not sustainable for her business to keep eating costs when reimbursements fall short.

Congressional reform “is our last-ditch effort,” she said. “We need transparency.”

This story was originally published January 30, 2016 at 9:00 AM with the headline "Small NC drug stores hope proposed rules help them survive."